A tremendous growth in installed wind power capacity has in turn created a huge market for wind farm maintenance services. This market represents significant opportunity for independent service providers as well as for private equity investments. The wind industry has grown more than 20 times in theÂ past two decades with installed capacity reaching nearly 370
A tremendous growth in installed wind power capacity has in turn created a huge market for wind farm maintenance services. This market represents significant opportunity for independent service providers as well as for private equity investments.
The wind industry has grown more than 20 times in theÂ past two decades with installed capacity reaching nearly 370 GW by the end ofÂ 2014 from only 17.4 GW in 2000. This tremendous growth in installations has inÂ turn created a huge market for wind farm maintenance services. Traditionally,Â turbines are serviced under warranty contract by the turbine manufacturer for aÂ few initial years. Assuming a standard five year warranty period, round aboutÂ 160 GW of the global wind capacity is expected to be out of warranty sinceÂ 2014. Further, more than 40 GW capacity is expected to come out of warrantyÂ every year towards 2020.
IndependentÂ service providers are getting preference
The turbine service market has traditionally beenÂ dominated by the turbine manufacturers, mainly due to their warranty period andÂ technical knowledge. However, as the market is maturing and fleet is coming outÂ of warranty, many localized independent service providers (ISP) have emergedÂ into the market, offering a cost effective alternative to turbine OEMs. TheyÂ are either specialized service providers or component OEMs.
This growing market has already seen private equityÂ (PE) investments in several large ISPs of Denmark, Germany and USA since 2008.Â For example, in 2010, UpWind Solutions, Inc. raised â‚¬ 27.2 million from KleinerÂ Perkins Caufield & Byers and Mission Capital Group. Polaris Private Equity,Â in 2012, acquired majority stake in Connected Wind Services.
Parcom Deutsche Private Equity, subsidiary of ING bank,Â acquired majority share in Availon GmbH in 2008. The investments have proven toÂ be effective as revenues of Availon and Connected Wind Services have nearlyÂ doubled since investments. Volker Hichert, who represents the interest ofÂ Availon owner Parcom as Managing Director comments: â€œAvailon has exceeded allÂ our targets to date. Our expectation was 20 % annual growth â€“ it has been moreÂ than 30 %.â€
EasternÂ Europe expected to emerge
Over the last years, new wind markets have emerged inÂ Eastern Europe due to high potential and favorable policy scenarios. TheseÂ markets, nearly 10 in number, have collectively added about 8.2 GW since 2006.Â Nearly 80 % of this capacity is concentrated in Poland and Romania. The growthÂ trend is expected to continue in coming years, for example, installed capacityÂ in Poland alone is expected to reach 6.6 GW by 2020, according to Polandâ€™sÂ National Renewable Energy Action Plan.
To tap this opportunity from services new ISPs areÂ expected to emerge, as was the case in now mature markets of USA and Spain whereÂ the number of ISPs increased as the installed base grew and more capacity cameÂ out of warranty. ISPs from established markets like Germany and Spain haveÂ already started moving into nascent Polish and Romanian markets. For example,Â Deutsche Windtechnik entered Polish market around 2014 and has been successfulÂ in getting maintenance contracts from players like RWE. Availon, anotherÂ leading ISP in Europe, is also present in these emerging markets.
No doubt that the growing service market will drive theÂ growth of wind service providers, however, this growth must be carefullyÂ assessed by PE firms in the screening process itself to identify the targets.Â Gazelle companies may not necessarily be the ones who will grow in future. InÂ recent years, the landscape of wind services has been shifting from low value,Â labor based services towards high value, asset optimization services.
In addition to this, services like componentÂ remanufacturing, up-tower repairs and data based performance optimization are
increasingly becoming of high value to the asset owners. Hence, in order toÂ grow an ISP must have additional attributes in addition to growing revenue andÂ strong customer base.
Like every emerging market, uncertainties on futureÂ capacity additions are present of which both ISPs and PE firms should also beÂ aware. EWEA, in its report on wind growth in Eastern Europe identified theÂ biggest risk as lack of long term policy support. Christian Kjaer, then CEO ofÂ EWEA, said back in 2013: â€œSome countries such as the Czech Republic, HungaryÂ and Bulgaria are without stable renewable energy legislation. Investors andÂ banks will withdraw unless governments put in place long-term renewable energyÂ policies.â€ This would mean a slow growth of out-of-warranty market size in theÂ region post 2020.