Why three European turbine manufacturers dominate Mexico’s wind energy sector

Summary: Mexico is proving to be the most exciting wind energy market in Latin America. The country ended 2016 with 3870 MW of installed wind capacity in which three firms – Gamesa, Acciona and Vestas – have a combined 90% market share. A brief analysis of the possible reasons for such concentration.

About the AuthorCarlos St. James is a leading advisor to energy investors and developers in emerging markets since 2005 through Santiago & Sinclair, LLC. He co-founded and presided over the Argentine Renewable Energies Chamber from 2005-2011; has been a board member of the Latin American & Caribbean Council on Renewable Energy since 2010; and publishes the Latin American Energy Review in his free time.

He will speak at next year’s LAC-CORE Finance Summit to be held in June 2017 in Miami, Florida.

==================

Following last year’s auctions, Mexico is proving to be the hottest renewable energy market in Latin America (with Brazil on hold and Argentina struggling to gain traction). It has far more wind energy installed than solar (the reasons for Latin America’s initial preference for wind is explained in this analysis), and to the 3870 megawatts (MW) of installed wind energy capacity as of year end 2016, Rounds One and Two of the auctions approved an additional 1260 MW — in wind alone.

So while solar energy may be growing faster globally, Mexico will continue to give continued business to the wind sector for a long time.

At the end of 2010 only 601 MW of wind energy was operational in Mexico. Developers were typically the government (such as the Comision Federal de Electricidad, or CFE), or turbine manufacturers themselves who had to nurture the development of projects to help create their own demand. Until then two manufacturers owned the market: Gamesa and Acciona had a combined market share of 89% of all wind farms, and Clipper held the remaining 11%.

Since then Mexico’s wind sector has blown away everyone’s expectations with far more players looking for a piece of the pie.

Wind Energy Installed Capacity in Mexico, year end 2016.

Through the end of 2016, three companies, Gamesa, Acciona and Vestas — all European — have achieved a commanding 90% market share (see graph, click to enlarge). Gamesa remains everyone’s daddy with a 48% market share; Acciona’s progress continues very strong although with a slight loss of momentum (25% market share); and Vestas has been extremely successful in recent years (16% market share). All three coincidentally either manufacture or assemble in Brazil (but not in Mexico), an indication of their commitment to the region as a whole. Gamesa’s success is perhaps especially noteworthy: in 2000 just 5% of its sales were outside of Spain; it is now almost 100%. They have certainly learned how to succeed in Mexico.

Through the end of 2016, three companies, Gamesa, Acciona and Vestas have achieved a commanding 90% market share of the wind turbine sector.

But why is this? Are these three companies so much better in Mexico than their competitors? Hasn’t the North American Free Trade Agreement (NAFTA) helped make U.S.-built turbines sufficiently attractive – and could possible upcoming changes to NAFTA affect the market in the future? If General Electric has a 25% market share of the Mexican gas sector and a deep understanding of local energy markets, shouldn’t they have the muscle and know-how to win some renewable bids for their turbines? And finally, if China concentrates five of the ten largest wind turbine manufacturers in the world, why haven’t they gotten at least a toehold in this very appealing market until recently?

Local manufacturing isn’t the answer: no large-scale turbines or towers are made in Mexico, so there is little local content advantage. NAFTA serves its purpose in reducing import duties, but then again, Mexico has free trade agreements with about 45 countries, so that isn’t too great an advantage. What’s more, not a single turbine from Vestas’s facilities in Colorado, USA — which was built for production tax credit purposes  — has been sold into Mexico.

Onshore Wind Turbine Rankings for 2015 by Commissioned Capacity. Source: Bloomberg New Energy Finance

As seen on this graph of the ten largest wind turbine manufacturers of 2015, GE has been very successful selling turbines in the Americas –but strictly in the U.S., where it has a 41% market share. [Click on graph to enlarge. Red indicates sales in Asia; blue, in the Americas. The figures indicate gigawatts (GW) commissioned in 2015]. Acciona itself was the 16th largest turbine manufacturer in the world in 2015, and when coupled with its recent merger with Nordex (14th largest), should appear in the top ten listings for 2016.

China’s five largest manufacturers built 18 GW of the more than 40 GW of wind commissioned worldwide in 2015. That’s a 45% global market share for Chinese manufacturers. Yet they have all struggled to gain access to Latin markets. Goldwind has been trying for years. It stumbled in Mexico but has had some success in smaller markets like Panama, Chile and Ecuador, while Envision’s new team is making inroads across the region (notably in Chile and Argentina), and won in Mexico’s recent auctions with a 90 MW project in Yucatan state after acquiring a pipeline of projects. But time will tell if they can navigate the many complexities of the Yucatan market. (An analysis of the first and second round Mexican auctions will be coming later this month.) Also, more on the Chinese push into Latin America can be found in this analysis.

