The wind industry’s battle for profitability

Felicity Bradstock

Felicity Bradstock is a freelance writer specializing in energy and finance. She has a Masters in International Development from the University of Birmingham, UK.

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• Big wind energy companies are struggling to restore profitability after facing setbacks from supply chain disruptions and quality issues with their large turbines.
• Companies such as Orsted and Vestas are showing signs of improving performance, while Siemens Gamesa is restructuring to resolve quality issues and strengthen its wind business.
• Global demand for wind energy remains strong, but to succeed in the long term, companies need to prioritize thorough testing and weather supply chain instability.

The wind energy industry has been at a standstill with several major players suffering setbacks due to supply chain and quality control issues. Now wind energy giants are looking to restructure their operations so they can quickly become profitable. As countries around the world go green, these companies have a key role to play in developing the renewable energy business, but they need to prove they are up to the job after experiencing performance and profitability issues in the post-pandemic period.

In recent years, several major wind developers haveVarious challengesFirst, supply chains were severely disrupted during and after the pandemic, causing many wind companies to delay the development of new projects. Second, these supply chain disruptions and increased demand for materials related to renewable energy operations have significantly increased the price of turbines. Third, in recent years, several wind companies have competed to develop the largest and most efficient turbines. As they accelerated the production and deployment of these giant turbines, there have been several reports of failures, forcing them to recall much of their equipment.

Denmark’s Orsted, the world’s largest offshore wind farm developer, has seen profits fall in recent years due to rising inflation, rising interest rates and supply chain delays. But in May, Orsted said gross profit before interest, taxes, depreciation and amortization, excluding new partnerships, rose 8% from a year earlier to $1.08 billion.Going downOrsted CEO Matt Nipper fired the company’s finance and operations chief in November and suspended dividend payments.stated“We remain confident that we remain on track to achieve our business plan.”

Another Danish wind power giant, Vestas, said it returned to profitability this year after several years of decline. In its annual report, the company attributed the turnaround to operational and management discipline. Vestas reported full-year operating profit before special items of $249 million, up from a loss of $1.2 billion a year earlier. Vestas CEO Henrik Andersen said:stated“We expect continued geopolitical volatility, as well as permitting delays and inadequate grid buildout across markets, to create uncertainty in 2024.” Still, Vestas still sees its full-year operating margin excluding special items as being between 4% and 6%, compared with 1.5% in 2023 and minus 8% in 2022.

Meanwhile, major changes at Siemens’ wind division could improve the company’s prospects. Siemens shares rose 13% this month after the German company raised its annual outlook and said it was replacing the CEO of its wind turbine unit as part of a restructuring. Jochen Eickhold, CEO of the international division, told the board that he would step down on July 31 as agreed with the company and be succeeded by Vinod Philipp. Siemens Energy CEO Christian Bruch said:In a statement.“In a very difficult situation at Siemens Gamesa, Jochen laid the core foundations for an urgently needed restructuring and a fresh start within Siemens Energy. It is fair to stress that the causes of the quality problems did not arise during his tenure as CEO.”

Bruch highlighted Siemens’ plans to restructure and develop a long-term strategy to boost profits. The company expects earnings to rise this year due to more stability in its wind business and growing demand for grid equipment. The company now sees sales growth of 10-12 percent and an earnings margin before special items of minus 1 percent to plus 1 percent, up from its previous forecast of minus 2 percent to plus 1 percent.

Bruchstated“We are committed to wind power. We have been working on a lot of different things for the past two years. Jochen has started a lot of the right activities in terms of turning this business around. We knew it would take years to get back on track,” he added. “Going forward, we will be active both onshore and offshore. We will put even more emphasis on the offshore business. We will focus on volume production offshore.”

Siemens is also working hard to resolve quality control issues so that development of new projects can proceed smoothly without equipment recalls. Last year, rushed development was cited as one of the main causes of quality control issues for Siemens’ land-based equipment. The company said:Extending domestic product cyclesThis is to ensure that the equipment has undergone a rigorous testing process.

The wind energy sector faces several complex challenges and still struggles to be profitable, but recent improvements at several industry giants indicate that progress is being made. Global demand for new wind energy projects is strong, but wind energy companies need to ensure that sufficient testing and quality control is in place for project development, rather than rushing to meet growing demand. Additionally, volatility in both material prices and global supply chains could lead to further disruptions, and companies need to take this into account.

Article by Felicity Bradstock of Oilprice.com

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