European wind turbine manufacturers are likely to face another tough year in 2023, as competition from China grows and the effects of higher production costs bite.
Despite the push by governments in the EU and US to expand renewable energy, major European manufacturers including Siemens Gamesa, Vestas and Nordex are running at a loss, with a return to profitability not expected soon.
“Short-term pressures remain very high and are negatively impacting our profitability,” said Nordex in November. The long process for obtaining permits for new projects in Europe meant “we are still not anticipating a particularly rapid rise in demand in the short term”, it added.
Petra Manuel, an energy analyst at research group Rystad Energy, said 2023 would “most likely also be a challenging year” for European manufacturers, in part because of low onshore wind orders.
Inflation and the effects of the Ukraine war have pushed up prices for energy and key raw materials like steel, increasing turbine manufacturing costs. Energy market uncertainty and the slow European permit process has also held back new orders: European onshore turbine orders in the third quarter fell by a third year on year, according to industry association WindEurope.
Vestas in November said delays had led to “higher costs related to executing on customer commitments”, which included penalties for late deliveries on contracts. Siemens Gamesa noted in the same month that it had paid “penalties imposed by customers for late delivery”.
Last week, the head of the International Energy Agency, Fatih Birol, told the FT he was “worried about the wind industry in Europe”.
In addition to rising input prices, European manufacturers face growing competition from China. “China is beginning to win some . . . orders in Europe for wind turbines,” said Giles Dickson, chief executive of WindEurope. “They are knocking at the door.”
China’s Mingyang Smart Energy was selected to supply the UK’s first offshore wind project in the Celtic Sea this year.
While Chinese manufacturers are also expanding into emerging markets, their European competitors are retrenching to home markets. Vestas said this year it was “ceasing production at certain factories in China and India”.
The crunch is also feeding through to wind farm developers. In October, US company Avangrid said a planned offshore wind project in Massachusetts was “no longer viable” under the existing contract because rising prices had “significantly increased the expected cost of constructing the project”.
Despite the challenges, analysts said the longer term picture was more positive, given the push by policymakers in Europe and elsewhere to expand the renewables sectors.
Sean McLoughlin, Emea head of industrials research at HSBC, said: “I don’t think there is an existential threat. The long-term drivers are as clear as they’ve ever been. It’s a question of looking through next year.”
Companies were now negotiating higher prices for turbines and more favourable contract terms, he added. “What’s missing is the [order] volumes.”
Some onshore manufacturing plants were not working at capacity because of the lack of orders, analysts said. But by the mid-2020s, the industry expects demand for turbines will have jumped.
By mid-decade, the existing supply chain would “not be big enough to build all the offshore turbines that governments need and want to be building across Europe”, said Dickson of WindEurope.
Ben Backwell, chief executive of the Global Wind Energy Council, said the “hope is that the order book will be full 2024”.