Wind Turbine Price Index Shows No Sign of Recovery

Wind turbine contract prices signed in 2010 for delivery in 2H10 and 1H11 continue to point to a significant decline compared to 2008 prices. This reduction amounts to some 15%, according to the third issue of the Wind Turbine Price Index (WTPI), published this week by Bloomberg New Energy Finance.

The analysis shows that turbine prices peaked at EUR 1.22 million/ megawatt (MW) for contracts signed in 2008 for delivery in 1H09. Nevertheless, current over-supply in the global market–mainly due to financing issues for wind projects–has led to a sharp fall in pricing for contracts signed in 2010 for delivery in 2H10 and 1H11, with average prices coming at EUR 1.04m/MW.

The Index shows no signs of a price recovery in the near future.

The Wind Turbine Price Index (WTPI), published twice a year, is based on confidential data provided by 22 turbine buyers–amongst them utilities/power players, independent power producers and project developers, as well as financial investors.
The sample included nearly 110 individual contracts totaling 5.6 gigawatts (GW) of contracted capacity–or 25% of the annual wind market. The sample includes contracts in 24 different markets, with 14 manufacturers represented in the analysis.

Key findings include:

  • Global turbine contracts signed in 2010 for delivery in2H 10 and 1H11 average EUR 1.04m/MW, down by 15% from peak values of EUR 1.22m/MW. This is close to the figure reported in the last WTPI, in December 2009. Contracts currently under negotiation for delivery in 2H11 show identical pricing at EUR 1.04m/MW, with no signs of a price recovery in the near future. Prices quoted in this report include the turbines plus transport to site (marine and overland) excluding VAT and all other construction costs.
  • Markets with exposure to electricity prices display the largest decrease–especially the US where power purchase agreement prices have softened and those agreements are hard to secure. Average pricing in the Americas for contracts negotiated in 2010 for delivery in 2010 and 2011 falls in the range $1.36m/MW-$1.48m/MW. Pricing in Eastern European markets also showed a significant decrease with average pricing coming slightly above EUR 1.00m/MW for deliveries in 2010, down 24% from peak values of EUR 1.32m/MW.
  • Several contracts for Tier 1 (leading) manufacturers with over-capacity in 2009-10 and large inventories showed values significantly below average–in some cases well below the EUR 1.00m/MW benchmark.
  • Full service operation and maintenance prices displayed a slight decrease, averaging EUR 29,000-35,000/MW per year for the first five years of operation, down from EUR 34,000-42,000/MW. More importantly, an increasing number of contracts are being agreed for 15 years of O&M, as manufacturers attempt to capture these revenues and make more competitive offerings.
  • Procurement officers for some of the main turbine buyers expect a further decrease in pricing in 2010 and 2011, of 4% and 1% respectively. They only expect price increases from 2013, a significantly more conservative attitude than in the previous report.

William Young, manager of the Wind Insight Service at Bloomberg New Energy Finance, said: “Expectations for turbine prices have never been so low, and the current market oversupply will continue for quite a while longer. That may not be great for wind turbine manufacturers, but the good news for the sector is that it will improve the competitiveness of wind with gas, coal and nuclear as a means of generating electricity.”

Several Tier 1 companies have announced plans to expand capacity production this year, including GE (NYSE: GE) and Siemens (NYSE: SI). The diversification of these two conglomerates allows them to ride out lower revenues. However, Danish firm Vestas (VWS.CO), which is solely involved in wind turbine production, saw its share price plunge last month following a worse than expected 2Q.

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