The promise of the wind run out of profit
Optimism reigns over the future of wind power, with a clean energy boom fueling robust growth in an industry that companies and governments say is key to slowing climate change. But a lingering problem could prevent the industry from delivering on that promise: turbine makers are still struggling to translate growing demand into profits.
Wind power heavyweights Vestas Wind Systems, General Electric and Siemens Gamesa Renewable Energy are reeling from high raw material and logistics costs, changes to major clean energy subsidies, years of pressure on turbine prices and a costly arms race to build ever bigger machines.
“What I see is a colossal market failure,” said Ben Backwell, chief executive of the Global Wind Energy Council trade group, noting a disconnect between the government’s targets for new wind energy and what is happening on field. “The risk is that we are not on track for net zero [emissions] — and the other risk is the supply chain contracting, not expanding.”
A withdrawal from wind power could have devastating consequences, as it is set to play a central role in global efforts to transition to green energy. To limit warming to as little as 2.7 F, the world would need to start adding about 390 gigawatts of wind farms per year by 2030, according to the International Energy Agency. In 2021, only about a quarter of that amount of wind capacity has been added.
There could also be geopolitical implications from the challenges of US and European companies, as Chinese rivals seek to expand outside their home market.
Western turbine manufacturers are now retreating to consolidate their results. The companies say they will compete for fewer projects in fewer markets, raise prices, streamline product lines and reduce manufacturing costs. This comes just as soaring fossil fuel prices are expected to make renewables more competitive.
“You absolutely have to see some of these profit pictures backfire to make decarbonization goals achievable,” said Aaron Barr, global head of onshore wind at consultancy Wood Mackenzie.
The pandemic has rocked the wind industry, leading to supply chain disruptions and increased material and shipping costs.
But the problems started in the mid-2010s, when governments began to withdraw generous subsidies and make tenders for renewable energy developers more competitive, according to Credit Suisse analyst Mark Freshney. That fueled pressure to cut turbine prices, squeezing manufacturers’ bottom lines.
It doesn’t help that the wind market is constrained by limited permits for new projects. The process typically involves federal planning and local approvals, and both can be blocked by people who don’t want the giant structures dotting their skyline.
This dynamic has put pressure on margins, just as turbine manufacturers have invested heavily to deploy larger turbines capable of capturing more wind. These more powerful machines helped reduce the cost of wind-powered electricity, but their introduction cost manufacturers dearly. The industry also faces an unstable pipeline for future work, which provides little incentive to invest further.
“The risk is that we don’t have suppliers that are stepping up,” said Martin Neubert, chief commercial officer of Orsted, the world’s largest developer of offshore wind farms. “We will have a shortage in terms of supply to meet global demand.”
A slowdown in turbine manufacturing in the United States risks further weakening the country’s energy independence. Already, it relies on Chinese manufacturers for much of its solar panel supply – a reliance that has contributed to trade tensions between the countries.
Now, Chinese competitors see opportunities in the wind market. Companies such as Xinjiang Goldwind Science & Technology, Envision Group and Ming Yang Smart Energy Group plan to invest in overseas factories to gain market share.
Vestas briefly boasted of the largest turbine in the world when it announced a 15 megawatt structure, but in an example of China’s growing power it was quickly overtaken when Ming Yang introduced a 16 megawatt machine. megawatts in August.
A more recent sign of trouble for gamers outside of China came earlier this month, when Siemens dropped its full-year guidance and said it was heading for a minus 4% profit margin. . Orders in its second quarter fell to the lowest level since the company was created by merger in 2017.
“The performance is clearly behind our expectations and my expectations,” said managing director Jochen Eickholt. “There are serious doubts about the goals we have set for ourselves as a company.”