Bloomberg News

Siemens Wins $3.56 Billion Deal for Turbines Off U.K.

July 19, 2012

Siemens AG (SIE) won an agreement to supply 300 offshore wind turbines to Denmark’s state-owned utility Dong Energy A/S in a deal that industry analysts said may be worth as much as 2.9 billion euros ($3.56 billion).

Dong Energy will receive 300 of Siemens’ 6-megawatt machines and plans to install the first turbines at its Westermost Rough farm off the U.K. early next year, Carsten Krogsgaard Thomsen, acting chief executive officer at Fredericia-based Dong, said today by phone from Copenhagen.

The agreement envisions turbine installations beginning in 2014 once financing and further investment decisions are in place, making this a conditional order that doesn’t yet translate into revenue for Siemens. The “framework accord” shows developers preparing to meet targets set by the British and German governments, which are targeting a 10-fold expansion of sea-based wind farms.

Denmark’s Vestas Wind Systems A/S (VWS), the world’s biggest wind turbine maker, is the only manufacturer with an unconditional order in place this year.

“The deal is a vote of confidence for the 6-megawatt- turbine Siemens has offered in the U.K.,” William Mackie, an analyst at Berenberg Bank in London, said today.

“It should strengthen their position to expand in other markets around the world using these projects in the U.K. and northern Europe as a reference, and counterbalance some of the pressures in the onshore wind market,” Mackie said by phone.

‘Attractive Price’

The order for turbines to be installed in the U.K. from 2014 to 2017 could be worth 2.6 billion euros to 2.9 billion euros based on previous contracts, Bloomberg New Energy Finance wind analyst Fraser Johnston estimated.

“We believe we have got an attractive price which will support our work on developing offshore wind in the U.K.,” Dong’s Krogsgaard Thomsen said, declining to give a figure. Siemens declined as well to specify terms of the agreement.

Dong plans to make an investment decision on the Westermost Rough project this year, Krogsgaard Thomsen said. The park 8 kilometers (5 miles) off the Yorkshire coast in northern England has about 200 megawatts in capacity.

Siemens and Dong work together on about 2,000 megawatts of offshore wind projects including the 270-megawatt Lincs venture and the 1-gigawatt London Array, according to Dong.

Siemens, which installed the most offshore turbines last year, and Vestas, developing a 7-megawatt machine, dominate the offshore wind market.

‘Standard’ of Industry?

“We expect the 6-megawatt machines to become the standard for the offshore wind sector,” Eva-Maria Baumann, a Siemens spokeswoman, said today. She declined to comment on the valuation of the deal.

Larger turbines capture more energy, requiring fewer positions, saving costs on related components such as cables, Krogsgaard Thomsen said. Siemens’ machines, which don’t have gearboxes, require less maintenance, he said. Dong also has an agreement with Vestas to test its 7-megawatt turbine.

“Our target is to drive down the cost of offshore wind to about 100 pounds ($157) per megawatt-hour” for projects with final investment decisions in 2020, Krogsgaard Thomsen said.

Siemens will manufacture, supply and install the turbines. The agreement includes performance warranties and Dong must pay a fee if projects are cancelled, according to the statement.

Siemens shares rose 1.3 percent to 70.12 euros today in German trading.

To contact the reporter on this story: Stefan Nicola in Berlin at snicola2@bloomberg.net

To contact the reporter responsible for this story: Sally Bakewell in London at Sbakewell1@bloomberg.net


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