IN DEPTH: WEG storms into wind
When Servtec, one of Brazil’s leading wind developers, was searching for a new turbine supplier in 2012, there were six OEMs operating in the country — all well-established manufacturers, including Vestas, GE and Alstom.
Yet Servtec raised eyebrows by taking its own path, signing a supply deal with a Brazilian company that had never built — let alone installed — a single turbine.
To those in the know, it was not a huge surprise. The manufacturer in question is one of Brazil’s biggest industrial success stories, and already has ambitious plans to carve itself a large slice of the domestic wind market — as well as the nascent solar sector.
Electrical engineering giant WEG was established in 1961 and now operates in 20 countries around the world, with global revenues exceeding $3bn a year.
It has been manufacturing wind turbine components, including generators, for years — even supplying parts to some of its turbine-making competitors.
“We already manufactured all the components of a wind turbine, so it was a natural step to produce the whole thing,” says João Paulo Gualberto da Silva, WEG’s manager of wind power.
The market opportunity was clear. Brazil’s national power demand is growing at 4% a year and wind energy is taking the lion’s share of that annual 2GW-plus market. On top of this, WEG has a home-built advantage over its rivals when it comes to meeting the important local-content requirements of the BNDES national development bank. Its turbines already have an official local-content rating of 70% — a far higher share than any of its rivals.
“All we needed [to be able to build turbines],” explains da Silva, “was the [integration] knowledge and control systems.”
WEG entered the turbine-supply market in 2011 after licensing a 1.65MW design from Spanish manufacturer M Torres, and soon started negotiating an 11-turbine order from Servtec. But WEG quickly realised that the 1.65MW model was not large enough for the Brazilian market, and by August 2013 had signed a licensing deal with US-based Northern Power Systems (NPS) for a 2.1MW model. Servtec snapped up 11 of the NPS-designed turbines.
“[WEG’s] reputation in the Brazilian market reassured us about the quality and that they would deliver on time,” says Servtec wind boss Pedro Fiuza.
“Players are putting their best machines in the market and WEG has come in as a new agent with a turbine that is comparable with those of its competitors,” says Pedro Cavalcanti, president of consulting firm Multiempeendimentos, which carries out wind project design and turbine assessment for developers.
Although WEG’s machine is untested, he adds, the company is seen as serious and he believes it has a good chance in the market.
The manufacturer now has a total order book of 170.5MW from four customers — a considerable amount, but still a far cry from the 1GW pipeline of market leaders Alstom and GE.
However, WEG has already drawn up ambitious expansion plans — typical behaviour for an organisation that annually spends about 2.5% of its net revenue on R&D.
In November last year, WEG announced a R$160m ($72m) partnership deal with GDF Suez’s Brazilian unit, Tractebel, to develop a 3.3MW turbine specifically suited to South America’s strong, consistent winds, based on a new NPS design. As part of WEG’s investment, the company has partnered universities in Brazil and Germany on technological development of the machine. The first prototype — which will be built with 62-65-metre blades — is scheduled to be tested in the first half of 2016, with the model to go on sale in 2017.
“WEG has 29,000 workers and once a new technology is brought inside WEG, we can improve it,” says da Silva. “We develop what we can ourselves, but we have third-party contractors and consultants for more specialised development.”
WEG already produces transmission cables, transformers, substations and inverters, and offers EPC and O&M services to wind and solar developers. The company plans to be a one-stop shop for wind and solar developers — providing all the equipment and services needed to build, operate and maintain power plants.
He acknowledges that selling turbines might alienate competitors currently buying its generators and other parts, but da Silva is confident that its position as a leading supplier of electrical infrastructure will not be affected.
Although the Brazilian PV industry is still at the experimental phase, WEG already has a strong foot in the door, supplying equipment and services to five of the 18 small solar plants in operation or nearing commissioning, including Tractebel’s 3MW Nova Aurora plant — about 35% of the country’s installed PV capacity.
It is one of the few local suppliers of PV inverters and has plans to assemble modules — possibly buying in cells from China’s Yingli — and produce all the balance-of-plant equipment. As in Brazil’s wind industry, local content may play a huge role in Brazil’s solar sector.
WEG has even inaugurated its own solar research centre in Freiburg, Germany, and develop its first project — 400kW in Brazil’s Fernando de Noronha archipelago — for power-distribution company Celpe.
Market analysts believe that WEG is making the right choices by investing in the growth markets of wind and solar — although the sectors have so far made little impact on the company’s revenues.
“What WEG is doing is totally aligned with its long-term strategy, which includes diversifying products and markets,” says Bruno Piagentini, analyst at the São Paulo-based Coinvalores brokerage. “It is growing on top of the assets it already has in wind, which is a fast-growing market, while, in solar, the company is looking at growth in the mid- to long-term, in five to ten years’ time.”
He believes that revenue from renewables is likely to grow at a faster rate than from any of the other activities in the company’s generation, transmission and distribution division.
WEG plans to almost triple its global revenues to $9bn by 2020, with significant renewables growth expected domestically and internationally, including waste-to-energy (a sector that the federal government recently added to its auction process), smart grids and small-scale wind and solar.
“Our business is power, whether it be renewable or not,” says da Silva. “We focus on sectors where we see the opportunity of growth. The wind market already is a reality, it is becoming very competitive and has great synergies with the solar market. Solar has yet to take off, but we believe it will follow a similar path to wind.”