(Corrects wind farms to all types in fourth paragraph.)
May 15 (Bloomberg) -- Siemens AG won a 1.5 billion-euro ($2.1 billion) contract for a Dutch offshore wind park that will also give Europe’s largest engineering company its biggest-ever energy service contract.
The order for the Gemini wind park, 85 kilometers (53 miles) offshore from Groningen, Netherlands, comprises 150 wind turbines with a capacity of four megawatts apiece, the Munich- based company said today in an e-mailed statement.
“We have considerably improved our service approach for this wind park,” Markus Tacke, the head of the wind-power division at Siemens, said in a telephone interview. The provision of equipment accounts for about half of the contract’s value, he said.
Siemens has tempered its willingness to bid for big-ticket work since Joe Kaeser became chief executive officer in August. Delays to projects connecting wind farms to the grid have led to charges topping 1.1 billion euros since 2011, prompting Kaeser to promise investors that the company would be more circumspect in future contract tenders.
The company signed a power transmission contract last month with TenneT Holding BV under more lenient conditions, intended to avoid a repeat of such charges, which have also burdened earnings at Zurich-based competitor ABB Ltd.
Siemens is also building a 160 million-pound ($268 million) wind turbine factory in northern England to improve its ability to serve the North Sea offshore wind market. Britain’s 3,689 megawatts of installed offshore wind capacity represent more than half of the 6,930-megawatts global total, according to Bloomberg New Energy Finance. A thousand megawatts is almost as much as a nuclear reactor produces.
Tacke expects Siemens wind power operations as a whole -- including onshore turbines -- to increase revenue by 5 percent to 6 percent annually in the next two to three years. Siemens has set the division, with sales of 5.2 billion euros last year, a profit margin target of 5 percent to 8 percent of revenue. That compares with a 6 percent margin last year, when charges for faulty onshore turbines held back profitability.
Still, offshore wind projects have been canceled as developers better understand the costs of the projects. Utilities have negated as much as 5,760 megawatts of planned capacity since Nov. 26, when RWE AG dropped its 1,200-megawatt Atlantic Array.
German offshore wind costs may fall as much as 39 percent by 2023, the Stiftung Offshore-Windenergie lobby group estimated in August. The cost at that time was 0.13 euros to 0.14 euros per kilowatt-hour.
The service element of the Siemens deal will last 15 years and includes a dedicated ship and helicopter.
“Service is an important element of the offshore wind industry’s commitment to bring costs below 0.10 euros per kilowatt-hour by 2020,” Tacke said.
The Gemini wind park is due to start operations in early 2017.
“Overall, it will almost triple the Dutch wind energy output that is currently there,” Gemini Chief Executive Officer Matthias Haag told reporters in Amsterdam today.
Investment in the Dutch offshore wind farm, in which Siemens’s financing arm holds a 20 percent stake, will total almost 3 billion euros. Canada’s Northland Power Inc. owns 60 percent of the group, with Dutch offshore engineering specialist Van Oord NV holding 10 percent and Dutch public authorities the remaining shares.
About 70 percent of the project’s funds were provided in the form of secured construction and term-debt financing from 12 banks, three export-credit agencies and the European Investment Bank, according to a statement yesterday from Northland. The debt has been hedged to give an effective interest rate of about 4.75 percent, it said.
The lenders include ABN AMRO Bank NV, BNP Paribas SA, Bank of Tokyo-Mitsubishi UFJ Ltd., Deutsche Bank AG, Export Development Canada, Natixis, Sumitomo Mitsui Banking Corp., Bank of Montreal, Canadian Imperial Bank of Commerce, Bank Nederlandse Gemeenten, Banco Santander SA and CaixaBank SA, Northland said.
The three export credit insurers are Denmark’s Eksport Kredit Fonden, Germany’s Euler Hermes SA and Ducroire-Delcredere SA from Belgium.
--With assistance from Fred Pals in Amsterdam and Alex Morales in London.