Delivery, financing woes drive Vestas, Suzlon losses

19 August 2010
Delivery delays, tight financing and regulatory uncertainty are key factors behind significant losses in the renewables sector, analysts and industry say.


Delivering its interim results this week, Danish wind giant Vestas blamed the sluggish global economy and shipment delays for its second quarter loss of €119 million ($153 million).

The loss contrasts with Vestas’ €43 million profit in the corresponding period last year and is €37 million down on the loss announced in the first quarter. Meanwhile turbine shipments were down 54% from second quarter 2009 to 283 turbines.

Delays in order deliveries to the US, Spain and Germany – which Vestas said will not be reflected in its 2010 results – pushed the company to lower its guidance for 2010. The company downgraded its forecast 2010 earnings before interest and tax margin to 5-6%, from its previous forecast margin of 10-11%. Expected revenue was lowered from €7 billion to €6 billion.

Losses also deepened for Indian wind turbine company Suzlon, which posted a second quarter net loss of 9.12 billion rupees ($196 million), down from a 4.5 billion rupee loss year on year.

The company attributed the decline to lower sales volumes and foreign exchange losses.

The solar sector also took a hit, with solar panel manufacturer Suntech posting a net loss of $174.9 million, down from a $20.6 million profit in the previous quarter and a $9.6 million profit in the corresponding 2009 period.

The New York Stock Exchange-listed company said the loss was due to one-off impairment charges related to the wrap-up of its thin film trial operation and costs associated with the reorganisation of silicon wafer manufacturer Shunda, which Suntech part owns.

Sean McLoughlin, a London-based research analyst at investment bank Piper Jaffray, said banks’ increasing focus on due diligence and risk assessment has caused delays in financing for renewable projects. H e said this is particularly evident in the wind sector, due to the large-scale and costly nature of many projects.

Uncertainty over support mechanisms, particularly in countries such as Spain, was also delaying development, he said, as investors hold back awaiting clarity over incentive policies.

Delays in order deliveries was particularly an issue for Vestas, with Christian Nagstrup, a senior equity analyst at Denmark’s Jyske Bank, noting: “They had very strong growth in orders, but they had expected more.”

Nagstrup also pointed to government budget deficits and subsidy uncertainty in Europe and the US as other factors dragging the renewable sector down.

“In general the order intake has improved dramatically this year compared to a very low 2009, so in terms of the activity level, it seems to be on the rise. But there’s still a lot of uncertainty,” he said.

Matt Kaplan, a Cambridge, Massachusetts-based senior analyst with Emerging Energy Research, said in the US the current low demand for wind and the declining price of power has filtered down to suppliers and made it harder for wind projects to come online.

Looking ahead, he said the US wind sector is likely to remain slow over 2010, with installations down “significantly”. He forecast improvement in 2011 with further momentum to gather in the following years. However, he also noted the uncertainty that exists over US energy and renewable legislation.

“While there’s a lot of hope for a more substantial recovery in future years, there are some important pieces that need to fall into palce to ensure that level of demand is sufficient to create a viable market for the future,” he said.

Charlotte Dudley