Russia’s attack on Ukraine is “fuelling the current lack of stability” in the wind sector once more, which has already suffered from rising raw-material and shipping costs in the wake of the Covid-19 pandemic, Nordex chief executive José Luis Blanco tells Recharge.
“The volatility for key commodities and shipping had slightly decreased, but due to the Russian attack, we are seeing these increase once again,” the CEO says.
“Therefore, supply-chain issues, inflation, and high costs will continue to impact profitability. These topics will most likely be again the key challenges of the industry for this year.”
With no end in sight to the war in Ukraine, it is simply not possible to narrow down how long the logistics and raw materials cost inflation will linger, Blanco adds.
Last year, Nordex reported a widening consolidated net loss of €230.2m ($255.3m), compared to a deficit of €129.7m in 2020, as growing sales, production and installations were not sufficient to compensate for rising costs and a significant disruption of global supply chains in the aftermath of the coronavirus pandemic.
While only a limited amount of the OEMs’ primary supply comes directly from Russia, “disruptions of the supply chain may become even more significant, and prices for things such as copper, steel and aluminium might increase,” Blanco cautions.
“As some of the Russian ships or Russian chartering agencies become unavailable, we may experience disruptions in the shipping sector.”
The manufacturer may also be hit as the construction of two wind projects with Nordex machines in western Ukraine currently can’t go ahead as planned.
“It was intended to install the turbines this year, but none of the turbines have been delivered into Ukraine yet and the current status of these projects is unclear today,” Blanco explains.
Passing through cost increases
The new volatility comes as Nordex was expecting improved profit margins, with a strong order intake of 7.95GW in 2021 (up from 6GW in 2020).
Blanco says the company’s increased orders were not the result of gaining volume over value.
“As with our peers, we continued to negotiate new prices to pass through cost increases in order to protect our margins, and the strong order intake has proven that the market can take this,” he says.
“We have focused on the quality of our backlog, and we have achieved good prices. Most projects for 2022 are already locked in.”
Nordex this year expects the margin on its earnings before interest, taxes, depreciation and amortisation (Ebitda) to come in between 1.0% and 3.5%. The Ebitda margin is a measure of operating profitability, and had fallen to 1% in 2021 from 2% in 2020.
While the war in Ukraine currently increases uncertainty, in the mid- and long term the EU’s aim to reduce its dependency on Russian energy sources may bring additional momentum for renewables, which is already driven by strong decarbonisation commitments in many countries, Blanco explains.
But the CEO warns that the price of turbines mustn’t remain the only relevant criteria in the global market.
“If a political framework is being developed that does not focus only on price, but also takes energy independence into consideration, production in the EU will be needed to de-risk energy dependence,” Blanco says.
“For years now, the wind industry has been subject to high price pressure. In the past five years alone, the levelised cost of wind electricity has fallen considerably, to the point where it is already the cheapest generation method in many markets,” he explains.
“This development caused considerable cost pressure for the industry, negatively impacting the profitability of all Western OEMs.”
Due to the intense cost pressures Nordex announced in February that it plans to halt wind turbine blade production at its Rostock manufacturing site in Germany, with a possible loss of 600 jobs.