A quick sidebar on China

Chinese turbine manufacturers struggle to sell successfully outside their own region unless they combine it with some kind of financing package. This is perhaps why we see them more successful in markets with difficult access to capital (thus, for example, they seem to have found a sweet spot in Argentina, as discussed here). But this is a twisted strategy that will not lead to success in the long run. China is not making the most of its abundant liquidity to help gain inroads into bigger markets such as Mexico.

But let’s get back to Mexico

Perhaps one reason for the success of Gamesa, Acciona and Vestas lies in the state of Oaxaca, where Mexico’s most wind blows.

Wind Resource Map of Mexico (edited). Source: AWS Truepower

The Tehuantepec Isthmus off the coast of Oaxaca (see red circle on wind map) has the only Class 7 winds in the country. Class 7 wind is defined, among other things, as having over 8.8 meters/second (m/s) wind at fifty meters height. The wind turbines best designed for that level of windiness — plus its turbulence and gust variables — are Class I turbines, which are designed for annual average maximum speeds of 10 m/s.

Wind Resource Map of Oaxaca. Source: National Renewable Energy Laboratory (NREL)

This is where Mexico’s wind industry was born. To quantify it: of the 601 MW of installed capacity through 2010 mentioned above, fully 93% was installed in Oaxaca. Even today, almost two-thirds of all Mexican wind farms are located in Oaxaca.

So while no one can doubt the prowess of these three leading firms — and their local management teams are indeed very good — the question isn’t necessarily about marketing or price or quality. It is about product: Which companies manufacture Class I turbines? Gamesa, Acciona and Vestas. As the country’s wind projects expand beyond Oaxaca, other turbine classes will be in greater demand, opening the door for other manufacturers – as we will begin to see when the 2016 auctions’ projects begin to select vendors.

The expansion beyond Oaxaca has been helped because of significant pushback by local communities within the state after the first flush of wind farms. Perhaps most noteworthy were the events surrounding the giant Mareña wind farm, a 396 MW project with a stellar list of investors and bankers backing it, and with FEMSA/Coca-Cola as off-taker. Worse, the all but defunct project was so advanced that Vestas’ turbines were already sitting at the nearby port. It resulted in a very painful loss to investors.

And it had an effect: in the 2016 auctions successful Oaxacan projects were conspicuous by their absence, with only one wind farm winning in that state; they were also affected by increasingly tight transmission capacity constraints in the state. Geographically speaking the big winners were the states of Yucatan and Tamaulipas — so much so that the local joke was that the government effort should have been called the “Yucatan auctions”.

Poster map of Mexico’s clean energy sector coming

We have commissioned a series of detailed, colorful poster-sized maps of Latin America’s clean energy sector on a country-by-country basis. Each map shows the country’s transmission grid and its renewable energy facilities, using Santiago & Sinclair’s extensive database of information. These should prove to be very useful tools for decision-makers — and look very good framed in office or home.

In the case of Mexico, a couple maps will be available initially at tempting introductory prices: one showing the locations and details of the 74 winners of the first and second round energy auctions last year, while a second map has the 3870 MW of currently operational wind projects — and much more info. We’ve also set it up so that sponsored maps can be ordered at very low additional cost, for example with your company’s logo and corporate info, showing only the projects your firm and clients are involved in. Please write to info[@]santiagosinclair.com with subject, “Mexico Maps” for more information.

Cheers to the new year!

© Latin American Energy Review 2017

About the AuthorCarlos St. James is the Managing Director of Santiago & Sinclair, LLC, a US-based financial advisory firm focused on renewables in emerging markets. Carlos co-founded the Argentine Renewable Energies Chamber (CADER, by its initials in Spanish) and was its first President until 2011; is a board member and was elected the first President of the Latin American & Caribbean Council on Renewable Energy (LAC-CORE); is the founder and chairman of the Middle East-Americas Energy Council (MEAMEC); and founder and publisher of The Latin American Energy Review. His private sector background is focused primarily on finance and bringing together stakeholders so that deals get done. He advises governments on renewable energy policy, counsels private equity firms seeking to enter the region; and brings together stakeholders, including investors, for new energy projects.

He obtained his undergraduate degree in international economics from DePaul University and his masters in international relations from the Fletcher School at Tufts University.

He can be reached at cstjames[@]santiagosinclair.com.

Please follow and like us:

Leave a Reply

Your email address will not be published. Required fields are marked *