European, US wind-turbine majors see orders plunge amid continued cost pressure

Battling rising costs, the major Western wind-turbine makers saw continued financial losses in 2022 but are pursuing a turnaround by hiking the price of their machines to long-term highs. Relief in the form of falling input costs could also be on the horizon.

Manufacturers Vestas Wind Systems A/S, Siemens Gamesa Renewable Energy SA, General Electric Co. and Nordex SE experienced reduced order intakes in 2022 compared with 2021, with new orders across the four companies declining 28% to a combined 31.9 GW.

Order intakes at Siemens Gamesa and GE fell more than 35% year over year, according to analysis by S&P Global Commodity Insights, while orders at Vestas and Nordex slipped about 20%. In 2021, the companies received 44.3 GW of new orders, about 5% below the total for 2020.

Orders dropped most notably in offshore wind in 2022 — a trend attributed to the cyclical nature of offshore wind financing and the longer negotiation processes involved compared with onshore.

Still, the orders that are coming in, both onshore and offshore, are being agreed at prices way above the historical average. Vestas sold onshore machines in the fourth quarter of 2022 at an average of €1.15 million/MW, a big increase from the €710,000/MW average from the same quarter two years earlier.

That means the four manufacturers' order backlog continues to grow in value, rising 3.7% year over year to €123.21 billion in total across their onshore wind, offshore wind and service businesses.

'Such a mess'

Some renewables executives worry that cost pressures could squeeze the turbine-makers to the point where the wind industry's delivery targets are under threat.

"If you talk to the big wind manufacturers, the last thing on their mind is ... expansion. They're in such a mess," David Swindin, CEO of global renewables platform Cubico Sustainable Investments, said March 29 at the Aurora Spring Forum in Oxford, England.

"[You] can just see there is going to be a crunch unless government probably intervenes," Swindin said.

Swedish wind developer OX2 AB (publ) has had to come to terms with the higher prices. The company typically signs fixed contracts on the day it starts construction.

"That's unfortunate when prices go [up] for the suppliers, but we've had 10 years of fortunate situations as well where they've been benefiting from falling prices ... and capturing upsides across construction," OX2 CEO Paul Stormoen said on the sidelines of the conference in Oxford, which was organized by consultancy Aurora Energy Research.

While equipment costs are rising, Stormoen pointed to the relative energy cost improvements for wind over recent years.

"Despite prices for turbines going up 30%, 40%, [wind power is] still cheaper relative to alternative sources compared to three years ago," the executive said.

Before the recent price increase, Swindin added that developers across the board have been "getting [turbines at] cheaper prices probably than was sustainable."

Within the turbine-makers, executives have shown no signs that their commitment to profitability over order volume is waning.

"We remain adamant that we must continue to strengthen our commercial discipline and also the value chain together with our partners," Vestas CEO Henrik Andersen said during the company's full-year results presentation.

While the higher prices have created a temporary dent in order books, "the fundamentals for wind energy remain very strong with strong policy measures in key markets ... coupled with renewed energy security concerns and reducing import dependence on China," said Indra Mukherjee, associate director of global clean energy technology at Commodity Insights.

The US Inflation Reduction Act, Europe's REPowerEU strategy and China's 14th five-year plan create a global environment of supportive renewables policy, the analyst said.

Chinese turbines loom large

The increasing cost of Western turbines has once again brought Chinese-made machines into sharp focus. Chinese turbines continue to fall in price, widening an already significant cost gap with companies in Europe and the US.

In March, Chinese manufacturer Zhejiang Windey Co. Ltd. signed an agreement to supply 112 turbines to an 854-MW project in Serbia described as Europe's largest onshore wind farm — the latest sign that the door is opening for Chinese companies to extend their reach beyond their domestic market. The project developer, Fintel Energija a.d., is a Serbian subsidiary of an Italian renewables developer, Fintel Energia Group SpA.

Still, most wind developers in Europe continue to favor Western machines, even if that means higher prices. OX2, for instance, is not in discussions with Chinese suppliers, but that may change if costs continue their upward trajectory.

"At one point, we definitely need to [consider Chinese turbines] if prices go to levels where you cannot absorb them anymore," Stormoen said, calling for measures to help the Western turbine-makers stay competitive.

"The main reason behind pushing renewables in Europe, and most other regions as well, is the energy independency, the national security, and for that I think they need to promote the European supply chain to be competitive," Stormoen said. "It would be a shame if we just let that one fall."

'Rationalization' of prices soon

The price of Western turbines may soon start to retreat, given that freight and commodity prices have already decreased from 2022 highs, according to Mukherjee.

"While it's unclear how soon this will start to reflect in the selling prices of turbine-makers, a rationalization of prices can be expected sooner rather than later — perhaps from 2023 itself," the analyst said.

This should improve the margins the turbine-makers achieve on the future delivery of orders that have been booked at today's record prices.

Meanwhile, the manufacturers continue to push the envelope on turbine size and explore new technologies.

In December 2022, Vestas successfully tested its first 15-MW offshore wind turbine. The kit is already popular with developers seeking scale and was subsequently ordered by EnBW Energie Baden-Württemberg AG for its He Dreiht wind farm in Germany.

Nordex, together with Acciona Energia Internacional SA, announced plans to start manufacturing electrolyzers, planning to develop large-scale off-grid sites that integrate wind turbines directly with the hydrogen equipment.

Siemens Gamesa, with parent Siemens Energy AG, is also working on integrated turbine and electrolyzer solutions to serve the hydrogen market.

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