The merger of the onshore wind turbine businesses in Brazil of France's Alstom and the US's GE will have to adapt to different technical and industrial strategies, as the South American nation's market matures from being price-driven to one focused on O&M and turbine efficiency.
For now, Alstom's 3GW-plus delivery pipeline for the next five years and GE's 1,000-turbine order lineup are expected to remain separate, since each company offers different options for Brazil's fast-growing wind market, helping the merged operations to remain the market leader.
Yesterday rulings from competition authorities in the EU and US left the global deal that will see GE acquire Alstom's power assets on the brink of completion. "There is room for both GE and Alstom machines, since the design of each turbine makes them adapted to different site conditions in Brazil," said Alexandre Pereira, head of the Brazilian unit of German wind power consulting services DEWI.
Alstom has been selling its ECO122 platform with a 122-metre rotor, adapted to Brazil's strong, constant winds. It is said to be slightly cheaper on a dollar-per-megawatt basis than the 1.7MW, 100-metre machines that GE has sold up to now in Brazil – one of the smallest turbines in the country's market.
But even as the talks between the two companies were under way, GE was preparing to assemble locally a bigger, 2.3MW machine more adapted to Brazilian wind conditions, the first units of which will be delivered in January 2016. The merger will create an undisputed champion among the seven turbine suppliers active in Brazil, with around 30% of the 17GW contracted to be installed through 2019.
Next in rank is Spain's Gamesa with about 15% and Germany's Enercon, with around 8%. Such leadership was considered not to threaten competition because there is still plenty of room for growth as Brazil is set to top 27GW of installed capacity by 2024, said the country's antitrust court CADE, as it approved the merger in May with no restrictions.
"Much can change in the Brazilian market. Five years ago, Suzlon and Enercon were leading, now this has changed," said Pereira.
Aside from the fact that new players could still come into the Brazilian wind turbine market – with Switzerland's SwissEnergy considering opening a plant and rumors of an unidentified Chinese OEM entering the country – the current players will have to combine price with quality to keep pace in the 2GW a year sector.
So joining the two operations together means that GE will have to look for synergies between them – including the 300-person O&M teams that each company has in the country – analysts said, pointing out that it seems a new corporate strategy for Brazil wind hasn't been yet been fully thought out.
"This means that players will have to continue investing to show that the synergy will translate into competitive prices and quality," said José Roberto Oliva, energy specialist at law firm Pinheiro Neto Advogados.
Together, the output of nacelle assembly units of the merged company could easily top 40% of Brazil's total capacity, reaching a combined total of more than 800 machines a year, but the two companies have straddled Brazil's nascent market with different industrial strategies.
Alstom bet on a vertical structure, with two tower plants – one concrete and one steel – and a nacelle assembly unit in the country's windy northeastern region. That is located in Bahia where one of its main clients, Renova Energia, is building most of its wind projects. GE is less vertical, tapping local suppliers for such large components as towers and creating an assembly line in the industrial hub of São Paulo, over 1,000km away from wind districts.
As both emerge from the three-year local-content programme – each with their own supply chains developed – they will be keen to capture market opportunities to guarantee return on the heavy investments they have made. "Alstom's nacelle factory is better located and could be a potential bonus [for the merger] since GE could decide to produce there with relative ease," said Brian Gaylord, senior Latin America analyst at consulting firm Make.
But although the market is set to continue growing for the next decade at least, Gaylord believes that players will have to adapt to new conditions and the GE-Alstom consortium will have to make hard choices in the face of possible overcapacity, including due to the current economic downturn that could affect demand at auctions.
"Personally I believe there is room for only four to five players in the Brazilian market," he said. "Although demand will be high in the next two years, it's not sustainable in the long-run."
With around 3GW of contracts up for grabs – including about 1GW from failed Argentine turbine maker Impsa – fortune will favour machine-makers that can guarantee delivery within the 2019 deadline, as most are working at full capacity to take on new orders.
But in the long term, equipment suppliers will have to think through commercial contract details more thoroughly, as price and delivery capacity will now have to be combined with quality and good O&M support services as the Brazilian market matures.
"The choice of technology now involves security in supply of spare parts and strategies for O&M," said Pereira.
With 7GW in place, there are now enough turbines spinning in Brazil for developers to appraise performance and come to their own conclusions about which machines they will buy, he added.