By Haley Zaremba, a writer and journalist based in Mexico City. Originally published at Oilprice.com.
Why isn’t wind power going gangbusters? In Europe, the energy crisis is causing solar power growth to break record after record. In the United States, the Inflation Reduction Act has provided major incentives to the renewable energy sector. For the last two weeks, the world’s preeminent energy and environmental experts have reemphasized the extreme urgency of decarbonization at COP27. And yet wind power has yet to enjoy the windfall. In fact, across Europe, major wind turbine makers are reporting massive losses and laying off swaths of employees. Just this month, Denmark-based Vestas Wind Systems, the largest maker of wind turbines in the world, reported a third-quarter loss of 147 million euros (about $151 million). General Electric, another major wind turbine producer in the United States and Europe, reports that its renewable energy unit is likely to report a $2 billion loss at the end of the year. Spanish company Siemens Gamesa Renewable Energy, a Madrid-based company that is a leading producer of offshore wind turbines, reported an annual loss of 940 million euros ($965 million) and has announced spending cuts which will incur 2,900 job losses – approximately 11% of the company’s workforce.
According to the CEO of Siemens Energy, the issue is supply chains. “Never forget, renewables like wind roughly, roughly, need 10 times the material [compared to] … what conventional technologies need,” said Christian Bruch in an interview with CNBC’s “Squawk Box Europe. “So if you have problems on the supply chain, it hits … wind extremely hard, and this is what we see.”
Supply chain woes originating from the Covid-19 pandemic continue to cast a pall over the wind power sector. Lulls in the production process have left wind turbine makers bound to contracts based on pre-pandemic prices that are now well under the going rate while cost of parts and labor has soared, meaning that they’re currently selling their products at a significant loss. Because of the scale of these projects, the financial losses from a single contract can be enormous.
Supply chains are not the only issue plaguing the wind sector, however. Increased competition from China has made the market even tougher for European companies. China has been making major additions to its own mind power production and manufacturing capacity. In 2021, China built more offshore wind capacity than every other country combined built in the last 5 years. And as we speak, China is busy building the world’s largest wind farm, which is so unthinkably enormous that it could power all of Norway by itself.
In an effort to keep up with the competition and to meet lofty decarbonization goals, European wind companies have also financially overextended themselves. In the race to create bigger, more powerful turbines, manufacturers in Europe have invested hundreds of millions of dollars on new turbine models in a time when they are not making enough profits to cover the cost.
In short, the wind industry has a number of problems it needs to solve before it can capitalize on the current gains in the decarbonization movement. But Siemens CEO Bruch says that the industry is up to the challenge – it has no alternative. “If we don’t resolve it as an industry,” he told CNBC, “we are missing a substantial part of the energy transition, and we’ll fail with the energy transition. So there’s no option but to fix it.”
And there are lots of reasons to keep betting on wind energy. Governments are throwing a lot of investment dollars into new wind ventures and incentives, from Biden’s Inflation Reduction Act to France’s big bet on floating offshore wind farms. As markets normalize and the wind industry works past pandemic-era supply lags, there’s no reason that wind power can’t get back on its feet. But before that happens, the sector has a very tough fourth quarter to get through.