Wind turbine manufacturer Siemens Gamesa experienced costly failures last month, causing shares of parent company Siemens Energy to plummet. Analysts are now concerned about possible industry-wide issues. Siemens Energy CEO Christian Bruch admitted that the quality issues were more severe than anticipated.
The stock of Siemens Energy dropped by around 37% on June 23, and other wind companies also saw their shares retreat as investors worried about the broader implications for the industry. Experts like Nicholas Green of AllianceBernstein believe that the rapid expansion in the wind industry, combined with the limited operational data available for new machinery, creates inherent risks.
Siemens Gamesa’s board is planning to conduct an extended technical review into the issue, which is expected to incur costs of over 1 billion euros ($1.09 billion). Although the company’s shares have partially recovered, they are still down over 33% in the past month.
A tough two years
The wind industry has seen rapid growth over the past two decades. The introduction of larger turbines and lower costs has allowed wind power to become more competitive with fossil fuels. However, the industry has faced challenges such as component quality and material longevity. In the last year, wind power accounted for 12% of global power generation, with wind power output increasing by 13.5%.
The wind industry was heavily impacted by the Covid-19 pandemic, leading to supply chain problems for original equipment manufacturers (OEMs). The industry has also faced rising inflation and input costs due to geopolitical disruptions and supply chain disruptions. The price of wind turbines has increased by up to 40% over the last two years. Despite these challenges, Christoph Zipf of WindEurope believes that technical failures are limited to Siemens Gamesa and not indicative of a wider industry issue.
Facts and figures
Most wind turbines are designed for a lifespan of 20 years but contain components that will fail during that time due to cost and reliability compromises. Turbines built in 2023 are expected to require replacement of over 40% of gearboxes, over 20% of main bearings, and more than 5% of blades after 20 years. Around 65% of operations and maintenance costs in the wind industry are unplanned. Major corrective spending is estimated to reach $4 billion by 2029.
Wind installations have grown rapidly, creating challenges that need to be addressed. Digital and diagnostic tools are crucial for dealing with reliability issues caused by larger turbines and shorter development cycles.