Outgoing Siemens Gamesa CEO calls for fairer division of risk in wind industry

The wind industry needs to rethink the way it distributes price risk along the value chain if the turbine manufacturing business is to remain sustainable, the outgoing CEO of Siemens Gamesa Renewable Energy SA, Andreas Nauen, said on the turbine-maker's fiscal first-quarter earnings call Feb. 3.

Nauen, who has been in the role since June 2020, was asked to step down on Feb. 2 as the board drew consequences for the company's ongoing underperformance, caused by internal challenges exacerbated by international commodity price inflation and supply chain disruption. Jochen Eickholt, an executive from parent company Siemens Energy AG, will take over on March 1.

"I understand the decision. Not that I like it, but I fully understand it," Nauen said on a call with analysts. But the perfect storm of external and company-specific challenges was "impossible to fix" in less than two years, he said.

Indeed, surging costs of key materials such as steel and copper have made the production of wind turbines more expensive, while international shipping of the bulky components has also become pricier.

Speaking for both Siemens Gamesa and the sector, Nauen said there needs to be a new approach to risk distribution, specifically around the exposure to commodity price risk.

"There's ... a fundamental change that needs to be driven in this industry: Who takes on which risks?" the departing CEO said. "For many years, the [turbine-makers] and also Siemens Gamesa, we took on a lot of risk with regards to cost inflation, transport and many other things. And I don't think that this can continue."

"We can and need to change that so that everyone has a fair chance in the value chain to be profitable," Nauen said.

Incoming Siemens Gamesa CEO Jochen Eickholt. Source: Siemens Gamesa Renewable Energy SA

'No maneuvering room'

Some of this is already happening. Siemens Gamesa has increased the price of its turbines, and logistics are being charged at a cost-plus basis rather than being billed at cost.

In turn, some customers are already rethinking their orders in light of surging prices. Nauen cited an example in Egypt, where a prospective customer will receive a firm government-controlled tariff for their power and is now postponing their project considerably. "Maybe even the project will never be realized because the technology doesn't allow [for] fulfilling that tariff," he said. "In some cases, there's no maneuvering room for our clients."

Others, such as a recent Finnish buyer who succeeded in working higher costs into a power purchase agreement, are already accepting higher prices.

Beyond the sectorwide challenges, Nauen acknowledged there are internal problems at Siemens Gamesa. "I don't think we should blame it all on external effects. We also have our own issues that we need to solve," the CEO said.

For one, the ramp-up of the company's new 5.X onshore wind platform should not have encountered such major engineering reworks, Nauen said. Tests recently revealed problems with the rotor blades, but changing certain materials fixed them. The timetable for the readiness of the new machine was also too ambitious, according to Nauen.

Wind's value 'beyond price'

The turbulence in the wind sector may signify a change of pace in the industry's roaring success of recent years.

With ever-growing capacity and falling costs, the price of producing power with wind has fallen substantially in the last decade. Subsidy auctions have yielded rapidly declining prices for governments, with developers in some countries asking for no revenue support and even paying hundreds of millions for the right to develop offshore wind projects.

"Still, the [turbine-makers] continue to be penalized" when input costs increase, Nauen said on a separate Feb. 2 call with journalists.

Developers, as well as policymakers, ought to look at wind power differently, the outgoing CEO said. "The value needs to extend well beyond price. We bring a lot of benefits to society," Nauen said, such as decarbonization of energy systems as well as job creation. "We need to be sure that we are financially sustainable," Nauen said.

Siemens Gamesa has already slashed its profit outlook for the current fiscal year, and factors such as commodity price pressure are not expected to fade anytime soon.

Eickholt, the incoming CEO, will come up against these challenges during his leadership. Meanwhile, rumors around a change in ownership at Siemens Gamesa continue to swirl, with parent company Siemens Energy said to be considering a buyout of Siemens Gamesa as the turbine-maker drags on overall group performance.