Last month, wind turbine manufacturer Siemens Gamesa experienced costly failures that had a negative impact on the shares of its parent company, Siemens Energy. This has raised concerns among analysts about potential problems in the wider wind industry.
Siemens Energy CEO Christian Bruch admitted during a call with journalists that there were significant quality issues at Siemens Gamesa, which were worse than anticipated. This revelation caused Siemens Energy’s stock to plummet by around 37% on June 23, and other wind companies also saw a decline in their shares as investors worried about industry-wide issues.
Nicholas Green, head of EU capital goods and industrial technology at AllianceBernstein, believes that the rapid expansion of the wind industry and the use of relatively new components pose inherent risks throughout the sector. He suggests that the limited operational data available could contribute to these risks.
Siemens Gamesa’s board has announced an extended technical review of the issue, which is expected to result in costs exceeding 1 billion euros ($1.09 billion). While the company has recovered some losses, its shares are still down by over 33% in the past month.
Over the past two decades, the wind industry has grown significantly, lowering costs and improving efficiency with larger turbines. Christoph Zipf, spokesman for industry body WindEurope, explains that turbines have become bigger, which poses challenges related to quality control, materials, and longevity. This expansion has been driven by innovations in turbine technology and competitive auctions.
Despite the increase in wind power generation and output, the industry has faced challenges due to the COVID-19 pandemic and disruptions in supply chains. The rise in commodity prices, particularly steel and nickel, has increased the cost of wind turbines. This, along with the absence of inflation-indexed renewables auctions, has further impacted original equipment manufacturers (OEMs).
However, Zipf argues that the technical problems at Siemens Gamesa are limited to the company itself and not indicative of a broader industry issue. While the competition in the sector has driven the development of bigger and better turbines, he asserts that the changes have been incremental and evolutionary, and the European wind industry has maintained its reputation for delivering reliable and high-quality turbines.
According to ONYX Insight, most wind turbines are certified for 20 years but contain components that will fail during that time due to a compromise between cost and reliability. These failures can have a significant impact on the profitability of wind projects. ONYX projects that major corrective spending will reach $4 billion by 2029, with around 65% of operations and maintenance costs being unplanned.
The growth of the wind industry has been rapid, and the sector has had to scale up quickly without much time for adjustment. Evgenia Golysheva, vice president of strategy and marketing at ONYX, emphasizes the need for a realistic understanding of failure rates in wind turbines, as well as the importance of digital and diagnostic tools to address reliability issues associated with larger and more complex turbines.
In conclusion, while Siemens Gamesa’s failures have raised concerns and resulted in financial losses, the wind industry as a whole must address the challenges associated with rapid growth, supply chain disruptions, and the need for improved reliability in larger turbines.
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