Wind blows strongly towards long-term offshore services for Siemens

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19 February 2013, Nuclear, Solar, Wind

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The European wind services market is expected to grow from a value of EUR2.3bn in 2011 to EUR4.5bn by 2020. At present, independent service providers are fragmented, with minimal end-to-end capability. This clearly makes an interesting strategy proposition for original equipment manufacturers (OEMs), especially given the extensive growth prospects globally. Innovative technologies such as remote monitoring and weather forecasting diagnostics will prove to be very useful, given the complexity of offshore wind servicing particularly regarding weather constraints.

The 10-year, full service level agreement (SLA) undertaken by Siemens for the Butendiek offshore wind project marks the first big leap in Europe towards long-term SLAs. Siemens' customized service package, with the essential components of remote monitoring and diagnosing, scheduled and unscheduled maintenance, along with innovative logistics solutions and sophisticated weather forecasting mechanisms, has induced investor confidence. Large-project companies such as Vestas and Siemens have already benefitted by increasing their service margins and workforces. For instance, 96% of the orders realized by Vestas now come with service contracts, which increased the company's revenue from services by 21% in 2012 compared to the previous year.

Long-term SLAs are particularly beneficial for large projects due to their ability to lock in cash flows and balance out risk/return. OEMs should therefore focus on long-term contracts ranging from seven to 20 years to protect against independent service providers' market share gains. The share of independent service providers in Europe accounted for 25% in 2011, while OEMs accounted for 63%. The ongoing dominance of OEMs is continuously being challenged by a new set of specialized independent service providers, which are gaining traction. The key differentiator is price, where cash-rich OEMs have an added advantage in terms of economies of scale and managing risks. With wind service business expected to catch up with wind equipment business by 2030, OEMs will realize higher growth opportunities and increased profitability by cashing in on the long-term service contracts. / / @DatamonitorEN

Source: MarketLine

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