
| A wind turbine blade is unveiled during the opening of the Vestas blade factory in Windsor, Colo., in 2008. Source: Associated Press |
Wind turbine manufacturers and their suppliers provided a clearer picture on how the U.S. wind sector is proactively navigating President Donald Trump's steel tariffs, though industry players still expect production costs to go up from the duties.
Siemens Gamesa Renewable Energy CEO Markus Tacke during the company's recent earnings call reaffirmed the company's outlook that production costs could increase between 2% and 4%. While Tacke has suggested the tariff impact may be on the upper end of his team's estimated range, the Spanish turbine-maker is tackling the tariffs head-on. The company is adjusting its 2019 guidance on synergies and health of its balance sheet to address tariffs' potential impact in 2019.
"The focus, however, needs to be in future continuing on productivity to compensate the headwinds, high pressure and the negative impact on steel pricing in U.S. tariffs," Tacke said.
In its third-quarter supplementary report, Vestas Wind Systems A/S said tariffs will cause the prices of both domestically-sourced material and imported components to go up but did not go into specific numbers. During the Danish company's Nov. 7 third-quarter earnings call, CEO Anders Runevad said Vestas has worked on finding suppliers in more "favorable geographies" and rerouting components to mitigate higher steel prices' effects on production.
"[An up to 1.5% increase on production costs] is still our best estimate," Runevad said. "And of course, we continue to work on both finding a fair share of the burden between the different players in the industry," including suppliers and customers.
Turbine-makers have been relatively relaxed about the duties after Trump announced the tariffs March 1, which became effective in June. However, steel plate is one of the most important materials in a wind turbine. A tower makes up about 20% of the cost of a turbine, and tower-makers need about 200 tons of steel to make one unit. That translates to steel plate making up 50% of the materials needed to build a turbine tower.
The rising costs from the steel tariffs materialized quicker for suppliers. Tower-makers such as Illinois-based Broadwind Energy Inc. and Arcosa Inc., the recently spun-off energy segment of Texas-based Trinity Industries Inc., have been able to hedge steel prices for 2018 through various pricing agreements that tend to include escalation clauses. However, the wind turbine supply chain has been clear that skyrocketing steel prices will mean some costs will get passed through to wind turbine companies.
Broadwind saw the cost disadvantage over cheaper imported towers increase to approximately $350/ton for steel in the second and third quarters to nearly $400/ton as of Oct. 31. The company added new suppliers in the U.S. and internationally to offset supply chain issues after the company had to slow tower production due to delayed steel deliveries.
"Steel tariffs are continuing to present operating challenges for towers and are causing cost escalation for our other businesses with high steel content," Broadwind CEO Stephanie Kushner said during the company's Oct. 30 earnings call. "We and the rest of our industry are adjusting to the higher prices, and we expect something closer to business as usual next year."
Blade-maker TPI Composites Inc. CEO Steven Lockard said third-party estimates suggest the levelized cost of wind energy could increase between 5% and 10% from various trade protections, including the steel tariffs. Less than 15% of the blades TPI produces are imported from China into the U.S. by the company's customers, but the added costs from the tariff may mean customers may shift where they source blades for the U.S. market.
"The benefit of our global manufacturing footprint is that it can allow our customers to shift volumes to best meet their cost and delivery requirements," Lockard said during the company's Nov. 7 earnings call. "We still have strong demand on our China facilities in 2019 even though many of the blades will be shipped to other locations. This is further demonstration why having world-class manufacturing hubs to serve large geographies cost-effectively is important for our customers and provides us with an advantage over most other blade manufacturers."
