Oct. 4 (Bloomberg) -- Vestas Wind Systems A/S and Suzlon Energy Ltd., the two biggest wind-turbine suppliers by sales, are losing market share in Brazil because they don’t use enough parts made in South America’s fastest-growing market.
Neither company has landed a new deal in Brazil in more than 18 months as the country’s development bank BNDES shut off their access to state-backed debt that’s helped drive an installation boom. They didn’t get any orders after an August auction for 1.5 gigawatts of planned wind farms and may be excluded from two more bids this year, said Helena Chung, a Bloomberg New Energy Finance analyst.
Brazil’s introduction of local-content requirements to spur domestic manufacturing is reshaping its $2.75 billion wind industry. Vestas’s share has slumped by a third and Suzlon may become the first supplier to flee the market because of the rules. That’s creating an opportunity for companies that meet the mandates, including Alstom SA and Acciona SA.
“If you want to be in the Brazilian market you have to be certified by BNDES to sell equipment with the bank’s loans,” Christiano Forman, Acciona’s business development manager, said in a telephone interview. The Spanish company received BNDES approval Sept. 17.
Acciona is a new entrant to Brazil’s wind market. None of its turbines were in operation there at the end of the second quarter, and about 290 megawatts of equipment for wind farms were under construction or permitted. That gives it 3.1 percent of the country’s total wind market, according to Bloomberg New Energy Finance. Its products weren’t eligible for BNDES financing in the Aug. 23 auction and the company expects to participate in upcoming auctions in November and December, Forman said.
Vestas and Suzlon don’t meet Brazil’s local-content requirements, which means BNDES won’t provide financing to new customers. The two largest dedicated turbine manufacturers by sales were early suppliers to Brazil’s wind-power industry and have furnished the most equipment after Wobben Windpower, a Brazil-based unit of Germany’s Enercon GmbH, according to data compiled by Bloomberg.
Vestas complies with an old requirement allowing it to supply projects auctioned before December 2011 with BNDES debt and is “currently defining a plan to qualify” for a new requirement, a company official who asked not to be named because of internal policies, said in an e-mail. The Aarhus, Denmark-based company “is committed to the Brazilian market, and we look forward to serving our customers’ needs there.”
Vestas was unchanged at the close in Copenhagen today and has more than quadrupled this year. Suzlon slipped 1.5 percent in Mumbai and has fallen 65 percent over the year. The NYSE Bloomberg Global Wind Energy Index of 71 members has increased more than 30 percent this year.
Suzlon’s last new sale in Brazil was in January 2012, according to data compiled by New Energy Finance. The company also sold five wind farms in March 2012 that included turbines originally ordered in January 2011 by the developer, Portugal’s Martifer Group, which sold the projects to Suzlon in October 2011.
Vestas sold 254 megawatts of turbines to CPFL Energias Renovaveis SA for two Brazil wind projects in Rio Grande do Norte state in December 2011, the turbine maker said in a statement.
Brazil is promoting wider use of wind power, which is cheaper there than conventional sources of power. Wind farms are expected to produce about 9 percent of the country’s total electricity in 2021, up from 2 percent last year, according to the Ministry of Mines and Energy’s 10-year plan published in January. Total wind installations reached 1.08 gigawatts last year, more than any other Latin American country, according to a Global Wind Energy Council report.
Spain’s Gamesa Corp. Tecnologica SA got orders for about 315 megawatts of turbines in the August auction, the most of any supplier, according to a survey by New Energy Finance. The Zamudio, Spain-based company meets BNDES’s rules and had about 62 megawatts of turbines in operation in Brazil at the end of June, about 3 percent of the total market. With 848 megawatts under construction or permitted, its share is tripling to 9.8 percent, and these orders will probably boost that further.
Suzlon had 383 megawatts of turbines in operation at the end of June, about 18 percent of the market and the most of any supplier from outside Brazil. With 340 megawatts in construction and none permitted, its share is slumping to 7.8 percent.
The company probably won’t be able to regain compliance, said Elbia Melo, president of the Sao Paulo-based wind energy trade group Associacao Brasileira de Energia Eolica. The company is the most indebted dedicated turbine maker and failed to repay $209 million in debt in October, India’s largest convertible- bond default.
“Suzlon will definitely leave Brazil” because it can’t afford to build the local factories it needs to meet BNDES’s mandates, Melo said in a telephone interview. The facilities may cost as much as $100 million, according to New Energy Finance estimates.
Suzlon said Brazil is key for its strategy for South and Latin America and qualifying for the new BNDES requirements remains a priority, according to an emailed response to questions from Bloomberg News. The company, based in Pune, India, declined to elaborate on how it will meet them.
Vestas had 364 megawatts in operation, about 17 percent of the market, the second biggest supplier from outside Brazil. With 687 megawatts under construction or planned, its share is sliding to 11 percent. Wobben, based in Soracaba, Brazil, had the most turbines in operation with 37 percent of the market.
Vestas is boosting sales in the rest of Latin America, Chung said. The company sold about 632 megawatts of turbines in Central and South America, excluding Brazil, since June 2012 after BNDES halted financing. That’s about 75 percent of the region’s total sales, up from the company’s 15 percent market share in 2011.
BNDES halted loans last year for developers buying gear from turbine makers that didn’t get at least 40 percent of their components from local suppliers. That affected Vestas, Suzlon, Acciona, Siemens AG and Fuhrlaender AG, which filed for insolvency in September 2012.
The lender declined to comment on how its policies have affected Brazil’s wind industry when contacted by Bloomberg News.
BNDES tightened the rules in January and again in July. At least 70 percent of the steel plates and all the cement used in towers must now come from within Brazil. Suppliers will need to start assembling nacelles, the bus-sized assemblies that house the main machinery, locally by 2015, and should have already submitted a business plan for the facilities. At least one of the four main components of the hub must be obtained locally.
Alstom won orders to provide about 11 percent of the turbines to developers that won contracts in the August auction. The company was one of the first to receive BNDES approval and has landed the most contracts in Brazil since January 2012, according to Chung.
“Brazil is a key market for Alstom,” Marcos Costa, president of Alstom’s Brazil unit, said in a telephone interview. “Wind is the fastest-growing power source at the moment and we’re convinced it will remain that way.”
--Editors: Will Wade, Telma Marotto