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27 September 2019

Senvion looks to talk exclusively with Siemens Gamesa for survival

German wind turbine maker Senvion seems determined to prove the TS Eliot that adage about mankind ending not with a bang, but with a whimper. It is now in talks to sell off much of its lifeblood – services contracts across Europe.

If that happens, all that would be left is a project pipeline, much of which would be in new markets like India, and some intellectual property around its designs. This week it signed to agree exclusive negotiations with Siemens Gamesa for its Services and Onshore assets.

Senvion went into bankruptcy in the spring and this has now been has put this to the creditors committee set up to manage the bankruptcy. Few other companies could manage what are mostly existing German assets, and still chase these new overseas opportunities. Observers note that this would be a good deal for Siemen’s Gamesa, which has significantly smaller services revenues than its great rival Danish market leader Vestas.

Siemens Gamesa is understood to have around 90 GW of capacity installed, but only 58 GW of service contracts compared to Vestas 86 GW and according to Wood MacKenzie and Senvion’s services business would add another 15 GW to Siemens Gamesa’s contracts, closing up the gap.

The company’s involvement in India came when Senvion was acquired by Suzlon, an India firm which has also since filed for bankruptcy after selling off Senvion in 2015 to US-based investment firm Centerbridge Partners. Under Centerbridge it then acquired a small Indian turbine maker and tried to switch the focus from solely Europe to include India and the US.

In August Suzlon fell to bankruptcy by defaulting on loan repayments despite Vestas saying it was willing to pay €1 billion to buy Suzlon and in the end a similar deal may happen there, for what is about $280 million a year in service revenues, on an installed base of 15 GW and a pipeline of a further 15 GW split 6 GW in development for 2020 and 9 GW for 2021. India is way too price sensitive for these deals to make an attractive margin.

The Indian wind energy sector is highly competitive with government capacity auctions, local competition from Inox and Suzlon, with foreign specialists just joining the fray.

When Senvion filed for bankruptcy in April it had cash in the bank, but was bedeviled by a €400 million inventory rise on unfinished projects and its revenues had fallen from €1.3 billion to just €808 million for a comparable period of 2018. Essentially it was killed by the slow down in the rate of wind deals in Germany and the UK and increased competition in India.

Senvion still had a forward order book of €3 billion with €1 billion of that based in new markets like India, USA and Spain.

It must be expected that manufacturers and operators of wind turbines will come under financial stress and consolidate to larger and larger conglomerations, due to the industry consistently driving down costs for wind turbines over a decade long plummet in cost per MWh delivered.