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Vestas Plunges Most in 6 Years on Tougher Wind Competition

The competitiveness of wind energy is taking a toll on profits, according to Vestas Wind Systems A/S, whose share price took the biggest hit in six years after missing analysts’ estimates.

  • Earnings trailed analyst estimates as wind prices decline

  • Vestas lowered its outlook for Ebit margin on higher costs

The competitiveness of wind energy is taking a toll on profits, according to Vestas Wind Systems A/S, whose share price took the biggest hit in six years after missing analysts’ estimates.

Vestas shares sank as much as 21 percent to 416.60 krone in Copenhagen. More than 5 million shares changed hands so far today, about five times more than the full-day average. The company, the world’s biggest wind-turbine maker, reported earnings before interest and tax that trailed analysts estimates.

Today’s results were largely driven by shrinking prices for wind energy as more markets switch to competitive tenders from feed-in tariffs. Developers compete with one another for projects and the lowest bids for clean electricity prices win. This has resulted in price pressure throughout the supply chains for wind and solar, particularly for equipment manufacturers such as Vestas.

“An increasingly competitive environment and emerging trend of aggressive capacity auctions is resulting in price and margin pressure at Vestas,” wrote James Evans, a Bloomberg Intelligence analyst.

Before today, Vestas was a stock-market darling, with 16 out of 23 analysts covering the stock recommending it as a buy. The loss today wiped out the company’s year-to-date advance.

Financial Highlights:

  • Third-quarter earnings before interest and tax fell to 355 million euros ($412 million), missing the median estimate of 418.5 million euros. 
  • Outlook for Ebit margin lowered to 12 to 13 percent, from 12 to 14 percent. 
  • Full-year revenue forecast slightly raised to between 9.5 billion and 10.25 billion euros.

“If we talk about the increased competition, that of course comes from auctions and competitive tenders have been introduced all over the world, leading to lower power prices for our customers,” Chief Executive Officer Anders Runevad said in a Bloomberg Television interview.

Another weak sign: the company received more orders for wind turbines, but at lower prices, according to Dan Togo Jensen, an analyst at Handelsbanken.

Vestas has also been hit by a U.S. government proposal to slash tax breaks for clean energy generators by more than a third. The U.S. made up about a third of Vestas’ order intake in 2016.

The tax plan adds to worries about how wind technology can compete against other renewable energy sources and pushes companies to reduce costs even further, according to Evans of Bloomberg Intelligence.

Vestas is expecting the tax break for clean energy producers, known as the production tax credit, to stay in place because it had bipartisan support when it was passed in 2015, according to Runevad.

“It doesn’t change our planning assumption, but of course it creates an uncertainty and no one likes uncertainties,” he said.

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