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Wind-turbine makers wobble under COVID-19 impacts

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Wind-turbine makers wobble under COVID-19 impacts

SNL Image

Construction on an offshore wind farm. Turbine factories in some countries have been impacted heavily by the pandemic.
Source: EDF

The coronavirus crisis has shaken the foundations of wind turbine manufacturing, driving two of the largest producers outside of China to net losses in the first half of the year and continuing to disrupt supply chains in key markets for both blade production and wind installations.

Germany's Nordex SE reported negative EBITDA of €70.8 million in the first six months of 2020, down from positive €17.1 million in the previous year, with CEO José Luis Blanco citing "a massive shock" from the pandemic that meant the company and its suppliers had to shut factories and could not ship their products to construction sites.

The manufacturer, which posted a consolidated net result of negative €180 million for the first six months, was forced to request a €350 million loan backed by the German government and also sold a large project pipeline to utility RWE AG at the end of July, which will further shore up short-term liquidity. But Blanco said Aug. 13 that production at the company's factories was not back to normal yet, partly because Nordex operates a large share of them in Brazil, India and Mexico — countries that are among the worst hit by the virus.

"I cannot say that the situation is stable, but [it] is making good progress," Blanco told analysts on an earnings call. "[COVID-19] creates delays and extra cost in our factories and projects, and we need to live with that."

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

Nordex said it could not quantify the total financial impact of the crisis yet, although CFO Christoph Burkhard said the majority of costs during the first half were related to the pandemic.

Orders drop

Some of the company's larger rivals have already tallied up the damage. Siemens Gamesa Renewable Energy SA said July 30 that it expects to lose about €1 billion in revenue for the current fiscal year, with about half the impact likely to be permanent. The Spain-based company swung to a net loss of €466 million during its fiscal third quarter ended June 30, compared to a net profit of €21 million in the same period a year ago.

"The pandemic impacted us big time," CEO Andreas Nauen said on an earnings call. About 90 of the company's current wind farm projects around the world were impacted by the pandemic to some degree.

Siemens Gamesa also said it is scaling back its onshore wind business by largely withdrawing from India and generally prioritizing profits over scale when taking on new orders, but Nauen emphasized that the strategic review of the unit was started before the virus spread.

Still, Siemens Gamesa saw onshore turbine orders drop by 43.7% year over year in the most recent quarter, in terms of volume, while orders over the last 12 months have declined by 3.6%. Nordex said that order volume dropped 17% year over year during the first half, although it expects to make up the difference in the third quarter. In-house blade production declined by 5% in the period and outsourced production took a hit as well, Blanco said.

The different geographic spread of turbine makers was clearly on display. Denmark's Vestas Wind Systems A/S also has factories in India, Brazil and Mexico, but more of its facilities are concentrated in Europe, the U.S. and parts of Asia that recovered more quickly from the pandemic. The company left its revenue forecast unchanged from the start of 2020 and also managed to increase products manufactured and shipped during the first half by 60% year over year.

"Suppliers have generally caught up [and] managed really well," Group President and CEO Henrik Andersen said Aug. 11, adding that Vestas has not pushed back its own deliveries either, as its customers still prefer to get projects done as quickly as possible.

The company nonetheless said the pandemic caused a combined €30 million cut in profits during the past six months, with logistics and turbine operations hampered by lockdowns.

Slowly normalizing

Some of the impact suppliers are feeling will be short-lived and can be recovered later this year or next. Siemens Gamesa expects to catch up half of its lost revenue during the second half of 2020, and executives at General Electric Co. also said that orders at its wind turbine subsidiary GE Renewable Energy, which were down 17% organically in terms of value during the second quarter, could be caught up later. Profits in the segment declined by 15% year over year.

"These orders pushed to the second half due to financing and permitting delays related to COVID-19," Carolina Dybeck Happe, senior vice president and CFO at GE, said on a July 29 earnings call. "Indications suggest that these are genuine delays versus cancellations."

Happe said the company is now being more selective on new deals and will likely see lower growth for the time being as a result. But she added that factories across the renewable energy segment, which also includes grids and hydropower, were now operating again at 96%.

As suppliers continue to assess the extent of the pandemic's impact, executives at utilities with major wind project pipelines have said they are not planning for another round of lockdowns as severe as earlier in the year, but also cautioned that there was still considerable uncertainty around a second wave in many markets.

S&P Global Ratings, in an Aug. 10 note about Nordex's loan agreement, warned that the industry as a whole may not be out of the woods just yet.

"Conditions in the wind turbine manufacturing industry remain challenging due to COVID-19, and the operating environment is normalizing only slowly," analysts at the rating agency said.