Europe’s wind manufacturing industry could accelerate a move to lower cost or more-supportive markets unless the factors behind its current woes are addressed soon, the chief executive of troubled German turbine manufacturer Enercon told Recharge
“If European politics and industry do nothing, we will definitely see the same we saw in the solar industry,” Jürgen Zeschky said in an interview, pointing to the demise of Europe’s world-leading PV manufacturing sector, which a decade ago was mostly pushed out of business by Chinese competitors backed by generous state aid and financing, and sometimes dumping practices.
“So, if we do nothing, production will move to best-cost countries. It’s very simple.”
Zeschky, who from 2012 to 2015 gained his laurels by pushing through a turnaround programme at fellow German OEM Nordex, cautioned that despite most European countries announcing massive increases in their renewables targets, turbine makers “here in Europe are still [operating] significantly below capacity. And we are carrying these costs. I know that also from competitors.”
Producing with under-utilised capacity while fixed costs tend to remain constant most likely is adding to losses at western OEMs, which currently all are in the red.
As it isn’t publicly traded, Enercon traditionally doesn’t announce quarterly results, but Zeschky revealed that the company “definitely had a loss last year”. While the company has already seen an improved operational performance, and is realising positive margins on new projects, “we have some existing projects with negative margins in portfolio from the past years,” the CEO acknowledged.
He insisted that the “turnaround is definitely happening”, but Zeschky compared his company to a super tanker that takes some time to effectively perform its change in direction.
In normal times, companies operating below capacity would reduce their footprint to return to profits.
But “It would not be clever to reduce capacity – shut down factories, or let people go – knowing that the demand will come in two or three years’ time,” Zeschky said.
“So, what would help us, and also the suppliers, the value chain, is if we were able to accelerate demand. The longer this under production lasts, the steeper the [subsequent] ramp-up would be and the more difficult the whole situation will be for everyone.”
'EU inertia and complexity'
Adding to the pressure at Enercon and its peers Siemens Gamesa, Vestas and Nordex – at least for their European manufacturing footprint – is that the US by means of President Joe Biden’s Inflation Reduction Act is threatening to lure away production facilities to North America, mainly by granting very generous tax breaks.
Nevertheless Zeschky is impressed and admits that the IRA is a “very pragmatic” programme with a “high impact” for the sector.
“It amounts to 10 to 15% of wind turbine prices that could basically be reduced by this act,” he estimated. Enercon has no manufacturing facilities in the US after pulling out from the market completely following a patent dispute in the 1990s.
The EU and Germany, where several of its OEMs have a heavy manufacturing base, have reacted to the IRA, with the European Commission in February presenting its proposal for a ‘Net Zero Industry Act’ that is embedded in the wider ranging ‘Green Deal Industrial Plan’, aimed at speeding up the expansion of renewable energy and green technologies – including an easing of state aid rules to enable higher subsidies.
"It is in our interest to strengthen the competitiveness and innovative power of our industrial base," German economics and energy minister Robert Habeck said. "This is only possible in a united and strong Europe."
But as is common in the EU, member states are already bickering about the details. Smaller and southern European nations fear the heavy-weights of Germany and France with their larger financial power could out-spend their European peers and provide very generous subsidies others can’t afford – and thus within Europe cause the kind of unhealthy competition of which they accuse the US.
Zeschky considers the EU’s and Germany’s intention to be “very impressive”, but added: “when it comes to realisation, there is a lot of inertia and complexity in the EU, and also in the German system. I would be happy to see effects more quickly.”
While Europe doesn’t have a decades-long experience with tax breaks as the US has, “what would help us most here is to accelerate demand,” Zeschky reckoned.
“The EU and Germany are determined in terms of renewable energy, in terms of independence and energy self-sufficiency to retain the industry here. The best support they can give us at this point is to accelerate permitting and the growth of the wind industry.”
'That's a bad outcome'
Nigel Slater, managing director for Europe at Canadian developer Northland Power, agreed.
If factories have to be closed only to be re-opened just a few years later, “that’s a bad outcome,” he told Recharge.
“It comes back to policies and instruments that give not just clear direction, but steady, constant feeding. The supply chain doesn’t want a massive year and then two years of nothing, and then another massive year,” he said.
In reference to offshore wind, he said it is better for the industry in a given country to build 1GW a year every year than having a 4GW bumper year followed by a lull of three or four years and uncertainty (something similar just happened in Germany).
Those figures are “just an example,” he said. “You want steady reliability. That allows the supply chain then to invest, because they know they’ve got the constant orders that give them the chance of constantly keeping their factories busy and their workers employed.
Recent figures from pan-European wind lobby WindEurope underline Zeschky and Slater's position.
While the EU would need to build 31GW of new wind turbines (onshore and offshore combined) each year to reach its 2030 targets, investments of only €17bn last year in new wind farms were the lowest since 2009, and only sufficient for the construction of some 10GW, WindEurope CEO Giles Dickson said.
“At the same time turbine orders are down and the EU is only building half as much new wind as it needs.
“The EU must urgently restore investor confidence and channel money into its wind energy supply chain.”
Spending was throttled last year as rising costs for raw materials and shipping were amplified by Russia’s invasion of Ukraine, high inflation and soaring electricity prices. The cost for producing a wind turbine in Europe as a result has increased by up to 40% over the last two years.
2022 may have been an exceptional year, but the way governments reacted to the overlapping energy and cost crises was also far from ideal.
Uncoordinated emergency measures on power markets and national market interventions have created uncertainty and deterred investors, WindEurope added, citing revenue caps and national clawback measures as impacting the business case for wind energy projects.
“Where we are is unsustainable,” Slater summed up, acknowledging the OEMs' dire situation.
“You can’t have major manufacturers making losses and expect them to keep supplying projects in the future, because they just simply won’t be there.”
