Case Study: Gamesa

Product and service mix

Gamesa Corporación Technologica SA is a Spanish-owned wind turbine manufacturer. The company's main areas of focus are in the promotion, construction and sale of wind farms as well as the design, production and installation of wind turbines.

Gamesa was established in Victoria, Spain, in 1976 as an aeronautics and composites developer and manufacturer that produced helicopter blades and airplane frames for aircraft manufacturers. In 1994, Gamesa set up its first wind turbine manufacturing unit and began constructing wind farms in 1996.

Three years later, the company's core focus began to evolve from aeronautics to wind turbines. In 2006, Gamesa withdrew from the aeronautics industry, and its primary focus has since been on sustainable energy technologies.

Company location logic

Gamesa entered the U.S. marketplace in 2001. As part of its U.S. investment and expansion plan, the company bought a small wind energy developer in the Midwest and opened its first commercial offices in St. Paul, Minnesota, in 2002. Gamesa then opened a second commercial office in Austin, Texas, the next year.

Over a period of 18 months, Gamesa conducted a national survey of states, made a list and whittled it down — from 50 states to 27 states, to 15 states, to 10 states, to seven states, and finally to four states: Texas, New Mexico, New York and Pennsylvania. In September 2004, Gamesa officially selected Pennsylvania as the site for its U.S. headquarters, an East Coast development office and two North American manufacturing facilities.

Michael Peck, director of media, Institutional, & Labor Relations outlines a list of factors that made Pennsylvania stand out:

• The energy vision articulated by Pennsylvania State government and legislative leaders
• The commitment by state government operations and Pennsylvania-based utilities to purchase wind power generated by Gamesa developments
• The state's location in the Northeast, where PJM Interconnect states (Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia) have large energy consumers, limited wind resources or land for wind farm development, and state-passed portfolio standards
• Pennsylvania's own renewable portfolio standard (RPS)
• Productive wind resources cutting diagonally across the state from the southwest to the northeast
• Pennsylvania's manufacturing heritage and skilled labor force.

Pennsylvania's RPS made the state a particularly appealing place for Gamesa to locate. Peck notes: "At that time, Pennsylvania was one of the early states to commit to an RPS. It was a bipartisan-produced standard, which is important because you need to have stable regulation that doesn't change."

Company size and structure

Gamesa is a publicly traded Spanish company with a team of nearly 7,000 employees worldwide, 30 percent of which are located outside of Spain. Gamesa is the second largest wind turbine manufacturer in the world, accounting for 15 percent of the global market in 2007. The company's global sales revenue was over $4 billion in 2007. Gamesa operates in 26 countries in three key strategic markets — the United States, Europe and China — and participates in other emerging markets in North Africa and India.

Gamesa currently has four U.S. manufacturing facilities, including a blades division in Cambria County; and blades, nacelles and towers divisions in Bucks County (nacelles are structures that house the generating components). The company is undergoing a transition and will spin off towers production to a preferred subcontractor yet to be named and move all blades production to Ebensburg to expand nacelles production in Fairless Hills. These plans should be finished by the end of 2009.

The company's U.S. employment totals more than 900, and the vast majority is in manufacturing. The Cambria County manufacturing plant employs 300 workers, and the Bucks County facilities employ 400. Roughly 200 are employed in support and operations at its headquarters in Philadelphia and related development activities in Oxford Valley.

With its current operational makeup, Gamesa is capable of turning out 900 megawatts of wind turbine components annually, enough to produce clean power for 225,000 to 270,000 homes per year.

Relationships with partners in the value chain

Although Gamesa has a global supply network, many of the company's current suppliers are still located in Europe as a result of the company's Spanish roots and headquarters. Peck notes:

"Many of our suppliers are in Spain, Germany, Denmark and other places where the wind industry has really blossomed. Gamesa is in the process of bringing those suppliers who want to travel with Gamesa to Pennsylvania. One by one, these companies are coming over to collaborate with Gamesa in North America."

The company also has some U.S. suppliers, mainly specialized service providers who construct, assemble and inspect the wind turbines. Jim Buddelmeyer, vice president of purchasing, highlights the opportunities for these domestic specialized service providers:

"In terms of spending, wind frame construction makes up 30 percent of our spending costs for a wind turbine. The costs are very high for crane operators and labor to assemble the turbines. There's a huge growth opportunity for anyone in the U.S. who provides these types of services."

Most of the direct material used to manufacture the company's products comes from Europe. Buddelmeyer explains that Gamesa is trying to increase its U.S. supply base:

"You get more competitive the more local you go. Because many of our suppliers are based in Europe, we are buying with Euros, which is risky. Seventy to 80 percent of our spending on direct materials comes from Europe. We'd like to get things to where we are buying in Dollars. We are trying to find low-cost suppliers in the U.S. and other countries. We're looking for global sources that can give us a competitive edge in terms of sourcing. Without that we won't be able to grow our business."

The company has a number of strategic partnerships in supply chain areas that are not core to its business. Gamesa partnered with Daniel Alonso, a major wind tower manufacturer, to form WINDAR Renovables, a large manufacturer of towers for wind turbine generators. Daniel Alonso is Gamesa's worldwide tower manufacturing partner everywhere except for the U.S.

