Frank Sinatra almost sang it: make it there, you can probably make it anywhere. Vestas Wind Systems, the Danish manufacturer of wind turbines, is reaping the benefits of market share in the United States after a key subsidy was extended at the end of last year.
Revenue from the Americas is important. Including Canada and Brazil it was 40 per cent of last year’s total. Thursday’s second-quarter results showed business is going well. Vestas’ sales increased by 46 per cent to €2.6bn year on year. Its earnings margin before interest and tax and special items rose nicely. Its rival Gamesa of Spain trails well behind.
Better news could come from the US soon. In December the US Congress extended the production tax credit that subsidises construction of solar and wind power generation. The wind subsidy now extends to 2020, at which time it will disappear. US wind power capacity should on average rise by 9GW annually during the four years to 2020, thinks Macquarie. US installed capacity was 70GW as of last year.
A declining subsidy should push wind farm developers to invest as quickly as possible. One way to qualify for the credit is for developers to pre-pay 5 per cent of a project’s value as a non-refundable deposit. This adds certainty to Vestas’ project management and cash to the company’s coffers. Since 2012 the company’s net working capital balance has decreased from €233m to negative €1bn in the recent quarter. At competitor Gamesa (with much less revenue derived from the US) net working capital has declined but stayed positive. Vestas started paying a dividend last year and launched a share buyback programme on Thursday.
Availability of funding for infrastructure investment and a benign political environment are the foundations for growth in wind energy. Vestas can use its favourable position in the US to power its expansion. After that there will be plenty of other places to try to make it.
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