Wind power industry in moment of reckoning as stocks fall and earnings crumble

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Although balance sheets remain solid, renewables companies have been
writing down assets and cutting their earnings outlooks.

Renewable energy firms are mostly suffering a dire earnings season
as struggling supply chains, manufacturing faults and rising
production costs eat into profits.

With the world trying to transition at pace toward cleaner energy,
equipment manufacturers are struggling to keep up with soaring
global demand, leading to rising production costs and questions over
the economic sustainability of large-scale projects from the
industry’s major players.

Manufacturing faults, most notably at Siemens Energy’s wind turbine
subsidiary Siemens Gamesa, have emerged as companies race to build
turbines at a greater pace and scale.

The problems at Gamesa led Siemens Energy to scrap its profit
forecast earlier this year, and last month the company sought
guarantees of up to 15 billion euros ($16 billion) from the German
government.

Specialist wind energy firms are also often finding themselves
outbid for seabed licenses by traditional oil and gas players.
Should they win a contract, electricity prices are often too low to
justify the manufacturing costs, leaving companies looking to their
governments in Europe and the U.S. to deliver greater subsidies and
restore balance to the market.

As a result, most wind energy stocks are down sharply since the turn
of the year.

In a report published last week, Allianz Research noted that the
eight largest renewable energy firms in the world reported a
combined total $3 billion decrease in assets in the first half of
the year, with wind projects in particular facing turbulent
conditions. The firm’s economists said the past earnings season was
a “learning moment” for the industry.

“The whole sector is grappling with rising construction and
financing costs, quality-control problems and supply-chain issues.
Inflation and global energy-price fluctuations have also led to
increased costs for wind-power projects, casting doubt over the
feasibility of many ventures,” Allianz Research economists said.

“Some projects in the U.S. but also in the U.K. are at risk of being
abandoned if governments do not offer support. As these projects
were initiated before the energy crisis, with guaranteed feed-in-
tariffs that were low, they are now becoming more and more
unprofitable.”

Although balance sheets remain solid, renewables companies have been
writing down assets and cutting their earnings outlooks. Danish
company Ørsted announced last week that it was scrapping the
development of two offshore projects in the U.S., with related
impairments totaling $5.6 billion.

However, compatriot Vestas offered a ray of hope. The company posted
a third-quarter EBIT (earnings before interest and tax) before
special items of 70 million euros ($74.73 million), well above the
31 million euros projected in a company-compiled consensus. However,
it also warned that external factors clouded its near-term outlook,
pulling back its full-year investment and margin guidance.

Its CEO Henrik Andersen told CNBC Wednesday that the sector was at
an inflection point and that the market would eventually identify
its “winners and losers” over time.

“We are very disciplined, we work with our customers and partners
can rely on us, and governments can rely on us. That, I hope,
creates the strong foundation for being one of the winners in the
industry,” Andersen said.

“It’s not broken, but you can’t close your eyes and hope that any
project you embark into discussions will always come through if the
macroeconomic factors change.”

Jacob Pedersen, senior analyst at Sydbank, agreed that Vestas in
particular was well-positioned to move forward, but that both
companies and policymakers needed to rethink their strategies if the
transition to net zero was to be realistic.

“We know a huge part of the problem is related to the projects that
were won back in 2019/20 and at low prices. Since then, inflation
and interests have gone up, it’s become much more expensive to
realize these projects, and that has left an order book of deficits,
and that order book is now being smaller and smaller as time goes
by,” Pedersen told CNBC’s “Street Signs Europe” on Wednesday.

Pedersen added that there is a “huge need for recalibration of the
political vie” on the cost of the planned energy transition, given
that wind turbines have increased in price by on average 20-30%
since 2020.

“The transition to wind turbines, to a greener energy portfolio
around the world is getting more expensive, and as such, I think
also we have seen some indications — we know that the U.S. is a huge
problem for the offshore industry at the moment because of the rise
in interest rates,” Pedersen explained.

“But we have seen the newest projects being awarded on much, much
better terms and terms that should be good for companies to generate
a profit moving forward.”

The European Commission announced a new Wind Power Action Plan last
month, aimed at significantly increasing wind installed capacity.
Pedersen said this was evidence that the necessary recalibration is
underway, but that it would not be achieved overnight.

“This is a process that takes time and in order for project
developers to invest in new projects, in order for wind turbine
producers to invest in the needed capacity to get us to where the
politicians have their goals, much more is needed, and these
companies simply haven’t got the cash to invest as much as is needed
at the moment,” he said.

https://www.nbcnews.com/science/environment/wind-power-industry-
moment-reckoning-stocks-fall-earnings-crumble-rcna124882