Vestas says it will lay off American workers if U.S. subsidy expires in 2012

Source: E&E, 11-10-11 • Posted: Thursday, November 10, 2011

Special to E&E


Vestas Wind Systems forecast lower sales and profit margins in the next four years and said it would lay off workers at its American factories at the end of 2012 if the United States doesn’t renew the renewable energy production tax credit.Denmark-based Vestas, the world’s largest wind turbine maker, said it is going through difficult market conditions, with slower demand growth, falling prices and diminishing profit margins.It abandoned its targets of €15 billion ($20.3 billion) in sales and a 15 percent profit margin per year by 2015, saying instead that it hopes to reach a “high single-digit” profit margin in the medium term if the U.S. market normalizes.

The United States grants an income tax credit of 1.2 cents per kilowatt-hour to utilities that produce electricity from renewable sources such as wind, solar and geothermal. With this incentive currently set to expire at the end of 2012, Vestas said it received “an extraordinarily large number of orders” from the United States for installation by the end of 2012 from customers who wanted to lock in the subsidy.

It forecast it would get orders of between 7,000 megawatts and 8,000 MW this year, but said that the situation “will change for the worse” if the tax credit lapses.

The company already plans to start cutting jobs worldwide in February next year, but it hasn’t yet said how many workers would be affected and at what plants. It said only that it wants to save €150 million ($203 million) per year through the layoffs. Vestas has 3,000 employees in the Americas, most of them in the United States, where the company operates four factories in Colorado.

2013 looms as a ‘very challenging year’

“Our cost level is too high, especially in a number of the markets currently seeing the weakest growth rates,” said Ditlev Engel, Vestas’ CEO. “Vestas overall must improve its ability to absorb adverse events, for example if the PTC tax scheme in the USA is not extended after the end of 2012.”

The expiration of the production tax credit would slash the company’s operating profit by 60 percent in 2013, according to Maurice Rosenthal, an analyst at ING Commercial Banking in Brussels.

“Vestas confirms our view that 2013 could prove a very challenging year,” Rosenthal said.

Vestas has expanded outside Denmark in the last five years to try to produce turbines closer to where they will be installed. With factories in China and the United States, 37 percent of its workforce is outside Europe now, compared to 16 percent in 2006. At the end of last year, Vestas had 23,000 employees globally, twice as many as in 2006. It cut 2,200 jobs in 2010, mostly in Denmark, while hiring in the United States and China.

Engel said Vestas must be able to quickly change its operations to respond to strong market fluctuations that are likely to characterize the wind market in the future.

“We believe that at least the Western economies are heading for even more economic difficulties in the years ahead,” he said. “This will affect Vestas and the rest of the wind power industry. We are the world’s largest renewable energy company, and we intend to emerge stronger from the financial crisis.”

Competition gets tighter, and so do banks

The job cuts announcement came less than two weeks after the company warned on Oct. 31 that it would miss its target for sales this year of €7 billion ($9.48 billion), forecasting instead only €6.4 billion ($8.66 billion) due to slow commissioning of a new generator factory in Germany.

Vestas reduced its shipments target to 5,500 MW for this year from 6,000 MW previously and said competition is fierce, while financing for projects is getting tighter, with banks requiring more documentation and taking longer to process loan requests. Vestas shares have fallen 90 percent since their peak in 2008.

The company said that it now expects revenue in the service business, which was €700 million ($948 million) this year, to grow faster than the sale of wind power plants. So far this year, 96 percent of contracts included a deal to service the turbines after installation.

One-quarter of the wind capacity currently installed in the world has been made by Vestas. Yet the company only commands 15 percent of the market share at the moment and wants to increase that by remaining the only global supplier of turnkey wind power systems.

“Vestas must be in a position to address the deteriorating global economic outlook,” said Bent Erik Carlsen, chairman of the board of directors of Vestas. “This does not change the board’s view that wind power remains a fundamentally attractive sector in the long term,” he added.