"Wind Power Has A Profitability Problem" by Felicity Bradstock
"Some of the world’s biggest wind energy companies are making huge losses despite their economies of scale."
I thank Irina Slav for referencing this interesting article in her recent piece which I will be reposting separately. It gives one hope when our beautiful rural hills and vales of Wales are being targeted by dodgy wind developers whose sole motivation is profits for themselves, their partners such as, Copenhagen Infrastructure Partners in particular, and their investors.
Wind Power Has A Profitability Problem
By Felicity Bradstock- Apr 19, 2023, 2:00 PM CDT
Despite the sharp growth over the last decade, companies are realising that it is difficult to translate wind power into profits.
Some of the world’s biggest wind energy companies are making huge losses despite their economies of scale.
Many companies remain optimistic about the growth prospects for wind energy because of generous government support.
Despite the strong push to shift to green by installing more renewable energy capacity, many are asking whether the wind energy industry will be able to bounce back quickly from huge losses last year to develop the wind power needed to fuel the green transition. In 2022, several major wind energy firms reported billions in losses due to a plethora of challenges that have made it harder to develop new wind farms worldwide. Now the fear is that companies around the globe may be unwilling to invest in the wind projects needed to accelerate the movement away from fossil fuels to green alternatives if they cannot see the potential for profits.
Wind energy has grown exponentially in recent years thanks to a huge amount of funding in research and development and the rollout of several large-scale onshore and offshore wind farms around the globe. Innovations in turbine technology have led to the development of giant power generators that are much safer, more reliable, and quieter than their predecessors.
In 2021, electricity generation from wind power grew by a record 273?TWh, a 17 percent increase from the previous year. This rise was around 55 percent higher than that of 2020 and was the highest of all renewable energy technologies. The reason for such rapid growth was the huge investment seen in the development of wind energy projects worldwide, with capacity additions reaching 113?GW in 2020 compared to 59?GW in 2019. The global wind power capacity stood at around 1,870 TWh in 2021, compared to 343 TWh in 2010. Although this figure will have to increase substantially more to meet net-zero goals, to 7,900?TWh in 2030.
Despite the sharp growth over the last decade, companies are realising that it is difficult to translate wind power into profits. There is no problem when it comes to the global demand for wind power, which continues to grow year after year as countries attempt to curb their reliance on fossil fuels. But wind power research and development, as well as the construction of enormous wind farms, don’t come cheap and the return so far is not what many companies expected.
In June last year, there were reports that some of the world’s biggest wind energy companies were battling heavy losses. Vestas Wind Systems, General Electric Co., and Siemens Gamesa Renewable Energy all faced extremely high raw material and logistics costs following the pandemic when supply chains were disrupted. This came after an arms race in which wind majors were competing to build the tallest, most powerful wind turbines at whatever cost would put them ahead of the rest. Ben Backwell, CEO of the trade group Global Wind Energy Council, stated “What I’m seeing is a colossal market failure.” Backwell added, “The risk is we’re not on track for net zero [emissions] -- and the other risk is the supply chain contracts, instead of expanding.”
By November 2022, GE was predicting $2 billion in losses in its renewable energy division, largely due to inflation and supply chain challenges. This has led the company to make cuts, with plans to reduce its global headcount at onshore facilities by 20 percent over a year. Many wind companies have felt the triple whammy of inflation, reduced tax incentives, and rising interest rates of the last year, adding to the supply chain disruptions of the pandemic. Vestas, the world's biggest wind turbine maker, reported its first annual loss in almost a decade in 2022, of around $1.68 billion. The firm said that its sales last year fell by around 7 percent, and it faced rising costs across several areas. The company stated in its annual report “Vestas and the wind industry were ready to provide solutions to address the energy crisis, but were constrained by cost increases, logistical challenges, outdated market designs and permitting processes.” Meanwhile, Siemens Energy reported a net loss of more than $943.48 million.
Experts are now questioning whether companies will be able to bounce back from these losses to produce the 250-GW a year growth required to meet global 2030 wind capacity targets. Luckily, despite the losses, many companies remain optimistic about their prospects. In the U.S., this has partly been driven by the new tax credits and subsidies expected to arrive from Biden’s 2022 Inflation Reduction Act. Further, with demand for wind power expected to continue growing for decades to come, the challenges faced now are seen as a temporary blip on an overall positive trajectory.
Aaron Barr, an industry analyst at Wood Mackenzie, stated “The wind energy market is stuck in this very strange paradox right now… We have the best long-term climate policy certainty ever, across all the largest markets, but we’re struggling through a period where the whole industry, particularly the supply chain, has been hit by issues that have culminated in destroying profit margins and running many of the top OEMs [original equipment manufacturers] and their component vendors into negative profitability territory.”
The promise of high demand and new grants and subsidies are keeping the wind energy industry’s spirits high, and we can expect more incentives for new wind capacity worldwide as other countries and regions introduce their own climate policies. But governments around the globe must continue to provide incentives to encourage greater development to ensure that companies are not deterred by major recent losses from rolling out new wind projects.
By Felicity Bradstock for Oilprice.com