GE Steps Into Europe’s Offshore Wind Market

ST.-NAZAIRE, France — At a brightly lit factory near the mouth of France’s Loire River, technicians in hardened black baseball caps gingerly maneuver wind machine tower turrets called nacelles across the floor and then join them to big round generators. Then they roll the assemblies, which weigh hundreds of tons, onto the dock for shipment to a wind farm that General Electric is building off the coast of Germany.

The Loire region, where quaint fishing villages and charming wineries coexist with heavy industry, is central to the ambitions that GE, the U.S. corporate giant, has to become a force in the offshore wind-power industry, which is dominated by European companies.

This fall, GE plans to expand and reorganize the plant to build test models for a new offshore turbine with twice the generating power of the giant it is assembling here now. All told, GE’s offshore wind activities are providing about 450 jobs for people in the area like Édith Mas, who traded seasonal work at ski resorts for a year-round position maintaining turbines. “It is most important for me to have a contract,” she said before clambering up to operate a crane on a test machine near here.

Offshore wind power has been something of a niche market, mainly thriving in European countries like Germany, Denmark and Britain, where environmentally friendly public and private sectors have invested large sums subsidizing what has been an enormously expensive energy source. Government policies have also encouraged a sizable industry in China.

In recent years, though, advances in technology as well as the use of competitive auctions for power contracts have sharply brought down costs. Wind developers have agreed to build giant wind parks off the Netherlands and Germany without any subsidies.

Lower costs have widened interest in offshore wind outside Europe in countries like the United States, Japan and South Korea. There, national and local governments are looking for cleaner sources to either satisfy growing demand for electricity or replace aging fossil fuel or nuclear plants.

By planting turbines offshore, developers can build wind parks on the scale of conventional coal-fired or natural gas power plants that are largely out of sight while still within easy transmission reach of major cities like London, New York and Boston.

What could turn into an offshore boom appears to be taking shape on the East Coast of the United States. Massachusetts and Rhode Island have recently chosen developers from Europe and the United States to build large wind projects off Martha’s Vineyard. The 6.5 cents per kilowatt-hour average price of the power for the 20-year Massachusetts contracts agreed this summer came in lower than analysts expected.

“We have certainly reached competitive price points with conventional power far sooner than had ever been anticipated here in the United States,” said Stephanie McClellan, director of the Special Initiative on Offshore Wind at the University of Delaware.

Other states, including New York and New Jersey, are expected to follow.

“This is a resource that has the potential to power a significant portion of not just Massachusetts but the East Coast,” Stephen Pike, chief executive of the Massachusetts Clean Energy Center, a state agency, said in an interview.

With predictable returns and price tags running to $1 billion and up, these projects are attractive to deep-pocket investors like hedge and infrastructure funds and family-controlled investment groups.

Iben Frimann-Dahl, an analyst at Rystad Energy, a Norwegian market research firm, forecasts that the market for offshore installations will grow to $87 billion in 2023 from about $35 billion in 2018.

Wind and its offshore variant are already substituting for large volumes of emissions-producing fossil fuels in the power sector. Last year, Rystad estimates, wind accounted for close to 20 percent of new generating capacity installed globally. Offshore wind was about 10 percent of that slice but growing rapidly.

GE’s entry for this market, called the Haliade X, will be 853 feet high. Each of its three propeller blades will be 350 feet long.

GE says it will be capable of generating 12 megawatts, a wholesale power measure, about a quarter more than anything on the market. One of these structures, planted on the bottom of the North Sea, will spin out enough wattage to power a small city of 16,000 homes, according to GE.

GE says it is investing $400 million in research and development and other expenses to build the machine. The company won’t disclose the price per turbine, but industry estimates are 12 million euros (about $14 million). GE hopes to begin shipping the new machine early in the next decade.

Why build such a monster? GE executives say that customers have been asking for a larger turbine to help them lower the overall costs of producing electricity offshore. “The overwhelming feedback was bigger is better,” said Vincent Schellings, who is in charge of designing and building the Haliade X.

Analysts also say that as a small player in the offshore wind turbine market — less than 1 percent — GE also needed to make a striking statement. “They had to do something to get into this offshore market, which is becoming more attractive,” said Soeren Lassen, an analyst at MAKE, a research firm. He predicted that GE’s new machine will likely set off what he called an “arms race” among competitors.

Siemens Gamesa Renewable Energy, a company formed by combining the wind assets of the German company and a Spanish renewable energy firm, has long dominated the offshore market. Recently a joint venture of Vestas Wind Systems, the Danish company that is the world’s largest overall turbine maker — and Japan’s Mitsubishi Heavy Industries, has challenged Siemens with what is now the largest machine on the market at 9.5 megawatts.

Lassen said these makers would eventually need to respond to GE’s move. “For sure you are going to see something greater than this from Siemens Gamesa,” he said. While GE was a big player in land-based turbines, the U.S. company’s presence was negligible in the larger offshore units until it bought a group of energy businesses, including the St.-Nazaire factory, from France’s Alstom in 2015.

Seeing the likelihood of growth in several large countries along with limited competition, GE, which has been moving to exit businesses like health care and oil field services, decided to increase its presence in the offshore arena. “Not only was the industry going to be big,” said John Lavelle, chief executive of GE’s Offshore Wind business. “With technology and scale we could help it move faster.”

Ever bigger machines have been a major factor in bringing down offshore costs. Large turbines generate more electricity. That means fewer of them are required, bringing down the overall expense of planting turbines on the seabed, work boat rentals and other factors that drive up the costs of generating electricity in a marine environment.

GE’s new turbine will be roughly 25 times as powerful as the first machines installed offshore in 1991. “The rule of the game has always been in offshore that bigger was better,” said Henrik Stiesdal, who led development of those first machines at a Danish company called Bonus Energy that Siemens later acquired. “When we had a turbine that was bigger than what Vestas had to offer, we were successful.” Stiesdal and other experts caution that ever larger turbines bring problems of their own. In what is known as the “square cube” law, expanding the surface area of the blades to capture more wind, for instance, drastically increases weight, putting structural stress on enormous components that weigh dozens of tons.

In an effort to gain expertise in blades, GE bought the Danish company LM Wind Power in 2016 for 1.5 billion euros. LM has been among the leaders in making ever larger blades feasible through the use of lightweight materials incorporating carbon and polyester fiber.

While developers, who will be GE’s customers, welcome the entry of another player to compete with the existing duopoly, they seem to be waiting to see how the turbine performs. “I find it interesting that GE has announced a next generation turbine,” said Michael Hannibal, a former head of Siemens’ offshore business unit who is now a partner at Copenhagen Infrastructure Partners, an investment firm that is one of the owners of the Massachusetts offshore project. “It can produce really well, but may be not competitive if the cost” is too high.

GE’s main competitors, who both have larger machines, are going slow in committing themselves to developing -new models, preferring instead to sell as many from their current series as possible. “Merely increasing the size of the turbine is not enough to bring down costs,” Andreas Nauen, chief executive of Siemens Gamesa’s offshore wind unit, said in an email.

In an interview, Anders Runevad, chief executive of Vestas, said that the company’s joint venture with Mitsubishi would need to sell a lot of machines to justify the 600 million euros it invested in its existing offering. “The payback time on that kind of investment is fairly long,” he said.