Explainer: Why the wind power industry has hit turbulence

Goldwind Science & Technology Co

26/06/2023 16:54

By Nina Chestney
       LONDON, June 26 (Reuters) - Problems in Siemens Energy's
 ENR1n.DE  wind turbine division that could cost more than a
billion euros ($1.09 billion) to fix have shaken investor
confidence in the wider industry and last week prompted a
sell-off in wind companies' shares.
    Over the last two decades, the industry has grown fast,
lowered technology costs to on a par or even cheaper than fossil
fuels in some parts of the world and increased efficiency
through bigger and bigger turbines.
    According to the Statistical Review of World Energy report
on Monday, global wind and solar power grew to a record share of
12% of power generation last year, surpassing nuclear.
    The Global Wind Energy Council said earlier this year that a
record 680 gigawatts (GW) of wind energy capacity is expected to
be installed by 2027.
    But the industry has had a tough few years.
        
    SUPPLY CHAIN
    The COVID-19 pandemic from 2020 led to lockdowns, decreased
industrial activity and reduced global energy demand. 
    In the wind sector, as in other industries, restrictions on
movement triggered supply chain disruption and delays in project
construction.
    Limits on the number of workers allowed on site and delays
in components from China and elsewhere meant that some wind
developers had to delay or even cancel projects. 
    Some firms also missed policy deadlines that meant that they
lost out on government support or subsidies for which they
previously qualified, the International Energy Agency said.
    The war in Ukraine has also created logistics and supply
chain issues, aggravated in some cases by the impact of
sanctions.
    
    ECONOMICS
    Despite mounting pressure to combat climate change by moving
to renewable sources, financing projects has been a challenge. 
    The war in Ukraine last year led to higher energy prices and
this fuelled rises in inflation and interest rates. 
    But the expected revenues of those planning to build wind
turbines have not risen in tandem. Many governments index the
prices paid for wind energy, usually through auctions, which are
often too low, analysts at Wood Mackenzie said.
    The rise in commodity prices, such as steel, also increased
the price of wind turbines by up to 40% over the last two years,
industry body WindEurope said earlier this year.
    Wind turbine manufacturers - unable to pass on higher costs
to customers who placed orders two or three years ago - have
tried to mitigate the impact of higher inflation and pressure on
profit margins by raising prices.
     
    COMPETITION
    As more governments have announced ambitious climate
targets, pressure on companies to increase renewables
development has increased.
    Established wind manufacturers, already competing with each
other to drive down component and technology costs and increase
wind farms' efficiency with huge turbines, also face new
entrants.
    Traditional wind project developers, such as utilities,
increasingly face competition from oil and gas majors seeking to
diversify their portfolios, who have often outbid them in wind
tenders and auctions.
    Some oil and gas companies, however, are also struggling
with poor returns from renewables while oil and gas profits have
hit record levels in response to high energy prices.
    
    COMPONENTS 
    Among the issues which arise from operating wind turbines,
wear and tear on turbine blades over time can lead to erosion.
    The increasing size of blades on turbines also raises the
risk of lightning strikes and repairs. 
    For offshore wind, harsh weather conditions can also result
in corrosion of foundations or of the turbine.
    Leading wind turbine maker Vestas flagged quality issues
with turbine blades in their onshore fleet in 2020 and provided
an extra 600 million euros to fix them. Its shares fell more
than 6% on Friday, while shares in Siemens Energy, the second
biggest wind turbine maker, sank 37%.
    Most of the problems of Siemens Energy's wind unit Siemens
Gamesa concern its onshore turbine fleet, where the group has
discovered quality issues in certain components, including rotor
blades and bearings.
    Siemens Energy said that 15%-30% of the fleet could be
affected by the problems, which were exposed during a review
that noted "abnormal vibration behaviour of some components" and
unspecified problems around product design.
    Dealing with issues could cost more than 1 billion euros, it
said.
($1 = 0.9170 euros)

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Siemens Energy share sell-off deepens, takes market value loss
to $8 billion     urn:newsml:reuters.com:*:nL8N38I2ZQ
FACTBOX-What are the issues with Siemens Gamesa's wind turbines?
    urn:newsml:reuters.com:*:nL1N38I0OX
Siemens Energy's shares tumble as wind turbine troubles deepen  
   urn:newsml:reuters.com:*:nL1N38F09E
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 (Reporting by Nina Chestney; additional reporting by Christoph
Steitz in Frankfurt; editing by Barbara Lewis)
 ((nina.chestney@thomsonreuters.com; +44 (0) 020 7513 5674;
Reuters Messaging: nina.chestney.thomsonreuters.com@reuters.net;
Twitter: https://twitter.com/NinaChestney))