New wind farm projects in Australia, Brazil and Mexico, renewed investment in global R&D and a spate of turbine technology launches – 2013 has been a busy year for GE Renewable Energy.
Bankrolled by General Electric (GE), the largest US supplier of wind turbines, and bolstered by the US Government’s decision to renew its lucrative 2.2ยข/kWh production tax credit (PTC) for energy produced at wind farms, the company has consolidated its position in its core domestic market while, at the same time, extending its footprint worldwide – culminating in October 2013 with a deal to supply eight GE 2.85-103 turbines for a 22.8MW wind farm in Apulia, southern Italy.
Underpinning this ambitious expansion drive is a company-wide procurement strategy aimed at maximising visibility across GE Renewable Energy’s increasingly sophisticated global supply chain.
"Due to the size of the industry, regional requirements and the complexity of the locations we are serving, the procurement process has moved from being very transactional to very strategic," says global sourcing leader Anthony Long. "We are looking for more customised components and there is a limited supply base that can provide these. GE Renewable Energy works together with suppliers to develop new products, improve quality and grow to meet demand."
Costly infrastructure
Turbine procurement can amount to 80% of the capital cost of a wind farm, and covers everything from components and contractors to special services, manufacturing materials and equipment.
Wind farms remain capital-heavy, particularly in terms of upfront costs. A 2MW, commercial-scale turbine can cost $3-4 million fully installed. Companies such as GE Renewable Energy rely on the procurement function to de-risk costly infrastructure projects by selecting reliable contractors, as well as specifying strict quality and safety control measures as part of the initial engineering, procurement and construction (EPC) contract.
Modern equipment such as GE’s Brilliant range of turbines – recently installed at new wind farms in Colorado, US, and New South Wales, Australia – is designed to satisfy an individual project’s needs in terms of a range of criteria including price, size, reliability, warranty and availability.
Specialist suppliers that have access to established supply chains, and can guarantee delivery of bespoke spare parts and keep costly downtime to a minimum, are therefore at a premium.
"GE Renewable Energy is an original equipment manufacturer (OEM) in the wind industry; however, we do subcontract many of our turbine components," explains Long. "When selecting a contractor, we always look for those suppliers that offer strong technical capability, quality, on-time delivery and the lowest landed cost.
"The company also looks to leverage a broad supplier base with multiple sources per component in order to complete and fulfil orders globally."
Flexible procurement
Unlike more mature sectors such as oil, gas and coal, which are able to leverage an existing pool of turnkey suppliers, the wind industry requires specialist skills and equipment that remain in relatively short supply, leading to supply chain bottlenecks, particularly in Europe.
GE has overcome the problem in two ways. Initially, it ramped up its M&A activity, purchasing an equity stake in suppliers with the specialist skills it required or buying them outright. More recently, the company has built or invested in service centres and training facilities in countries where it wishes to do business, giving it access to a network of specialist local contractors.
This flexible approach to procurement relies on striking a balance between a centralised system that can execute and report on purchasing activity across GE Renewable Energy’s global portfolio, and building profitable relationships with turnkey suppliers, engineers and technicians on the ground.
"We amend our procurement strategy based on the countries and regions where we do business," says Long. "Different local content strategies exist for us to understand and meet – a challenge in new regions such as the BRICS nations, for example, is always to find high-quality local suppliers to meet demand."
Strategic investment in Brazil
In Brazil, one of South America’s fastest-growing wind energy markets, local content rules dictate that turbine-makers must buy or make the majority of their main parts domestically in order for their customers to qualify for state-backed loans from the Brazilian Development Bank (BNDES).
The legislation saw several of GE’s rivals lose out in the most recent round of wind energy auctions in August.
GE, an early entrant in the Brazilian wind market, has invested $1.5 million in a string of wind services centres – the latest of which opened in the eastern state of Bahia in July – and may try to convince two or three international suppliers to establish manufacturing facilities in the country.
"As we have expanded globally over the years, we have worked together with suppliers to enter new regions," says Long. "There are many challenges to setting up a new supply base and manufacturing within new countries, and we have seen success by entering regions with established suppliers."
GE plans to use the Bahia facility, plus a second further north in Rio Grande do Norte, to build long-term partnerships with Brazilian technical schools. In addition to providing hands-on learning opportunities led by in-country trainers, GE will donate equipment, create new internships and make its internal training courses available to qualifying students.
In this way, GE is able to contextualise wind energy education and training in Brazil – the world’s fifth-largest wind energy market after China, the US, Germany and India, according to Bloomberg – as well as achieve its end-of-year goal of becoming the top wind turbine supplier there with over 1GW of installed capacity.
"The country has enjoyed tremendous expansion of the wind industry over the past few years," said Aldo Vacaflores, services leader for Brazil, GE Power & Water. "GE’s new service centre will help our customers put wind to work in smarter and more efficient ways while expanding the country’s corps of trained wind professionals."
Act global, think local
Brazil’s success story is indicative of a more generalised shift away from mature wind markets in the US and Western Europe towards a more competitive, globalised wind energy supply chain.
Wind turbine overcapacity in Europe, plus uncertainty over the scale of government subsidies in the US – manufacturers including Siemens and Vestas scaled back operations and started laying people off before a last-minute deal was brokered in Congress to extend the PTC subsidy – has coincided with rapid growth in emerging markets such as Asia, where US and European OEMs are keen to take advantage of lower costs and higher productivity.
In a new globalised marketplace characterised by rapid growth, industrialisation and innovation, visibility across the supply chain is a priority. For global players such as GE Renewable Energy, that means building up a network of dependable local suppliers that have the intellectual and financial capital to bid for contracts, thus creating jobs, increasing wind capacity and reducing costs.
"Moving forward, the big change in the procurement sector for the wind industry will be developing localised content suppliers in those places where wind energy is growing throughout the world," Long concludes.
