With its eyes on the potentially explosive growth of the wind sector -- particularly once the United States market is back on track with wind's production tax credit (PTC) reinstated -- the huge German Allianz group is the latest multi-national player to claim a slice of the growing wind market. It has added manufacturing to its insurance interests in the sector with the purchase of Hansen Transmissions of Belgium, a leading supplier of gearboxes for wind turbines.
Furthermore, the company is planning to acquire a portfolio of wind power assets, further evidence that the group sees the wind business as a sound investment opportunity. Allianz is expected to announce soon its intention to build up a portfolio of large scale operating wind projects. Its ambitions are signalled with the move to Allianz of David Jones, formerly head of wind energy at Shell Renewables. Jones, who was instrumental in building up Shell's wind energy portfolio, joined Allianz's London based renewable energy team on October 1.
Achilles heel
Allianz's chosen point of entry with Hansen is at one of the wind industry's weakest points. Gearbox supply -- or lack of it -- is set to be a significant bottleneck when the wind turbine market picks up. Hansen is among only a small handful of companies currently producing what is a major component in most of the wind turbines sold today. What is more, for the past five years, gearbox problems and failures have become the Achilles Heel of the technology, with series failures suffered by all the main wind turbine companies (“uåX˜äŠÊ˜·³Ç, April 2004). A corporation the size of Allianz -- with 60 million customers and a presence in 70 countries -- is well equipped to ramp up both production and much needed technology development.
Allianz's acquisition of Hansen, through its private equity investment arm, Allianz Capital Partners GmbH (ACP), received regulatory approval in July. "This is the first major takeover for our renewable energy team," says Thomas Putter, head of ACP. "Wind energy is becoming increasingly important in the next few years." He adds that Hansen has a prominent market presence in all countries with significant wind business.
The gearbox manufacturer was bought for EUR 132 million from debt-ridden Invensys plc of the UK, which describes itself as a global automation, controls and process solutions group operating in more than 60 countries. Invensys reportedly put Hansen up for sale as long ago as 2001, with the intention of reducing its debt and concentrating on its six retained businesses. Shortly after its sale of Hansen, Invensys also sold its American Powerware business. Hansen, based in Edegem, Belgium, numbers Vestas and Gamesa among its wind industry customers. It also produces gearboxes and drive units for other industrial applications.
Getting ready
In anticipation of a big surge in wind sector demand, Hansen has already expanded its production capacity. In May, Allianz oversaw the opening of a EUR 101 million new factory at Lommel, Belgium, capable of supplying gearboxes for more than 2000 MW of wind turbines a year. Plans are already afoot to boost the factory's capacity by another 1000 MW. At Lommel, Hansen produces gearboxes for the larger generation of wind turbines. Gearboxes for smaller turbines continue to be made at Edegem. In the last financial year ending March 31, 2004, Hansen reported revenues of EUR 127 million.
Allianz has been looking at investment opportunities in the wind sector for some years. The group claims its acquisition of Hansen is a natural step, given its understanding of the wind business, built up through insuring more than 3000 wind turbines, plus delivering consultancy services to the wind industry through its offshoot, the Allianz Centre for Technology. Moreover, like all other major insurers, Allianz is keenly aware of the impacts of global warming. Buying a stake in the clean energy solution is a smart business move. "This acquisition puts us at the heart of the wind business," says Bill Calcraft from Allianz Specialised Investments, the team that advises ACP on renewables.
expenditure
From Hansen Transmissions, Matts Lundgren says the takeover supports the company's growth strategy. "Allianz Capital Partners provides us with the financial resources to enable us to strengthen our leading position in a rapidly growing market." This includes significantly higher expenditure on research and development (R&D).
Calcraft makes much of the R&D work that has gone into its latest generation of wind turbine gearboxes. "Hansen manufactures each of the key elements of its gear boxes internally and has a high level of quality control over the product," he says.
Calcraft says the wind industry has moved on since the series failures of several makes of gearboxes that have plagued the wind business in recent years. Those problems are "well documented and have been dealt with," he says. "Now we are dealing with a new product." He points out that the large gearboxes coming out of Lommel are very different from those made for smaller machines. Wind turbine manufacturers and their component suppliers are also placing increasing emphasis on pre-market testing of their larger models, he says.
The coming challenge for gearbox manufacturers is in supplying bigger gearboxes in sufficient numbers to allow the market to grow, says Calcraft. So far, 2004 has been a flat year for the whole industry, as growth in Germany slows and the United States waits for legislation containing an extension of the PTC. But he notes that with the PTC in place, the US could be a 2000-3000 MW market next year. "So the question is which companies have the R&D and engineering excellence to deliver these different products, and which companies have the capacity to deliver," he says.
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