Korea’s shipbuilders are in hot water because their aggressive investment in new growth engines, such as renewable energy development, have failed to yield tangible outcomes amid the prolonged economic slump.
They had already been grappling with a worsening overall performance. But now, the pressing problem they face is the lack of returns on investments of tens of millions of dollars in renewable energy over the past year due to the slump.
The country’s four largest shipbuilders ― Hyundai Heavy Industries, Samsung Heavy Industries, Daewoo Shipbuilding and Marine Engineering, and STX ― have all been keen to beef up their power generation businesses.
Hyundai has been aggressive over the past years to become a leading provider of power generating equipment harnessing solar, wind, and tidal energy. The firm invested more than 100 billion won ($88.8 million) between 2010 and 2011 to set up solar cell plants and invested another 90 billion won between 2008 and 2010 to build a plant manufacturing wind turbines.
Samsung is a latecomer in the wind power generation business but has high hopes for its growth potential.
Daewoo has gone one step further by investing 33.8 billion won into an American firm with advanced technologies. STX is eying the huge potential in solar-related ventures.
Yet the economic downturn has derailed the companies’ huge outlay. Declining orders for power generators harnessing renewable energy sources has made it harder for Korean shipbuilders to make consistent investment in order to sharpen their competitive edge in their new areas.
Last year, Hyundai posted an operating loss of 175.2 billion won and a net loss of 225.7 billion won in its green energy business. In the first quarter of this year, the firm reported an operating loss of 4.9 billion won and a net loss of 1.1 billion won.
Samsung has remained idle since June last year when it signed a contract with Canada’s Green Breeze to build a wind turbine capable of generating 2.5 megawatts. Daewoo posted a net loss of 52 billion won last year, from an 18.1 billion won loss in 2010.
Industry insiders said the poor performances were inevitable in the face of the slumping economy but things will improve in the coming quarters.
“We need to see the business from a long-term perspective,” a Hyundai official said. “Though current demand is low, we will soon see a rapid growth of the market and in demand. In that sense, we will continue to invest in technology development.” Hyundai plans to invest some 40 billion won in the business this year.
Samsung also said it will make consistent investment in the sector in order to become a leader in the wind turbine market.
“The poor performance is attributable to our lack of field experience,” a Samsung official said. “More experience will give us more opportunities and it will eventually turn the business around.”
The Global Wind Energy Council (GWEC), the global forum for the wind energy sector, projects that the sluggish growth of the industry will continue until 2013. The council said that 2011 was a tough year, as 2012 will be, but the long-term fundamentals of the industry remain sound.