China wind turbines turn as Europe cuts hit

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Government budget cuts will slow growth in the European wind power industry this year, but surging demand from China is helping advance the global push behind green energy, according to the world’s biggest wind turbine maker.

Ditlev Engel, chief executive of Vestas Wind Systems, said austerity measures in European countries were limiting government support for wind projects.

“The green agenda is still moving forward, but it is clear that in Europe it has become more challenging because of fiscal constraints,” he told the Financial Times.

Growth in new wind energy installations in Europe is forecast to shrink from 14 per cent in 2010 to 1 per cent this year, according to analysts at Citigroup.

The company’s share price has declined nearly 44 per cent over the past 12 months amid concern over the European outlook and intensifying competition from Chinese manufacturers such as Sinovel and Goldwind as well as western rivals including General Electric and Siemens.

The slowdown helps explain the recent decision by Vestas to cut 3,000 jobs – about 13 per cent of its workforce – with the closure of four production facilities in its high-cost home country of Denmark and another in Sweden.

“We had surplus capacity so we needed to look at where it is cheapest to manufacture,” said Mr Engel. “Even if you have to deliver turbines to Scandinavia, it is still cheaper to manufacture in Spain than in Denmark and Sweden.”

The cuts, announced in October, were part of broader efforts by Vestas to increase competitiveness amid rising component costs and increasing pressure from China’s fast-growing wind turbine industry.

“If you can make a turbine in Asia and deliver it to Europe at a comparable price to making it in Europe, we have a problem,” said Mr Engel. “So we have to make sure we can always compete with what we call ‘Asia plus freight’.”

Vestas has invested heavily in US and Chinese production facilities in a bid to broaden its geographic reach but remained dependent on Europe for about half its orders last year.

Vestas warned in November that, while 2010 was set to finish stronger than previously expected, revenues and profits were likely to be flat this year.

Gamesa of Spain also lowered its sales forecast for 2011, while banks including Barclays Capital and HSBC have downgraded growth estimates for the sector.

In addition to fiscal constraints in Europe, demand for wind turbines has been hurt by lower fossil fuel prices and credit scarcity since the financial crisis. Reduced political momentum behind efforts to tackle climate change has been another negative factor.

However, Mr Engel insisted the world would continue looking to wind as an alternative to fossil fuels in the long term and highlighted China among the strongest sources of growth. Vestas achieved record Chinese orders last year as the government poured tens of billions of dollars into green technology. “We have lost market share in China to local competition yet our sales are still growing because the market is expanding so strongly,” said Mr Engel.

Chinese wind power capacity has grown from 6,050 megawatts in 2007 to an estimated 43,853MW last year, surpassing the US for the first time, according to Citigroup. It is forecast to more than double by 2013.

Mr Engel said technological innovation was the key to staying ahead of competition, noting the company’s research and development workforce had increased from 300 when he took charge in 2005 to more than 2,000 today.

“We are at the end of the beginning in this industry. From here, it’s going to be driven by technology.”

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