IN DEPTH: The Enercon enigma

Enercon is the Apple of the wind-power business.

Like the iPhone maker, the German turbine manufacturer was founded by a single-minded visionary, a genius whose energy and self-belief propelled the company from scratch to greatness, but then had to stand down for health reasons, hand-picking a trusted successor on his way out.

And like Apple, Enercon has taken its own idiosyncratic path, eschewing conventional business wisdom and producing high-quality, innovative products that are adored and envied in equal measure. Even competitors admit to Recharge — off the record — that Enercon has a technological edge.

Both Steve Jobs and Aloys Wobben left their companies in rude financial health. Yet whereas Apple’s dominance looks set to continue, Enercon’s position as the world’s fourth-largest turbine maker looks precarious. It has shut itself out of three of the world’s three biggest wind markets (the US, India and China) plus the entire offshore sector, and is heavily reliant on its home market of Germany.

But unlike Apple, Enercon is a privately held company. There are no shareholders who could throw their arms up in despair and demand answers from the board. There are no financial results for analysts to pore over. Indeed, the company is so secretive that one prominent German business magazine has compared it to the North Korean government.

Adding to its enigmatic qualities is the fact that last year Wobben transferred his sole ownership of the company to a new family foundation, the Aloys Wobben Foundation — an attempt to ensure that none of his children or grandchildren ever sell what he spent a lifetime building.

It seems to sum up Wobben’s managerial style, which has been variously described as domineering, stubborn and eccentric — and even bordering on paranoia, according to one source.

Wobben’s stamp on the company still looms large, particularly with his protégé Hans-Dieter Kettwig now at the helm (alongside fellow managing director Nicole Fritsch-Nehring).

Kettwig’s appearance at the Hannover Messe wind show in April was one of those highly anticipated industry events normally associated with Apple product launches.

With his slicked-back black hair and impeccable suit, speaking confidently and eloquently in his distinctive northern German accent, Kettwig seemed like a chic salesman as he quickly flicked through his slides, making the company seem impressive, yet revealing little in the way of detail.

For instance, Kettwig told the audience that the company invested €550m ($714m) last year, but did not specify what this money was spent on — or what the company’s income was. However, a briefly shown chart suggested that Enercon’s profits were several hundred million euros last year — an astonishing amount considering that rivals such as Vestas, Nordex and Suzlon posted huge losses in the same period.

Kettwig stressed that the company will continue Wobben’s long-term strategy of slow but steady growth. Enercon installed 3.5GW in 2012 — 38% of which was in Germany, with 83% in Europe — with Kettwig saying the company is on course for 3.8GW this year and 4GW in 2014. But as European leaders continue to rein in support for renewables, reaching such figures may be challenging.

Enercon does not have the grand ambitions of, say, Siemens. “Those rankings further up [above fourth place in the world], we don’t really want,” Kettwig told the Hannover audience. “It’s like in sport, if you’re up at the top constantly, you will get kicked from left and right. We’re in a healthy midfield and always try to watch from behind to see how things play out. Then we fetch what’s most beautiful.”

Kettwig gave the impression that all was going well, that there was no possible reason for concern, and his appreciative audience — consisting mainly of clients — applauded enthusiastically and rushed to congratulate him after he spoke.

Yet Kettwig appeared anything but confident earlier this year when the notoriously media-shy company issued a rather angry statement strongly condemning the German government’s plan to lower the country’s feed-in tariffs (FITs) — describing it as incomprehensible, not thought through and a killer of investor confidence in the wind industry.

“The planned course of action is a fatal step backwards,” he declared, “or do they really want to consciously choke the economic motor?”

Kettwig’s response showed just how profoundly worried Enercon is about any changes to the support schemes in Germany, according to an official at a competing wind company. Enercon has been so successful in Germany that more than half of all turbines installed in the country for each of the past four years have been Enercon’s.

The fact that the government’s plan to reduce its huge renewables bill did not become law (due to opposition in the German parliament’s upper house) was a relief, but probably only a temporary one. Whoever leads the country after national elections in September is likely to try again, in spite of the country’s planned energy transition away from nuclear power. Even the pro-renewables Green Party now says the current FIT levels for onshore wind are too high.

“Enercon’s exposure to Germany is extreme,” says IHS research director Eduard Sala de Vedruna. “If something [negative] happens there, it’s not good for them.”

Earlier this year, to cement its growing presence in Central and Eastern Europe, Enercon opened a tower factory in Austria’s Burgenland state, a fledgling renewables region where it hopes to reproduce the same market penetration as in Germany. According to one Austrian wind industry source, the company received a guarantee from state authorities that Enercon will be the sole provider of wind turbines to the region.

