Major Western wind turbine manufacturers have found themselves making a big loss, set against a booming market, raising questions over how the green transition can be managed.
Overall, energy consultancy WoodMackenzie calculates that the four major Western turbine manufacturers — Danish Vestas, US-based General Electric, and German Nordex and Siemens Gamesa — lost up to €3.3bn in the first three quarters of 2022.
Jon Lezamiz Cortazar, Siemens Gamesa’s global head of public affairs, tells fDi that “while everything looks brighter than ever from a targets point of view, the European wind industry is struggling.”
Under its REPowerEU proposal, which aims to end reliance on Russian fossil fuels by the end of the decade, the EU has targeted to deploy 510 gigawatts (GW) of wind capacity by 2030, with a large part of it coming from new capacity in offshore wind. As of 2021, it has 189GW installed.
Lofty ambitions, company mistakes
Despite these lofty ambitions, Europe’s wind industry is beset with rising commodity and energy prices, logistics challenges and permitting delays. Within that, wind turbine manufacturers are in a bind: they have been in competition with one another to be the cheapest over recent years, and are now pinched by rising prices and order backlogs.
“We were cheaper than cheap,” Mr Cortazar says, conceding that some of the issues related to the wind turbines’ loss making might be their own making. “We are a private company. We can make mistakes.”
But he stresses that “there is a mismatch between the competitiveness of the energy source and the market design”.
“At its heart, the problem is the changing economics of the wind industry,” says Endri Lico, senior analyst for global wind technology and supply chain at consultancy Wood Mackenzie. “Since 2015, there has been a transition from subsidy schemes to competitive auctions, reducing the offtake price which is passed down to the original equipment manufacturers (OEMs).”
European vs Chinese OEMs
Meanwhile, the profit margins of Chinese OEMs, such as Goldwind and Mingyang, have remained buoyant.
Mr Lico attributes this to a “different operational model and a different market” insofar as the Chinese government’s targets provide demand certainty and has a domestic supply chain from raw materials to manufacturing capacity and research and development. “This means that they can leverage cost reductions and economies of scale.”
The next two to three years will be “extremely painful” for the Western wind sector, Mr Lico predicts, adding: “We cannot reject the possibility of business failure”.
Many fear that a weakened set of European OEMs gives way to an opportunity for Chinese manufacturers to take hold of the market, not unlike what happened in the solar photovoltaic sector a decade ago.
In September, Mingyang was appointed by Swedish Hexicon to provide the turbines for its TwinHub project, the first offshore wind project in the Celtic Sea. The company is already providing turbines for the 30 megawatt Taranto offshore project in Italy.
Elsewhere, permitting bedevils the wind sector as a whole, prompting calls from manufacturers and investors to reduce permitting times.
Michael Hannibal, partner at Copenhagen Infrastructure Partners, an asset manager that participates as a direct investor in greenfield renewable energy projects, previously told fDi that “the permit and consenting time take an average of seven to 10 years for each project”.
The EU’s plans are already in jeopardy. According to WindEurope, to achieve the EU’s 2030 targets, at least 39GW in wind turbines need to be installed annually. In 2021, only 11GW was installed.
On November 10, the European Commission proposed emergency measures to speed up the deployment of renewable energy, including wind and solar.