Green energy giant Siemens crashed to a £4billion loss yesterday amid a mounting crisis in the wind turbine industry.
In just the latest setback for the clean energy revolution, the German firm launched a review into its wind power arm Siemens Gamesa, which it expects to post a £2billion loss in 2024.
It came just a day after it secured a £10.5billion bank bailout underwritten by the German government.
Siemens said it may exit some markets and products following the review.
Major players in the wind turbine sector, including BP and Orsted, have reported multi-million pound write downs, huge losses and long delays in recent weeks.
Bailout: German energy giant Siemens has launched a review into its wind power arm Siemens Gamesa, which it expects to post a £2bn loss in 2024
The industry is battling sharp price increases and supply chain issues, particularly in the US.
Cavendish energy research director Jonathan Wright said: ‘High interest rates and equipment costs, supply chain pressures and aggressive bid terms for new wind farm projects are to blame.’
UK Energy Research Centre director Rob Gross said: ‘What we are seeing is a combination of raw materials cost inflation, supply chain constraints and increasing costs of finance driven by rising interest rates.
‘This means that the offshore wind industry can no longer deliver new projects at the exceptionally low prices that were seen in recent years.’
BP’s renewables boss Anja-Isabel Dotzenrath said earlier this month that the US offshore wind industry is ‘fundamentally broken’ as it revealed a £434million write down of a project off the coast of New York.
Last week, Orsted sacked two of its most senior managers after it reported a larger-than-expected impairment of £3.2billion in the US.
It prompted the cancellation of two wind power developments off the coast of New Jersey.
Tom Gilbey, an equity research analyst at Quilter, said the industry in the US ‘appears to be suffering most’.
‘Contracts in the US typically have less protection against inflation and the supply chain is less well stocked which has caused delays in construction,’ he said.
Wright added: ‘The US has been criticised for slow permitting and the time lag between power agreements being signed and projects being constructed.’
Projects in the UK have also been plagued by delays and spiralling costs.
Subsidies: Cabinet minister Claire Coutinho
Danish giant Orsted, the leading offshore wind developer in the UK, is reportedly in talks with the UK Government over the viability of its 231 turbine Hornsea 3 wind farm off the coast of Norfolk.
Reports suggested the Danish firm is trying to secure more generous subsidy arrangements with the Department for Energy Security and Net Zero, led by Cabinet minister Claire Coutinho.
Wright said: ‘Companies are facing the problems elsewhere. In the UK, the last offshore wind farm failed to receive any bids as companies viewed the terms as too tough in today’s higher cost environment.’
Gross, who is also a professor of energy at Imperial College London, added: ‘In the short-term, prices paid to new schemes will need to rise in order to continue to deliver offshore wind.’
The Government will reportedly increase the price offered to offshore wind farm developers after the last auction attracted zero bids.
The £40 per megawatt hour was too low compared to the rising cost of building wind power projects.
Ministers have increased the payment to as much as £70 per megawatt hour to avoid another flop, the BBC said.
‘What worked in a pre-Covid low inflationary environment no longer applies – energy will have to cost more in the future,’ Wright said. SSE yesterday became the latest company to announce its renewables arm had taken a hit.
The company said output was 19 per cent lower than anticipated due to ‘exceptionally still and dry weather conditions’.
Delays to its Seagreen wind farm, in the North Sea off the coast of Scotland, also contributed.
But the company doubled down on its commitment to invest in green energy.
It raised its planned capital expenditure to £20.5billion up to 2027, up 14 per cent from £18billion.
Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said: ‘SSE had been hoping for a return to more normal weather in the second quarter, after a slow start to the year for its renewable energy assets.
‘But that didn’t materialise. Turbo-charging efforts towards renewables is a bold and admirable move. But the shift comes with a hefty dose of risk – they’re not always reliable.’
Quilter’s Gilbey added that while the wind power sector is in ‘a tricky place’ the ‘long-term demand remains the same’.
‘A build-out is still much needed,’ he said.
‘In order to continue to entice public players to build wind farms that are required for the energy transition, these projects may need to be repriced to reflect higher interest rates and inflation.’
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