The company also has an alliance with Compass Transworld Logistics, which was set up with Grupo Berge to improve logistics and shipping. Peck notes: "Alliances have helped to improve return on capital by reducing inventory levels in towers and optimizing logistics and warehousing costs."

Gamesa sells its products directly to its clients, which include owners and operators of wind farms, financial institutions and utilities.

Immediate plans

Gamesa is expanding worldwide and its goal is to operate in the short- to mid-term with solid production and commercial bases in Europe, the U.S. and Asia.

Buddelmeyer explains that in light of the current economic situation, Gamesa has had a number of projects delayed due to funding issues: "Short-term, our customers need money. We have permits and projects, but they keep getting pushed out because our customers don't have money."

Gamesa has recently had to do a bit of restructuring; however, the company plans to use the financial crisis as an opportunity to reconfigure and innovate their plants, product lines and supply chain approach to increase productivity. Peck details:

"We're creating a nacelles center of excellence in our Fairless Hills facility and a North American blade center of excellence in our Ebensburg plant. In Ebensburg we will increase capacity by 25 percent. Wind is much stronger in North America than in Europe, so we're reconfiguring our blades specifically for the American market. We've been working with suppliers and giving them a chance to reconfigure their products.

"The current financial environment has given us the opportunity to get things like this done before the market comes back in full force. We're also making sure that our suppliers and partners are getting capacity online so we're ready to go when the market comes back. We're working on reducing lead times for producing a wind turbine generator."

Top opportunities for future growth

According to Gamesa, North America is the largest growth market for wind turbines. Buddelmeyer explains: "This is where the growth is going to be. That's why Gamesa has a big footprint here and we continue to invest money here." Gamesa is optimistic that investors will start to come back soon and invest in wind. Peck adds:

"The prospects for growth are tremendous. President Barack Obama wants to double the amount of alternative energy production in the next three years, as he stated in January. While campaigning, he pointed to the development of homegrown, renewable power as a way to create 5 million 'green-collar' jobs, improve national security and decrease our dependence on foreign oil.

"And perhaps the most encouraging report on the potential for wind is a recent U.S. Department of Energy report which concludes that the United States could make wind energy the source of one-fifth of its electricity by 2030, up from less than 2 percent today. Over 76,000 two-megawatt turbines would need to be built, generating more than 150,000 jobs directly in the wind industry. Over 3 million jobs would be created overall in construction and development. Governments recognize the potential of wind to address pressing problems in climate change and rebuild communities and revitalize America's manufacturing heritage."

In terms of market development globally, China is a focus of Gamesa's international expansion. The company established its first production plant in China in 2006, with an output capacity of 700 megawatts per year. In July 2008, Gamesa started up its fourth Chinese production center and signed a new agreement with China's Longyuan Electric Power Group Corporation for 344 megawatts of wind turbine generators, which will be manufactured in Gamesa's production facilities in Tianjin. Delivery is slated for 2009 to seven wind farms in different Chinese provinces.

Gamesa's share of the Chinese market was estimated at 15 percent in 2007. The company's wind turbine sales in China during that year also accounted for 15 percent of Gamesa's total turbine sales, up from 11 percent in 2006.

Top requirements to capitalize on opportunities

According to Peck, the lack of available transmission is a major obstacle to the long-term growth of renewables:

"Simply put, we don't have enough transmission capacity to deliver electricity from the rural, windy areas where it is generated most abundantly and cost-effectively to the populated areas where it is consumed. We must make construction of high-voltage interstate transmission highways for renewable energy a priority. This is something President Obama is vowing to do, too."

There is a shortage of suppliers of subcomponent parts. Peck explains that even as a vertically integrated company, they struggle with getting the parts they need:

"What many people don't realize is that for each turbine that's manufactured, about 8,000 parts are needed for assembly. In a global market, many of those parts are hard to find or, with the wind industry growing so rapidly, in short supply. Examples of wind industry supply needs include electrical equipment, power transmission devices, turbine generators, fabricated parts, gearboxes and bearings.

"Ensuring and securing an efficient and reliable supply chain is essential to reduce lead times, improve on-time delivery of components and reduce procurement costs. Creating these supply hubs may be the next big thing for the U.S. wind industry — where new jobs would be generated in the making of parts. Because of Gamesa's position in Pennsylvania's manufacturing economy, state government has recognized the potential boom it could receive by attracting new operations."

In September 2008, the Pennsylvania State government launched the Wind Energy Supply Chain Initiative to help providers and suppliers find and connect with each other. The initiative identifies "gaps" in the existing supply chain, identifies Pennsylvania companies with the capacity to meet production demands of the industry and works with manufacturers in the alternative energy sector to identify suppliers willing to relocate to Pennsylvania and make capital investments in the state. Buddelmeyer highlights the importance of having a highly efficient supply chain:

"Whoever has the most efficient and cost-effective supply chain is going to win. You have to have suppliers who are keeping you competitive and contributing new ideas. At the same time, they need to be flexible to changing requirements. That's the kind of supply chain that we're trying to build. That will bring growth to any original equipment manufacturer."

This case study was prepared by Collaborative Economics for Environmental Defense Fund.

Posted: 17-Feb-2009; Updated: 17-Feb-2009