Still, the Austrian market, with its 1.38GW of installed wind power at the end of 2012, isn’t sufficient for a plant designed to churn out 200 towers a year. So Enercon also plans to deliver towers from the factory to growing Eastern European markets such as Hungary, Romania, Croatia and Poland.

It could be a risky bet. Renewables support schemes in Eastern Europe are increasingly coming under pressure. Romania, for instance, recently announced steep cuts to its green certificates system.

But Kettwig is not concerned. At Hannover, he pointed to a pie chart displaying all 32 countries where Enercon is present, calling it his “risk pie”. Given the geographic spread “we’re able to give a bit more or a bit less gas in certain countries at some point”, he said, before admitting that in Southern Europe “life isn’t quite simple”.

“More gas” could mean countries such as Canada or Turkey, where Enercon has been doing quite well recently. In Canada, the company plans to install 500MW both this year and next.

In Brazil, subsidiary Wobben Windpower has traditionally done very well — contributing 8% to Enercon’s global installed capacity last year — but it has struggled in the face of increased competition from international vendors and has not won a single contract since 2009. In a market where margins are low, Wobben turbines are expensive. And local developers want large rotors to improve cost efficiencies, but Wobben’s biggest offering has a diameter of only 82 metres, compared to 122 offered by Alstom.

Wobben is also struggling to meet the strict new local-content requirements, which would enable developers buying Wobben turbines to access cheap finance from the BNDES national development bank in future tenders. Rivals such as Alstom, Gamesa and Impsa have already qualified.

The company is also eyeing markets such as Taiwan or Japan. But as Sala de Vedruna says, the Taiwanese market is small, and all turbine makers are trying to jump on the Japanese bandwagon.

The vulnerability of many of Enercon’s target markets makes its decision to stay out of China, the US, India and the offshore sector — which together made up three quarters of the 2012 global turbine market, according to IHS Research — even more curious.

The reasons for staying out of the US and India, in particular, are eye-opening. In 1996, US turbine maker Kenetech accused Enercon of patent infringement relating to power electronics, and the US International Trade Commission ruled in the California company’s favour, banning Enercon products from the country.

Wobben responded by accusing the US National Security Agency of industrial espionage and passing Enercon’s technological secrets to Kenetech, which then patented them in the US. GE later took over bankrupt Kenetech’s patents and settled the dispute with Enercon in 2004, but the German company never returned to the American market.

Enercon also had its fingers burned in India. In the mid-Nineties it set up a local subsidiary called Enercon India Ltd (EIL) with India’s Mehra Group, taking a 56% stake in the unit, but allowing its junior partner to effectively control its board through managing director Yogeshi Mehra.

In 2007, Wobben filed a legal complaint against EIL, accusing it of economic mismanagement and concealing its true financial figures, but an Indian court ruled in the latter’s favour, preserving the Mehra family’s control. The Indian partners then successfully sued for the release of Enercon patents, allowing it to effectively become independent of its parent company.

The German press accused the Indian legal system of being prone to bribery, but EIL flourished. After continuing for several years as Enercon India, it recently changed its name to Wind World India, and last year became the country’s largest turbine supplier, with 454MW installed.

It is hard to imagine any other major turbine supplier losing out in this way, say industry insiders.

Enercon’s experience of struggling to hold on to its patents may partly explain its reluctance to enter China, a country where companies often seem keen on copying Western technology. One Enercon employee, who asks not to be identified, tells Recharge: “We’ve never been in China as the market is completely non-transparent.”

Some analysts believe that ignoring China and the US — which has had its own share of difficulties in recent years — has paid off, pointing to the example of Nordex, which is now pulling out of both markets after wasting millions trying to break into them.

And Enercon has never entered the offshore market. After negative results from internal tests in 2005, it decided that the sector was “too risky”, according to a spokesman at the German Wind Energy Association, BWE. (One analyst tells Recharge that Enercon nacelles are heavier than their rivals’, making offshore foundations more expensive.)

But the offshore sector is expanding massively, with up to 150GW planned across Europe by 2030. Even if Enercon decided to enter the offshore arena now, it is probably so far behind its competitors that it may be impossible to catch up.

This all means that Enercon’s idiosyncratic business model may fall apart if European governments continue to rein in their support. And if the European markets shrink, it is unclear where Enercon can turn to pick up the slack.

As Sala de Vedruna says: “Their diversification potential is drying out.”