2022 may be a critical year for wind energy

Both GE and Siemens lost revenue from wind turbine sales last year, so what’s going on in the world of wind power? Can we expect better results this year? With Germany and other developed renewable energy regions experiencing low wind speeds in 2021, many are wondering if wind is the reliable form of energy that is so often featured.
Siemens Gamesa’s renewable energy business saw its market capitalization nearly halve over the past year as supply chain disruptions and low wind levels negatively impacted operations. Siemens said its revenue fell to $2.06 billion between October and December 2021, marking a 20.3 percent year-over-year decline. Operating losses totaled nearly $353 million.

The company believes its revenue could contract between 9 percent and 2 percent year-on-year, stating: “Considering the results for the first quarter of FY22 and the fact that the company does not expect supply conditions to normalize in For the remainder of the year, Siemens Gamesa has adjusted its guidance for FY22.”

Siemens’ share price has fallen about 45 percent over the past year as it blamed volatile market conditions and ongoing supply chain problems such as delays and higher raw material costs. for negatively affecting its wind energy sector. The Chairman of the Board of Directors of Siemens Gamesa, Miguel Ángel López, explained that the company is “experiencing important challenges in its Onshore business in a very complicated market”.

This is not the only major European wind power to feel the pressure, with both Vestas and Orsted warning of tough times ahead for the renewables sector late last year. Danish companies raised concerns about low wind speeds, ongoing supply chain challenges and rising manufacturing costs associated with wind power operations.

Orsted saw a drop in earnings in 2021 associated with lower wind speeds compared to 2020. Europe experienced some of the lowest wind speeds in decades last year. This, combined with higher associated costs, from raw materials to transportation, meant a tough year for renewable energy companies. Despite the optimism that emerged from the COP26 climate summit last fall, these are inevitably the kind of challenges that green energy companies can expect to face as they scale up their operations in the coming years.

In terms of raw materials, steel prices soared in 2021, with the benchmark price rising 86% in the US and 53% in Europe. Since steel makes up a significant proportion of the structure of wind turbines, this means that the cost of new wind farm projects has skyrocketed. Uncertainties around the costs and reliability of wind speeds have subsequently pushed down the share prices of many renewable energy companies.

In the first half of 2021, Germany reported that its share of renewable energy fell to 42.6 percent of the country’s total power, down 8.1 percent. Offshore and onshore wind power fell by 28 percent. With Germany expected to lead the EU’s ambitions to rely entirely on renewables for decades to come, decarbonizing its national economy, it will have to show the world how it is recovering from this volatile year in the future.

In the US, General Electric’s (GE) renewable energy segment is also facing challenges due to rising feedstock and transportation costs negatively impacting its onshore wind operations. The firm’s chief executive, Larry Culp, stated: “I don’t see the edge of a resolution yet.” And “we will see a little more inflationary pressure in 2022,” he said.

GE is fighting rising costs and supply chain difficulties, seeking alternative suppliers and buying alternative parts to try to manage prices. The inflation felt during and after the pandemic has hit businesses across all industries hard. However, burgeoning sectors like renewable energy are feeling it worse as they try to get off the ground, facing several obstacles along the way. For GE, the question of whether US production tax credits for onshore wind power will be extended adds to the uncertainty in the sector.

But several reports still predict record wind and solar results for 2022. Despite ongoing supply chain difficulties, many experts envisage a successful year for wind and solar power thanks to low prices. Supply chain costs and delays are also expected to lessen throughout the year. However, CEO of the American Council on Renewable Energy, Greg Wetstone, stated the need for greater regulatory certainty explaining, “We’re also in a moment where we have uncertainty on critical tax policy, and unfortunately, it’s a reality that the renewables sector has had to deal with from the beginning.”

Despite several challenges to the development of the world’s wind power, the Energy Information Administration (EIA) has announced plans for 21.5 GW of solar and 7.6 GW of wind in the U.S. in 2022, building upon the most successful wind, solar, and battery storage development year in history.

Renewable energy firms are hitting hurdles early in the game, following the optimism surrounding rapid expansion coming out of COP26. Siemens, Orsted, and GE have all faced losses related to low wind speeds and supply chain difficulties. However, as supply chain challenges begin to ease and more onshore and offshore wind turbines come online, we can expect to see a boost in the level of wind power in 2022 that is set to continue year-on-year.

By Felicity Bradstock for Oilprice.com