Wind turbine makers struggle to find pricing power

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COPENHAGEN/MADRID — Wind turbine makers racked up heavy losses last quarter, swollen by soaring costs and fierce competition despite more than ever demand.

The industry began to see a sharp drop in prices and increased competition in 2017, as some governments moved away from generous, fixed and subsidized tariffs for electricity towards an auction-based system that favors the lowest bidders. .

Profits were further wiped out by COVID-19, runaway metal prices, politically motivated import duties and fallout from the Russian invasion of Ukraine.

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Vestas, GE Renewable Energy and Siemens Gamesa, which control 70% of the market outside China, all posted bigger losses for the first three months of 2022.

“Competition is pretty fierce and in the past there was an element where too often people wanted to gain market share at the expense of profitability,” Siemens Gamesa chief executive Jochen Eickholt said Thursday.

Turbine makers are now trying to raise prices to ease the pressure on profit margins.

Vestas and Siemens Gamesa have over the past year raised average selling prices by double digits and turned down projects where supposed prices were too low. This has bucked a flat or declining price trend in recent years.

Eickholt, who took charge of Siemens Gamesa in March with a mission to turn around the ailing company, said the Spanish-German company had not been “strict enough” on pricing in the past, but that its strategy is changing.

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The company’s onshore order intake in the January-March quarter was 69% lower than estimated, according to brokerage Jefferies, as the company became more picky about which projects to undertake.

HIGH COSTS

Vestas, which has managed to outperform rivals in the past, reported a bigger-than-expected loss on Monday and cut its profit margin outlook as inflationary pressures following Russia’s invasion of Ukraine, among other , make pricing difficult.

“We can’t price and we can’t do things that we don’t know about,” Andersen said on a call with investors after the results, referring to, among other things, a 40% jump in European steel prices in just a few weeks.

Soaring raw material costs have affected several industries, but have particularly hurt the wind energy industry, as wind turbines are made of 90% metals such as steel and aluminum.

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Interrupted supply chain delays and quadrupling transportation costs since 2020 are also bad for an industry requiring specialized transportation solutions to move huge components around the world.

HIGH DEMAND SKY

The good news for the industry is that while costs are skyrocketing, demand is also at very high levels due to the global energy transition away from polluting fossil fuels and more recently in response to countries trying to wean themselves off Russian oil and gas.

European legislators are pursuing already ambitious targets for wind power construction.

According to the research director of energy transition consultancy Brinckmann, Shashi Barla, current wind targets around the world indicate that around 1 million new wind turbines will be installed by 2050.

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“Medium and long-term fundamentals are stronger than ever, but that won’t prevent OEMs (original equipment manufacturers) from facing near-term challenges,” Barla said.

In the longer term, it seems likely that Chinese turbine manufacturers, which have yet to make their mark in Europe, could want a piece of the action and even come to dominate it, like the solar industry.

Eickholt said the answer was to find a way for the industry to become profitable and sustainable.

“Otherwise, I’ll have a hard time imagining how all of these growth targets can be achieved,” he said. (Reporting by Stine Jacobsen in Copenhagen and Isla Binnie in Madrid; Editing by Matt Scuffham and Elaine Hardcastle)

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