The Wind of Change in Energy Jobs
By
Will Mathis,
Ryan Beene, and
Josh Saul
April 25, 2022
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Turbine makers reel from soaring costs,
changes in subsidies
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Chinese companies could grab more of
market as rivals stumble
Optimism abounds about the
future of wind power, with a clean-energy boom powering robust growth
in an industry that businesses and governments agree is key to slowing
climate change. But a nagging problem could keep the sector from
fulfilling that promise: Turbine makers are still struggling to
translate soaring demand into profit.
Wind power heavyweights Vestas
Wind Systems A/S, General
Electric Co. and Siemens
Gamesa Renewable Energy SA are reeling from high raw
material and logistics costs, changes in key clean-power subsidies,
years of pressure on turbine prices and an expensive arms race to
build ever-bigger machines.
“What I’m seeing is a colossal
market failure,” said Ben Backwell, chief executive officer of trade
group Global Wind Energy Council, noting a mismatch between government
targets for new wind power and what’s happening on the ground. “The
risk is we’re not on track for net zero [emissions] -- and the other
risk is the supply chain contracts, instead of expanding.”
A retreat from wind power could
have devastating consequences, as it is set to play a pivotal role in
global efforts to transition to green energy. To limit warming to as
little as 1.5 degrees Celsius, the world would need to start adding
about 390 gigawatts of wind farms a year by 2030, according to the International
Energy Agency. In 2021, only about a quarter of that amount
of wind capacity was added.
There could also be geopolitical
implications from the U.S. and European companies’ challenges, as
Chinese rivals move to expand outside their home market.
Western turbine manufacturers are
now retrenching to shore up their bottom lines. The companies say
they’ll compete for fewer projects in fewer markets, raise prices,
streamline their product lineups and cut manufacturing costs. That
comes just as surging fossil fuel prices should be making renewables
more competitive.
Going Up
Wind
turbine manufacturers are raising prices after years of declines
Source: BloombergNEF
“You absolutely need to see some
of these profit pictures turn around for the decarbonization goals to
be achievable,” said Aaron Barr, global head of onshore wind at
consultancy Wood Mackenzie.
Profit Pressure
The pandemic roiled the wind
industry, leading to supply-chain disruptions and a surge in costs for
materials and shipping.
But the troubles started back in
the mid-2010s, when governments started to pull back on generous
subsidies and make tenders for renewable energy developers more
competitive, according to Credit Suisse analyst Mark Freshney. That
fueled pressure to reduce turbine prices, squeezing manufacturers’
bottom lines.
It doesn’t help that the wind
market is constrained by limited permitting for new projects. The
process usually involves federal planning and local approvals, and
both can get gummed up by people who don’t want the giant structures
dotting their view of a horizon.
![](images/images_04_28_2022/pic3.jpg)
The Block Island
Wind Farm in the water off Block Island, Rhode Island.
Photographer:
Eric Thayer/Bloomberg
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Those dynamics
have pressured margins just as turbine makers have invested heavily to
roll out bigger turbines that can capture more wind. These more
powerful machines have helped drive down the cost of electricity from
wind, but they’ve been costly for manufacturers to introduce. The
industry also faces an unstable pipeline for future work, which does
little to incentivize greater investment.
“The risk is
that we will not have suppliers ramping up,” said Martin Neubert,
chief commercial officer at Orsted
AS, the world’s largest developer of offshore wind farms.
“We will have a shortage in terms of supply for meeting global
demand.”
Chinese
Rivals
A slowdown in
U.S. turbine manufacturing risks further weakening the country’s
energy independence. Already, it counts on Chinese manufacturers for
much of its supply of solar panels -- a reliance that has contributed
to trade tensions between the countries.
Now, Chinese
competitors see opportunity in the wind market. Companies including
Xinjiang Goldwind Science & Technology Co., Envision Group and Ming
Yang Smart Energy Group Ltd. plan to invest in factories abroad to
take market share.
Vestas briefly
held bragging rights for the world’s biggest turbine when it announced
a 15-megawatt structure, but in an example of China’s increasing
muscle, it was quickly overtaken when Ming Yang introduced a
16-megawatt machine in August.
A more recent
sign of trouble for players outside China came earlier this month,
when Siemens Gamesa scrapped its full-year guidance and said it was
tracking toward a profit margin of minus 4%. Orders in its second
quarter fell to the lowest level since the company was formed through
a merger in 2017.
![](images/images_04_28_2022/pic4.png)
Wind turbines in Qidong, China.
Photographer: Qilai Shen/Bloomberg
“The performance is clearly
lagging behind our and my expectations,” Chief Executive Officer
Jochen Eickholt said. “There are severe doubts around the targets
we’ve set as a company.”
The same factors that pressured
Siemens Gamesa’s results could weigh on profitability at GE Renewable
Energy, the largest supplier
of wind turbines in the U.S., for the next several quarters, says
Citigroup analyst Andy Kaplowitz. He expects the division to post a
first quarter negative operating margin of 16%, more than double what
it sustained in both the prior-year period and last year’s fourth
quarter.
Wind segment troubles caused GE
Renewable Energy to push back its goal of returning to break-even this
year, after the division posted some $2.3 billion in operating losses
since 2019. GE now expects the division to be “approaching break-even”
in 2023, with the onshore wind business, the largest by revenue,
reaching low single-digit profit margins.
GE’s electricity grid unit has
been a big source of the division’s financial woes, but the onshore
wind business has deteriorated amid inflation pressures, supply chain
challenges and the expiration of a key U.S. tax credit.
Analysts expect a roughly $370
million loss at the division when the conglomerate reports
first-quarter earnings on Tuesday, according to data compiled by
Bloomberg.
Price Increases
The wind industry didn’t always
look so bleak. After a major wind farm construction push, global
installed wind capacity topped 742 megawatts in 2020 after standing at
less than 100 gigawatts as of 2007, according to BloombergNEF data.
At the same time, prices for
electricity generated by wind farms steadily declined. Those
improvements were helped by manufacturers launching ever-larger
turbines that meant projects were cheaper to develop, build and
maintain.
That has begun to change.
Turbine manufacturers in the second half of last year raised prices
the most since 2014, according to BloombergNEF. Wind farm developers
expect that to reverse the decade-plus trend of falling costs for wind
power, a key factor that has fueled its expansion.
Read More: Surging Renewable Power Prices in Europe Are Still a
Bargain
Last year, Vestas raised prices
by over 20% on average for its turbines. GE has also been boosting
prices, raising them by double-digit percentages since late last year.
It’s part of a new overhaul of the business being overseen by Scott
Strazik, who in November was tapped to lead GE’s energy-related
businesses as they prepare for a 2024 spinoff.
The 130-year-old manufacturer is
shifting how it goes to market in onshore wind outside of the U.S. It
plans to compete for turbine orders in fewer countries and be more
selective about the projects it supplies.
Soon after stepping into the
role early this year, Strazik hosted more than a dozen of GE’s largest
wind suppliers for a summit to discuss ways to improve the
profitability of the industry. “Each CEO came in with their
recommendations for us and them to lift all boats in an industry that,
frankly, has to ultimately become more profitable,” he said at the
company’s March 10 outlook meeting.
The quick influx of bigger, more
powerful machines has strained turbine manufacturers and the supply
chain, Strazik said in an interview. He said the industry needs to
slow down the turbine “arms race” and build more standardization into
its product line so that manufacturers and suppliers can produce
turbines more quickly and efficiently, at scale.
“There’s an element of
normalization or industrialization that’s going to be required here
for us to be able to achieve the growth prospects that a lot of these
countries have set out,” he said.
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