IN DEPTH: Siemens aims to stay top

Apple is often thought to be the world’s dominant force in mobile phones, but its iPhone only has an 11.7% share of the global market. Google, which is so dominant in web search that its name has become a verb, only has a 68.7% market share.

Last year, Siemens took 70% of the global offshore wind turbine market, and a whopping 81% in the first half of 2014.

Siemens’ outstanding figures are nothing new. More than six out of ten of all offshore turbines installed globally were built by Siemens.

But the German giant is now facing its stiffest competition in years, with rival companies pooling resources in a bid to gain market share.

Vestas, the global number two offshore, has teamed up with Japan’s financially strong Mitsubishi Heavy Industries to commercialise its 8MW V164 turbine; Spain’s Gamesa has announced an offshore joint venture with French state-owned Areva; while Siemens’ US arch-rival, GE, has just snapped up France’s Alstom, whose 6MW Haliade turbine already has an impressive order pipeline of 1.4GW.

So what is Siemens planning to do to hold on to its dominant position? The answer is as surprising as it is convincing — more of the same.

“We will continue to be the number one in having a proven product,” Siemens Wind chief executive Markus Tacke tells Recharge.

“That doesn’t mean that we will always have the biggest product first. But if you look at the product pipeline now, if you look at our [6MW] SWT-6.0-154, it is well-proven; it has seen a series of prototype installations... [and it] will be used to develop the most important offshore wind projects in the near future.”

In a high-cost, high-risk business such as offshore wind, having a proven product is a massive advantage. Siemens’ 3.6MW machine has been the sector’s workhorse for some time and was recently upgraded to 4MW. Its 6MW turbine — which is expected to dominate offshore in the short term — recently received A-type certification from DNV GL and is now being installed commercially at the 210MW Westermost Rough project in the UK North Sea.

In this respect, Siemens is way ahead of the pack. According to Feng Zhao, research director at Navigant Research: “There is no big challenge [from other OEMs] until 2017. [Until then] Siemens will still be the leader with a big market share.”

Siemens’ other important advantage, says Tacke, is its experience in the offshore wind sector — its unmatched understanding of the logistics process and its ability to optimise the costly installation techniques.

“If you look at the experience from recent wind farms — independent from the OEM — there is a significant risk profile in the installation process. And we are the ones with the most experience to minimise that risk for our customers,” he says.

Indeed, Siemens can provide clients with a unique turnkey service — offering itself as both turbine supplier and project contractor.

As Zhao points out: “[Even] Alstom-GE isn’t ready for that.”

Siemens even owns 49% of the world’s leading offshore wind installer, A2Sea, which has erected about half of all turbines in the water. But while this is undoubtedly an advantage, the German giant does not need to rely on the Danish firm. When Siemens signed its first offshore turnkey contract for the Netherlands’ 144MW Westermeerwind project in late July, it had already hired Ballast Nedam and Mammoet to install the foundations and turbines.

Another ace up Siemens’ sleeve is that it effectively owns a bank — Siemens Financial Services (SFS), which offers finance to energy projects. This can be instrumental in winning turbine orders.

In May, Siemens won a €1.5bn ($2bn) order for the 600MW Gemini wind farm off the Dutch coast, with its financing unit taking a 20% equity stake in the project.

And last year, German developer WPD awarded Siemens a €700m contract to supply and install turbines at the 288MW Butendiek wind farm — a project 22%-owned by SFS.

Siemens is currently the only offshore turbine maker with this financing ability, but GE also has a very active financing unit that may be able to help Alstom win orders.

Alstom already has a lot of orders for its highly regarded 6MW Haliade; Senvion has a commercially proven 6.15MW turbine; MHI-Vestas is now testing an 8MW prototype; and Gamesa-Areva is also planning an 8MW model. Siemens has to be careful it does not fall behind its competitors, at least in the medium term.

As part of its plan to stay ahead of its rivals, Siemens is quietly developing a 10MW turbine platform, D-10.

Tacke declines to reveal how far the D-10 programme has progressed, but says that there is no need to rush its development. “These [offshore] projects [that would warrant a 10MW machine] need to be developed; and if you talk about projects maybe with an installation beyond 2020, there are not too many [of those] currently.”

Until now, Siemens’ approach to turbine development has been to first establish a certain size in the marketplace, then update that platform before venturing into a larger series. The company has done that successfully with its benchmark 3.6MW machine, which is now available as a 4MW model. It plans to follow this practice with its 6MW turbine.

“We have a big, well-established pipeline for this machine, which is going into commercial projects now. If we look at the installation phase 2018 and beyond, we believe an upgrade of the SWT-6.0-154 will be available at that time, which will not be the D-10.”

Jacob Pedersen, senior stock analyst at Sydbank in Denmark, agrees that Siemens shouldn’t speed ahead with the D-10 development until it becomes clearer what government policies and support will be in place in the UK and Germany beyond 2020/2023, when the current regulatory frameworks expire.

Pedersen also points to another constraint for very large machines. “Siemens and Vestas probably have a concept [for a 10MW machine] ready. But will the industry be ready? This is really something ahead of schedule for the supply chain.”

A 10MW machine would mean increased logistics and transport challenges for installation vessels and ports — and the supply chain already has enough headaches with transporting 150- or 160-metre blades, or foundations that weigh 800 tonnes or more, he says.

“Instead of doing something fundamentally difficult, let’s look at optimising what we have. The industry needs to reach a level of industrialisation first,” explains Pedersen.

Siemens does not seem to need a 10MW platform to maintain its leadership position. With proven products, unmatched experience, financial strength and the ability to offer turnkey solutions, it will undoubtedly be in a far stronger position than its rivals over the next few years.

But it would be naive to believe that the scale of the company’s dominance will continue.

“Siemens has had a near-monopoly situation,” says Pedersen. “But even with clients happy, they would appreciate the fact that there are other players to create a bit more competition.

“Competition is heating up. Siemens’ superiority will diminish.”