Wind Turbine Exec Voices Concern About Operating Margins Risk

An executive from turbine manufacturer Siemens Gamesa warned last week that a 10-year race to reduce the cost of generating wind power could not continue, as it would bring down the financial muscle of turbine producers to continue investing in new technologies.

A boom in investments in green energy to address climate change has helped mitigate the cost of wind power to a level where it can compete with fossil fuels like coal and natural gas, according to a Reuters report.

“What we’ve clearly achieved is that wind power is now cheaper than anything else. But I believe we shouldn’t make it too cheap,” said Siemens Gamesa Chief Executive Andreas Nauen.

In Europe, wind and solar currently are significantly cheaper than coal, natural gas and nuclear power. Demand for wind turbines is at a record high, driven by the green movement, but lower prices and increased competition have squeezed margins.

Wind turbine makers’ operating margins are also being squeezed by rising costs stemming from the supply crisis and high prices for raw materials including steel.

Both Siemens Gamesa and its main rival Vestas have said they have been able to pass on part of the higher costs to customers, which is likely to be reflected in higher auction prices and power purchase agreements over time.

Earlier this month, Vestas slashed its 2021 outlook for a second time this year, and now expects an operating profit margin of 4%, a far cry from its long-term target of a 10% margin.

Siemens Gamesa has also pushed out its long-term margin target of 8-10% to 2024 or 2025, previously from 2023.

Governments around the world are phasing out generous wind subsidies, opting for more competitive contract tenders, and favoring project developers that submit the lowest bids.

 

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