Siemens and Shanghai Electric join for China offshore push
Shanghai Electric and Siemens will together invest €169.1m ($226m) to set up two wind-power equipment joint ventures that will merge both companies’ wind businesses in China.
The long-expected deal will see the Chinese company take a majority stake in a business targeting both domestic and global markets, with a focus on offshore products.
The venture will leverage Shanghai Electric’s existing wind-turbine manufacturing capacity and Siemens’ offshore technology.
Under the agreement, Shanghai Electric, China’s sixth-largest turbine maker, will invest €31m for a 51% stake in Siemens Wind Power Turbines (SWPT), a unit set up by the German group in Shanghai last year. Siemens will invest €34m for the remaining stake.
The business will be renamed SmartPower Wind Turbines Shanghai and focus on manufacturing turbines, as well as international sales, according to a Hong Kong stock exchange filing by Shanghai Electric.
Shanghai Electric will also put €53m into a new venture, with the tentative name of Shanghai Electric Wind Energy. Siemens will invest €51m and will own a 49% stake.
The second venture will oversee sales and maintenance of the turbines in the Chinese market. It can also sell Shanghai Electric brand turbines.
Talks between the two industrial conglomerates for a turbine manufacturing venture have been ongoing since 2009. The groups already co-operate in other areas and in June this year Shanghai Electric helped Siemens win a bid to supply an offshore wind farm in China.
Shanghai Electric, a second-tier player in China’s wind market with a 3% share last year, says cooperation with Siemens will bring it “advanced technology”, helping the company to develop offshore wind power projects “fast and safely” and to “achieve the peak of the domestic offshore wind power market”.
While China’s turbine makers have rapidly surpassed foreign companies in the local onshore market, experts say they still need foreign know-how in certain areas, especially in offshore products.
Siemens is the leader in offshore turbines in Europe, and Shanghai Electric plans to use this experience and reputation to target more than 25% of China’s nascent offshore market, its management told analysts in a briefing today.
Dave Dai, analyst at Daiwa Securities in Hong Kong, says the deal is “strategically positive” for Shanghai Electric, helping the firm focus even more on the offshore wind market, given the “very competitive” onshore market.
Shanghai Electric’s gross margins have dropped to 7.4% in the first half of the year, because of severe price pressure in the domestic market.
China is targeting 5GW of offshore wind-power capacity by 2015 and 30GW by 2020. However, many observers say the country’s offshore market will be challenging, with the first round of national concessions awarded to very low bids.
Shanghai Electric says as much in its filing, revealing that it plans to reach an agreement with Siemens over the “sharing of the expected losses of the Longyuan project”, which was won by Siemens in June.
The German company will supply 21 of its 2.3MW machines to the inter-tidal zone development in Rudong, Jiangsu province.
Industry sources say Siemens offered a price of 6,200 yuan ($974) per kw. The company has not confirmed this to Recharge.
Shanghai Electric also won a tender this year to supply 26 of its 3.6MW turbines to the next phase of the Donghai Bridge wind farm off Shanghai. It bid around 4,790 yuan per kw, not much more than average onshore bidding prices at the time (around 3,700 yuan).
Siemens started its wind turbine manufacturing business in China late last year, backed by a €5m investment. It began with blade manufacturing and added a nacelle plant earlier this year.
The German company also moved the Asia-Pacific headquarters of its wind unit to Shanghai in October. So far, it has recorded unaudited net losses of 116m yuan, according to Shanghai Electric’s filing.
The value of Sino-foreign joint ventures is a hotly debated topic among foreign companies seeking to do business in China. In the wind turbine sector, another German company, REpower Systems, is currently seeking to exit a Chinese joint venture after poor sales.
The leading foreign suppliers in the market – Vestas and Gamesa – both operate as wholly-owned foreign entities.