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Clipper Windmills & Wind Turbines Manufacturers

|Includes: Clipper Windpower (CRPWF)
Clipper Windpower has recently been majority invested by United Technologies (UT). Does this mean it’s a good leveraged upside play given its has in UT as a new parent?
 
 
I believe Clipper Windpower is a late entrant to this sector, just had undergone management and product remedies, and lacks any compelling product / marketing edge. It lacks any compelling drivers to take advantage of changes in the wind power sector with conviction because:
 
  • Clipper doesn’t have a real technological edge vs. its competitors (Fig 1 & Fig 2)
  • The overall market for surface wind turbines is limited as average surface wind speeds are too low for high power output ( Fig 3)
  • No barriers to entry for Chinese turbine makers, because they have access to funding and a ready domestic market as China has 1)above average land speeds 2)cheap domestic funding 3)high  energy demand 4) Chinese companies have a successful track record in commoditizing low technology engineering products
  • Wind power isn’t that cheap, surprisingly, as fossil fuel based electricity generation costs is marginally comparable. (Table 1)
 
I look at variety of non financial factors that can answer this question because the company financials will be significantly strengthened by recent investments from UT. What UT cannot change is the underlying market reality for windpower.

In conclusion, it looks like Clipper Windpower shares are handicapped to outperform for now.
 
ANALYSIS
 
Competitors:
Based on WIND research there are 15 other suppliers with markets share > 2%, contributing to 90% of total market share in supplying turbines for wind power. Clipper Windpower is below the 2% radar. This means power project managers will have ample choice of provider and this weakens pricing power.
 
Lack of a technological edge
 
Flagship product Liberty 2.5MW (Fig 1) just completed, but main competitor Vesta (Fig 2) has products that deliver more power at lower wind speed. 7m/s speed yields 1kW on Vesta vs. 0.5kW on Liberty.

 

Clipper's Turbines Vs. Vesta's Turbine Power Curve
 












Figure 1 - Clipper's turbine power profile
 

Figure 2 - Main competitor turbine power profile by wind speed

 
The market for land based windmills is limited. Fig 1 & 2 shows we need a minimum level of wind speeds to optimize electricity generation. Fig 3 shows most land surfaces have lower than 3.5 m/s wind speeds, capping the limit on areas for land based windmill generators.


 
Figure 3- NASA's world wide average surface wind speed
 

New entrant threat:
There are a large number of Chinese turbine manufacturers. Patent protection and network effects observable in IT software is lacking in this sector. Anyone is free to manufacture wind turbines and sell them. Attractive land wind speeds in China provides a ready local market for these turbine manufacturers. It’s a matter of time they fine tune their technology, commoditize wind turbines and expand quickly to the US (Clippers’ main market).
 
Substitutes:
Substitutes to wind power are mainly fossil fuel based power generators and are slightly more expensive to generate than wind power, (Table 1) but not high enough to render a compelling and immediate switch. It looks like fossil power generation will still be competitive to sustain competition from wind power. Additionally current subsidies and tax benefits for renewable energy has to be sustained for some time to drive the demand to switch to wind power, in this period of governmental budget deficits.


Table 1 - Electricity Generation costs of Wind Power and its substitutes
Src: Draft report of LECs used by the California Energy Commission, 2007

 


 


Disclosure: No Positions.

Disclosure: NO POSITION