REM: Wind power must not become too cheap, says leading turbine maker

Wind power could become too cheap, trimming the profit margins of component manufacturers too much, said Andreas Nauen, chief executive of Siemens Gamesa, in an interview in Copenhagen with Reuters. Spain-based Siemens Gamesa is one of the world’s leading manufacturers of both onshore and offshore wind turbines.

Wind and solar power are often cheaper than their fossil fuel rivals, a boon as the world transitions to renewable energy and away from sources with high carbon emissions.

"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," Nauen told Reuters.

According to Bernstein research, in Europe renewable energy is often cheaper than conventional fossil fuels, including natural gas, noted the news service.

In Europe, wind and solar are currently significantly cheaper than coal, natural gas and nuclear power, according to Bernstein research.

"We have probably driven it too far," Nauen said. But continuing to cut costs at the same rate will hurt wind manufacturers’ ability to invest in new factories, and in research and development of new technologies, he said.

Competition is high as countries move from subsidising wind projects to competitive auctions or sales. Margins have been further squeezed by supply chain delays and escalating prices of commodities such as steel and resin.

"We need to change auction systems in the future," Nauen said. He suggested job creation should be considered as a criterion in awarding contracts instead of just a low electricity price.

Siemens Gamesa as well as Vestas, another leading wind turbine manufacturer, has been passing on higher costs to its customers and has slashed profit forecasts for the rest of the year. 

Earlier in November, Vestas cut its 2021 outlook for a second time in less than 12 months, and now predicts an operating profit margin of 4% instead of 5%-7% – and in sharp contrast to its long-term target of a 10% margin, said Reuters.

For its part, Siemens Gamesa has now said that it will not hit its long-term margin target of 8%-10% until 2024 or 2025, delayed from its previous estimate of 2023.

GE, in its third-quarter earnings, said its renewable energy division has not turned a profit. GE CEO Larry Couple told Bloomberg after the conglomerate announced its third-quarter earnings: “We’re fighting like hell to get to break-even next year. But I think that that’s a lower probability outcome today than I thought it would be at the beginning of this year.” Earlier in 2021 GE had forecast that GE Renewable Energy would achieve positive profit margins in 2022.