The rescue of Siemens Gamesa reveals the crisis of the European wind industry

2023-11-19 17:28:38

The German Government and the banks have come to the rescue this week Siemens Energy and its Spanish wind turbine manufacturing subsidiary, Siemens Gamesaafter registering losses in its 2023 financial year of 4,588 million euros.

The Spanish Government has also announced that it will participate in the aid of the company based in Zamudio (Vizcaya). The thickness of the hole is due to a flaw in the design of some wind turbines that will lead the German to present a restructuring of its strategybut the rescue highlights the difficult situation that the European wind industry is going through, penalized by rising costs and pressure from competition, especially from China.

Germany comes to the rescue of Siemens Energy after billion-dollar losses due to the crisis of the Spanish Gamesa

“Our wind industry is an example of European success. But it currently faces a unique combination of challenges,” said the president of the European Commission on September 13, Ursula Von der Leyenduring the State of the Union address in which he announced a ‘salvation’ plan for the sector.

Europe wants to triple its renewable power by 2030 and that means doubling the wind turbine needs of the continent, but it is in a kind of perfect storm with “uncertain” demand, a lot of “slowness and complexity” in granting permits, a shortage of components and high inflation.

The pressure of production costs

The International Energy Agency (AIE) proved that the costs of producing renewable energy remain 10% to 15% above 2020 levels in 2024. In 2022, manufacturing costs skyrocketed, after a period of continuous decline since 2010.

The price of steelthe main construction material for onshore wind power, increased by 270% in Europe, while copper and aluminum became 60% and 80% more expensive, although the greatest growth occurred in the freight, which almost sixfold, according to the IEA. Although in both cases they have fallen from those highs, they are still high prices.

These prices and the increase in financing costs Due to the increase in interest rates, they are affecting the viability of some projects – especially in offshore wind – and causing large companies to seek support from governments, such as Siemens, or to stop investments.

It is the case of Danish giant Orsted, which recorded losses of 2,667 million euros in the first nine months of this year, compared to a profit of 2,550 million euros the previous year. After scrapping two offshore wind projects in the United States, this week it announced its departure from a consortium in Norway and the resignation of Daniel Lerup, chief financial officer (CFO), and Richard Hunter, chief operating officer (COO), due to an environment “challenging and volatile.”

Chinese competition

In the midst of these internal problems, the pressure of international competition It is growing, with a potential leader: China. The Asian country has gone from having a 35% market share in new turbine installations worldwide in 2018, to exceed 50% in 2021. Last year for the first time a Chinese manufacturer, Goldwinsurpassed Vestas in first place in the world ranking of wind turbine suppliers, although 90% of its production was for its domestic market, according to Bloomberg NEF. The two were ahead of the American GE, in third place. After, Envisionanother manufacturer based in China – which by the way is the one who aspires to set up a battery gigafactory in Extremadura -, while Siemens Gamesa y Mingyang They tied for fifth place.

Strategic autonomy

“Without implementing forceful measures, the European energy ecosystem could have a dependence on China in 2030 of a different nature, but with a similar severity, to that which it had on Russia before the invasion of Ukraine,” warns the Spanish Presidency of the Council of the European Union in its roadmap to promote the strategic autonomy of the continent (ResilientEU).

The CEO of Chemistry Basf, Martin Brudermüller, suggested this week, in statements to the Frankfürter Allgemeine, that Europe had already lost that race. “The Chinese are technically better and also more profitable,” said he, who is one of the promoters of the largest offshore wind complex in the worldthe ‘Hollandse Kust Zuid’ park, located in the Dutch part of the North Sea, and with it the chemical giant plans to decarbonize part of its production.

The CEO of Siemens EnergyChristian Bruch, responded to those words during the presentation of results by assuring that “it is not about protecting the market from chinese competitors, but to create a playing field on equal terms.” The German executive then focused on the renewable auctions. Most countries’ clean energy contests are based on price, but the sector asks to reflect other criteria, such as sustainability or the CO2 footprint. “We are not talking about separating the market but about creating criteria that are important for us as regions and countries to have a sustainable industry. It is not a question of who does it, but of where it is done and what happens with sustainability and the footprint of CO2 and how these issues are reflected in the auctions,” he explained.

“We can follow China’s level and surpass it internationally if we have relevant solutions. But for that we need to solve our problems first. And the main one is that there are countries and regions where I would question whether there is a level playing field,” he added. The European Commission’s wind energy package seeks to address those challenges by facilitate access to financing for companies —through the Innovation Fund and with risk reduction guarantees from the European Investment Bank (EIB)—, but also with faster permits and helping countries to improve the design of their auctions to include prequalification criteria to guarantee cybersecurity, environmental protection and the ability to meet project commitments.

Structural changes

But not all problems are new. In September 2021, before the pandemic, the first European wind turbine manufacturer, Vestasannounced the closure of its factories Leekhammer (Germany), Nursery (Spain) and Esbjerg (Denmark). A few months before it was Siemens Gamesa who advanced the closing of theirs in La Coruña and Cuenca. In both cases it was due to a restructuring of the companies because production in those plants was focused on a type of smaller wind turbines that the market began to demand due to innovation in the sector to build more efficient machines.

This week, on November 21, Siemens’ energy subsidiary will present your new strategic plan, in which there will be no major divestments, but the products and markets on which its wind division will focus will be defined. The bulk of its business is present in Spain, Germany and Denmarkso one of the big unknowns is what the resulting size of each of these markets will be like, although the company has assured that it does not plan layoffs.