Summary: Chile has more than a gigawatt of installed wind capacity, the third highest in Latin America (after Brazil and Mexico). One vendor has achieved a commanding 68% market share – far more than it in any other market. How did this come about, and what lessons can be learned? A study in vision and management skills.
About the publisher: Carlos St. James is a leading advisor to energy investors, bankers and developers in emerging markets at Wood Group. He is also a board member of the Latin American & Caribbean Council on Renewable Energy (LAC-CORE) and publishes the Latin American Energy Review to help generate debate on the industry’s issues. His upcoming speaking engagements include:
- May 4, 2017: Opportunities to invest in renewable energy in Argentina, seminar hosted by the Ontario Investment Ministry; Toronto, Canada
- May 8-12, 2017: Mexico International Renewable Energy Congress/MIREC; Mexico City, Mexico
- May 22-25, 2017: AWEA Windpower Expo; Anaheim, USA
- June 13-15, 2017: LAC-CORE Clean Energy Finance Summit; Miami, USA
- June 26-28, 2017: PENREC: Peruvian Renewable and New Energy Congress; Lima, Peru
Vestas has been extraordinarily successful in Chile. Its leading 68% market share of wind turbine technology is far higher than it holds in any other Latin America market – which ranges from a meager 5% in Brazil, to 16% in Mexico (where competitor Gamesa has the biggest market share) to 24% across Central America. What has the company done to achieve so much in Chile? Most of its competitors have comparably good technology, and certainly competitors’ Chilean management is also of the first order — so what gives?
Success of this magnitude does not happen by chance or overnight, and I thought it might merit a brief case study in case it can be replicated elsewhere. Argentina’s wind sector is already taking off, but Colombia and Venezuela remain untouched. Every turbine manufacturer in Brazil needs to assess their role there, too.
First, some market facts. Chile’s national power sector has a total installed capacity of 23 gigawatts (GW). Almost 3 GW of that is comprised of solar and wind. (Chile is, incidentally, the only Latin American country to have more solar photovoltaic installed than wind: 1665 MW of PV versus 1299 MW of wind, most of it attached to the larger central SIC transmission grid.) Click on the following charts, tables and graphs to enlarge.
886 MW of those 1299 MW are Vestas turbines. That’s 431 turbines sold – most of them the V100 model made for Class II winds. (All hard data in this analysis is from publicly available information.)
The three next largest vendors include: Siemens at 9% market share; its recent acquisition Gamesa has another 8%, so the combined Siemens/Gamesa is solidly in second place (plus, Gamesa has another large farm coming online later this year); Acciona also has 8%. Goldwind follows with one wind farm and a 3% market share, and Envision with another farm and a 1% share. GE, the world’s second largest turbine manufacturer, doesn’t have anything operating yet. Below is a table with a breakdown of every wind farm in Chile in chronological order.
Vestas built Chile’s first wind farm in 2001 (Alto Baguales, 2 MW) as well as its largest (San Juan, 185 MW). Being first to market was an important part of their success. Striking an early and deep commercial relationship with Enel Green Power, a company that also committed significantly to the Chilean market, proved very valuable as well — although it wasn’t without heartache. After completing Chile’s second wind farm in 2007 (Canela I, 18 MW) – and its first for Enel – Vestas thought it had the next one, the 60 MW Canela II project, in the bag. But at that time Endesa/Enel was looking to acquire Acciona. In the end the acquisition didn’t go through, yet Acciona astutely made the most of the timing and swiftly closed the Canela II deal for themselves.
Another important differentiator: unlike many of its competitors, Vestas did not develop its own projects, focusing instead on staffing up properly (by 2010) and becoming invaluable to developers. By focusing on wind and siting (W&S) plus operation and maintenance (O&M) capabilities, it had reason to work closely with far more local developers and sponsors. This made it easy for Vestas to quickly address questions face-to-face, Latin style, and establish relationships. And by also making Chile a hub for parts, it further gave confidence to customers that this was a company committed to the local market.
Yet this wasn’t without its deviations. In 2010 it acquired the 90 MW Talinay Oriente project (for an exorbitantly high price) and performed its own engineering, procurement & construction (EPC). It managed to sell the project at a later date.
What about export credit agency financing? Was part of their success due to a big commitment from Denmark’s Eksport Kredit Fonden (EKF) to finance their sales? If you look at EKF’s global exposure by sector, almost 60% is focused on the wind industry. Surely they subsidized Vestas’ market penetration in Chile…
And yet the answer is No. EKF has financed only one of Vestas’ eighteen wind farms in Chile, and only recently at that. However, the Danish government has come to Vestas’ rescue more than once in past years when times were tough.
As anyone doing business in Latin America knows, professionalism and access to financing are two key traits if you want to improve your odds of success. And herein lies another of Vestas’ astute decisions. It not only hired supremely competent staff – notably, ex-Chilean Energy Minister Marcelo Tokman while he was in between government jobs – but they also set up an excellent project finance team. Providing financial engineering services for your clients also proved extremely valuable.
Possibility of a market glut
In late 2017 two more wind farms will come online: Punta Sierra, with 80 MW’s worth of Goldwind turbines; and Cabo Leones, a 115.5 MW farm using Gamesa turbines — which will make it the clear #2 vendor in Chile.
But wind has a deep bench of projects awaiting capital: no less than 8.6 GW of wind projects have received governmental approval to proceed, so investors have a lot to choose from. But it could be worse. You could be a solar investor, in which case you are looking at a current 1 GW of solar PV under construction plus an astounding 14.7 GW with governmental approval.
Regarding Chile’s Windiness
Since I came across the info, here in round figures:
- 6% of the total 1299 MW of Chile’s wind capacity have Class I (windiest) turbines. That’s three Class I wind farms: Gamesa’s 65 MW San Pedro II; Hewind’s 6.5 MW Lebu; and Vesta’s Cabo Negro 2.5 MW farm. All three in the southern Patagonia region, two of them in the deep south archipelago.
- 55% of installed turbines in Chile are Class II turbines; and
- 34% are Class III.
Will Vestas’ market share continue to increase in Chile? Nope. Not a chance. Competition has gotten stiffer than ever, and in addition to the existing Siemens/Gamesas, Nordex/Accionas, Goldwinds and Envisions already present and expanding, GE is coming on strong and Senvion is entering the market hard with financing packages. It is now an entirely different market and later entrants will also claim a piece of the pie. But those 8.6 GW of approved wind projects are both an opportunity and a threat; earlier entrants can select the best projects and will crowd out the lesser ones — ultimately killing them. Given the small margin for error, retaining top-notch engineering firms is critical to success.
Meanwhile, though, Vestas has a steady and long term cash cow on its hands from performing O&M on its 886 MW. Well done.
© Latin American Energy Review 2017
This report has been prepared by Carlos St. James for The Latin American Energy Review. The views expressed on this site are his own and do not reflect the views of Wood Group, its affiliates or business partners. This report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The report is based on information obtained from sources believed to be reliable but is not guaranteed as being accurate, nor is it a complete statement or summary of the securities, markets or developments referred to in the report. The report should not be regarded by recipients as a substitute for the exercise of their own judgment. Any opinions expressed herewith are subject to change without notice and The Latin American Energy Review is not under any obligation to update or keep current the information contained herein. The Latin American Energy Review accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this report. Additional information will be made available upon request.