What is holding back the wind power boom in Europe?

Why is wind power not booming, as one should expect ? In Europe, the energy crisis is driving solar energy growth from record to record. In the United States, the Inflation Reduction Act has provided important incentives to the renewable energy sector. Over the past two weeks, the world's leading energy and environmental experts have reiterated the extreme urgency of decarbonisation at COP27. Yet wind energy has not yet enjoyed this fortune. Indeed, across Europe, major wind turbine manufacturers are making huge losses and laying off many employees . Just this month, Denmark's Vestas Wind Systems, the world's largest wind turbine maker, reported a third-quarter loss of 147 million euros (about $151 million). General Electric, another major wind turbine maker in the United States and Europe, reported that its renewable energy unit is likely to post a $2 billion loss at the end of the year. Madrid-based Spanish company Siemens Gamesa Renewable Energy, a leading manufacturer of offshore wind turbines, reported an annual loss of 940 million euros ($965 million) and announced spending cuts that will result in the loss of 2,900 jobs Labor – approximately 11% of the company's workforce.

According to the CEO of Siemens Energy, the problem is the supply chains. “Never forget that renewable energies such as wind need 10 times more material than conventional technologies,” said Christian Bruch in an interview with CNBC's “ Squawk Box Europe ”. “So if there are problems in the supply chain, wind gets hit extremely hard, and that's what we see.”

The supply chain problems caused by the Covid-19 pandemic continue to cast a shadow on the wind energy sector. Slowdowns in the manufacturing process have left wind turbine makers locked into contracts based on pre-pandemic prices that are now well below the going rate, while the cost of parts and labor has skyrocketed, meaning they are currently selling their products at a significant loss. Given the scale of these projects, the financial losses from a single contract can be enormous.

However, supply chains are not the only problem facing the wind sector. Increased competition from China has made the market even more difficult for European companies. China has greatly increased its design and production capacity. In 2021, China built more offshore wind capacity than all other countries combined in the past 5 years. And as we speak, China is busy building the largest wind farm in the world, so unthinkably huge that it could single-handedly power all of Norway.

In an effort to keep up with the competition and meet grand decarbonisation goals, European wind companies have also overextended themselves financially. In the race to create bigger and more powerful turbines, European manufacturers have invested hundreds of millions of dollars in new turbine designs at a time when profits are not enough to cover costs. This, without state aid, paves the way for economic collapse.

In short, the wind industry has a number of problems to solve before it can capitalize on the current gains of the decarbonization movement. But Bruch, CEO of Siemens, says the industry is up to the challenge: it has no alternative. “If we don't solve this problem as an industry,” he told CNBC, “we will miss out on a substantial part of the energy transition and we will fail the energy transition. So there is no other choice but to solve the problem”.

And there are many reasons to keep betting on wind energy. Governments are pouring big money into new wind initiatives and incentives, from Biden's law on reducing inflation to France's big bet on floating offshore wind farms. As markets normalize and the wind industry overcomes pandemic-era supply delays, there's no reason wind power can't get back on its feet. But before that happens, the industry has to weather a very challenging fourth quarter.

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The article What is holding back the wind energy boom in Europe? comes from Economic Scenarios .

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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/cosa-frena-il-boom-delleolico-in-europa/ on Mon, 28 Nov 2022 07:00:24 +0000.