Renewable energy firms have been facing a dire earnings season due to various challenges in their operations. One of the main issues is the struggle with supply chains, as equipment manufacturers are finding it difficult to keep up with the soaring global demand for cleaner energy. This has resulted in rising production costs, which are eating into profits and raising questions about the economic sustainability of large-scale renewable energy projects.
A notable example of manufacturing faults can be seen at Siemens Energy’s wind turbine subsidiary, Siemens Gamesa. As the industry races to build turbines at a faster pace and scale, issues with manufacturing have emerged. The problems at Gamesa were so significant that Siemens Energy had to scrap its profit forecast for the year. In an attempt to alleviate the financial strain, the company sought guarantees of up to 15 billion euros from the German government.
Specialist wind energy firms are also facing competition from traditional oil and gas players when bidding for seabed licenses. Often, these traditional players outbid renewable energy firms, which further adds to the challenges faced by the industry. Even if wind energy firms manage to secure a contract, the electricity prices are often too low to justify the manufacturing costs involved. As a result, these companies are relying on subsidies from governments in Europe and the U.S. to restore balance to the market.
The consequences of these economic challenges are evident in the stock market, where most wind energy stocks have experienced sharp declines since the beginning of the year. According to a report by Allianz Research, the eight largest renewable energy firms in the world reported a combined total decrease of $3 billion in assets in the first half of the year. Among all renewable energy sectors, wind projects have been facing particularly turbulent conditions.
Allianz Research economists described the recent earnings season as a “learning moment” for the renewable energy industry. They highlighted various issues such as rising construction and financing costs, quality-control problems, and supply-chain issues. Furthermore, inflation and global energy-price fluctuations have led to increased costs for wind-power projects, further casting doubt on the feasibility of many ventures.
Some projects in the U.S. and the U.K. are at risk of being abandoned if governments do not offer support. Many of these projects were initiated before the energy crisis, with low guaranteed feed-in-tariffs. However, as costs have risen, these projects have become increasingly unprofitable.
Renewables companies have been forced to write down assets and revise their earnings outlooks due to the challenging economic conditions. For example, Danish company Ørsted recently announced the scrapping of two offshore projects in the U.S., which resulted in related impairments totaling $5.6 billion. This highlights the financial impact that these challenges can have on renewable energy firms.
However, not all companies are facing bleak prospects. Vestas, a Danish wind turbine manufacturer, posted better-than-expected earnings in the third quarter. Its CEO, Henrik Andersen, mentioned that external factors could still cloud the near-term outlook for the industry. He emphasized the need for discipline and strong partnerships with customers and governments to be among the winners in the renewable energy sector.
According to Jacob Pedersen, a senior analyst at Sydbank, Vestas is well-positioned to move forward, but both companies and policymakers need to rethink their strategies for a realistic transition to net-zero emissions. Pedersen highlighted that many of the challenges faced by renewable energy firms can be attributed to projects that were initiated at low prices, which have now become more expensive due to inflation and increased interest rates.
To achieve the goals set by politicians, more recalibration is needed, as evidenced by the European Commission’s announcement of a new Wind Power Action Plan. This plan aims to significantly increase wind installed capacity. However, Pedersen emphasized that this process will take time and that renewable energy companies currently lack the financial resources to invest as much as is necessary.
Renewable energy firms are facing significant challenges that are impacting their earnings and the feasibility of their projects. From struggling supply chains and manufacturing faults to competition and low electricity prices, the industry is navigating a difficult landscape. However, opportunities for growth and success still exist, and with the right strategies and support from governments, renewable energy firms can overcome these challenges and contribute to a greener future.
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