GE has finally taken the step to buy the dominant independent supplier to the industry, LM Wind Power, from its UK private equity owners after following a range of different strategies for blade design and supply over the last decade or so. Until now, GE has been unusual among leading turbine suppliers in not having an in-house supplier of blades.
So what are the consequences? Obviously, GE is likely to increase the share of its blades that it sources from LM. With LM already its sole supplier of blades for its Halide turbine, not a lot has changed there.
We don’t expect the dynamic between LM and its other clients to change that much. GE has a strategy to buy from outside of the group, avoiding the cosy (but potentially dangerous) practice of ‘selling to itself’. As a result, GE companies remain outward-focussed. Also, LM’s clients won’t be that motivated to change. The smaller turbine manufacturers have few options beyond LM, because no other independent suppliers have the product range and global reach. These smaller manufacturers aren’t much of a threat to GE’s position as a leading turbine supplier. The larger players use LM more as a route to reducing capital cost and risk for supplying specific types of blade. Some already have a mature corporate relationship with GE, separating GE’s component supply capability from its competitor as a turbine supplier. In the past, however, we have seen other examples of where a GE acquisition was a contributing factor to the end of supply agreements, for example between Converteam and Siemens.
And for LM, well it has for years done a heroic job of squeezing cost from its mainly glass-fibre and polyester resin blades. It’s generally evolutionary approach to design and manufacturing improvement is similar to that of GE with its workhorse, high-volume onshore turbines over the last decade. In other aspects of culture, however, some in the Danish-based LM may face some interesting challenges fitting in with ‘the GE way ’. GE’s financial strength, however, I’m sure will have a significant impact, as for a while, LM has struggled with a relatively weak balance sheet in a capital intensive part of the industry.
Last year, GE bought the modular blade technology player Blade Dynamics. We don’t see any clash between these investments. The Blade Dynamics technology still has a way to go before it could be used in the volumes that GE needs, so running with more LM technology, proven in volume, over the next few years fits in just fine. LM has made some recent good progress with hybrid carbon blades, but it will benefit from further introductions of technology for larger blades. That is when we are likely to see some of the innovations from Blade Dynamics incorporated.
Often one deal can start a chain reaction. What will be interesting to see is how some of the smaller and less international independent rivals to LM jockey for the vacated title of leading independent wind turbine blade supplier.
The LM deal, together with the takeover of Alstom, shows GE’s intent to be one of the wind industry leaders, especially onshore. When it first entered the market, all those years ago it made public its intent to take over at the top in a remarkably short time. The competition has remained remarkably stubborn, but the acquisition of LM can only help in GE’s quest. Offshore, without much of a market foothold in Europe and with a product that is now smaller than the competition; we are yet to see GE flex its muscles. The offshore wind industry, however, needs GE to ensure a healthy level of competition.
The article by Bruce Valpy first appeared in “OPINION: LM acquisition is a powerful statement of intent by GE ” Recharge, 13 October 2016 (subscription required)