1. Brief description of the modern wind turbine industry.
Wind turbine industry undergone drastic changes since its interception several years ago.
Because of technology and wind energy demand, the modern wind turbine is based on
manufacturing of large turbines. In 1980, the hub height and rotor were 30 m and 15 m
respectively. In 2005, both hub height and rotor diameter were 120 m and 115 m
respectively. This is showing how the turbine industry changed over the last two decades.
Describe the industry’s competitive structure, i.e.: fragmented or consolidated.
The firm competitive structure is intense in a way that few firms operate in the industry.
According to Wikipedia, there are fifteen wind turbine manufacturers in the industry.
Until more firms enter into the industry, the turbine industry is consolidated and may
remain consolidated for sometime. This is because the cost of entry is high, preventing
firms with low capital from entering into the industry.
Which theoretical market structure does it approximate?
The wind turbine industry approximates oligopoly market structure. We arrived into this
conclusion because the top four firms control more than 40% of the market share.
Because concentration ratio for top four firms is more than 60%, the industry is not only
has oligopoly structure, but tight oligopoly market structure. In addition, there are few
firms in the industry with the top five controlling larger (82%) market share.
Calculate the four firm concentration ratios and the Herfindahl index.
Accord to 2006 Merrill Lynch research article, the four firms (Vestas, Gamesa, GE Wind
and Enercon) concentration ratio constitutes 74%. The Herfindahl index of the same year
equals 1664. See the table below.
Firm
2006 Market Share (%) Contration Ratio Herfindal index
Vestas
28
28%
784
Gamesa
16
16%
256
GE Wind
15
15%
225
Enercon
15
15%
225
SuZlon
8
64
Siemens
7
49
Nordex
3
9
Repower
3
9
Acciona
3
9
Goldwind
3
9
Other
5
25
Total
74%
1664
What are the prospects for growth and their ability to earn profits in both the short run
and long run?
The prospect for growth in the industry is high. It is projected that the world market for turbines
is to increase 4.9 percent annually to $106b in 2012, especially the large turbine engine. The
ability to earn profits in the short run is promising. This is because there are no many firms in the
industry. However, this profitability may change in the long run when firms which are not yet in
the industry realizes how profitable the industry is and would be and may wish to inter into the
market. In short, profitability would be competed away in the long run, but long run is still
decades away because the large wind turbine industry is in the development/young stage.
Below is another source projecting demand for wind turbines to 2015
What are the financial opportunities for investors in the wind turbine industry?
The financial opportunities for investors are many. First, the world is prospecting on alternative
energy, which wind energy is the main focus. The development of large turbines to generate
wind energy is and will be of high demand. Please see the chart below. It is showing the demand
for turbines sales to 2015. Also, investing in turbine part supplies is another area of financial
opportunity for investors. In addition, installation expertise is required, and firms specializing in
this area may as well be another source of investment.
What is the role of government policy in promoting this industry and identify the causes of
potential risks to investors.
The role of government is increasing in promoting the industry. The US department of energy,
with the US as high consumer of wind energy, has a goal of 20% Wind Energy by 2030. One
factor for government support is environmental concern such as Global Warming. The current
source of energy is associated with harm (C02) to the environment and pressure is increasing to
move away from coal and oil as the main source of energy supply. Second is scarcity of the
current sources of energy. Oil could be depleted in some decades to come and the world needs to
find alternative source of energy as a back up before oil is completely deleted. Third is security
concern of the nations. For example, US depend large on oil in Middle East. This is threatening
US economy as oil producing countries uses oil supply to leverage their political gain.
The causes of potential risks to investors include:
 Government taxation
 Unforeseen impact on industry
 Future demand
 Alternative source of energy such as solar hydraulic energy
Reference
http://www.windharvest.com/
World Demand for Turbines to Reach $106b in 2012: Power Engineering
www.power-eng.com
Wind Energy-Phoenix 2008
U.S. Department of Energy
www.energy.gov
Merrill Lynch’s research article: Wind turbine manufactures; here comes pricing power