After facing setbacks due to supply chain disruptions and quality issues with large turbines, major wind energy companies are fighting to return to profitability.
Companies like Orsted and Vestas are seeing positive signs of improved financial performance, while Siemens Gamesa is undergoing restructuring to fix quality issues and boost its wind business.
The global demand for wind energy remains strong, but companies must prioritize thorough testing and navigate supply chain volatility to succeed in the long run.
The wind energy industry has fallen into a rut, as several major companies have been plagued with setbacks due to supply chain and quality control issues. Now, wind energy majors are looking to reshape their business to ensure that they can become profitable fast. As countries around the globe transition to green, these companies have a major role to play in developing renewable energy operations, however, they will have to prove they are up to the job after experiencing performance and profitability issues during the post-pandemic period.
Several major wind energy developers have faltered in recent years due to a variety of challenges. Firstly, during and following the pandemic, supply chains were severely disrupted, causing many wind companies to fall behind in developing new projects. Secondly, these supply chain disruptions and the growing demand for materials associated with renewable energy operations meant that the prices of turbines increased significantly. Thirdly, several wind energy firms have been racing to develop the biggest, most efficient turbines in recent years. As they accelerated the production and rollout of these giant turbines, there were several reports of malfunctions, and much of the equipment needed to be recalled.
The world’s biggest offshore wind farm developer, Denmark’s Orsted, has seen profits fall in recent years due to rising inflation, interest rate hikes, and supply chain delays. However, in May, Orsted announced that its gross profit before interest, tax, depreciation, and amortization – excluding new partnerships – increased by 8 percent from the same period the previous year to $1.08 billion. This followed the stepping down of the company’s finance and operations chiefs last November, as well as the pausing of its dividend payouts. Orsted’s CEO Mads Nipper stated, “I am confident that we are on track to deliver on our business plan going forward.”
Vestas, another Danish wind major, announced this year that it was back in black after a couple of bad years. The company’s annual report put the return to profitability down to its commercial and operational discipline. Vestas achieved a full-year operating profit before special items of $249 million, compared to a loss of $1.2 billion the previous year. The firm’s CEO Henrik Andersen stated, “Continued geopolitical volatility as well as slow permitting and insufficient grid build-out across markets are expected to cause uncertainty in 2024.” Nonetheless, Vestas expects to achieve a full-year operating profit margin before special items of between 4 percent and 6 percent, compared to 1.5 percent in 2023 and minus 8 percent in 2022.
Elsewhere, big changes for Siemens’ wind unit could improve the company’s outlook. This month, Siemens shares increased by 13 percent after the German company increased its yearly forecast and announced that the CEO of its wind turbine unit would be replaced as part of restructuring efforts. The outbound unit CEO Jochen Eickholt told the board he will step down as part of a mutual agreement with the company on 31st July, to be replaced by Vinod Philip. Siemens Energy CEO Christian Bruch said in a statement. “In a very difficult situation at Siemens Gamesa, Jochen laid the central foundations for the urgently needed reorganization and new start within Siemens Energy. It is only fair to emphasize that the causes of the quality problems did not fall under his tenure as CEO.”
Bruch emphasized Siemens’ plans for restructuring and long-term strategic development aimed at boosting profits. The company has seen greater stability in its wind business this year, as well as a growth in demand for power grid equipment, pointing towards an increase in earnings. The firm expects to achieve a revenue increase of between 10 percent and 12 percent and a profit margin before special items between negative 1 percent and positive 1 percent, compared to the previous estimate of between negative 2 percent and positive 1 percent.
Bruch stated, “We are tackling the things in wind. We have been working over the last two years on a lot of things. Jochen launched a lot of the right activities in terms of this operational turnaround. We knew it was going to take years for us to really get it back on track.” He added, “Going forward, we are going to be active in onshore and offshore. We are going to focus the business on offshore more. We hammer down on the volume product in offshore.”
Siemens is also working hard to fix its quality control issues to ensure that new project developments run smoothly, with no equipment recalls. Rushed development was cited as one of the main reasons for quality control issues with Siemens’ onshore equipment last year. The firm is deciding whether to increase onshore product cycles to ensure the equipment undergoes rigorous testing processes.
While the wind energy sector is still struggling to make a profit in the face of several complex challenges, recent improvements in the wind divisions of several industry majors suggest progress is being made. The global demand for new wind energy projects is strong, however, wind energy companies must ensure that sufficient testing and quality control is carried out for project development, rather than rushing to meet the growing demand. Further, the volatility of both material prices and global supply chains could lead to further disruption, which must be considered by the companies.
By Felicity Bradstock for Oilprice.com
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