Economic “weather forecast” prompts higher wind turbine prices
Like manufacturers in other sectors, wind turbine makers were hit extremely hard by the COVID pandemic. Major factors included high prices for raw materials (especially copper and steel) and shipping, along with unstable supply chains. Delivery reliability during the pandemic fell to just 5 percent, which caused huge delays in installing wind farms and putting them into operation. That triggered some severe contractual penalties for manufacturers, which in turn exacerbated their cost pressures. The situation has now eased somewhat worldwide, but remains a challenge.
Shipping costs are relevant for wind turbine makers because some farm components are often produced on one continent and assembled on another. For onshore farms, shipping accounts for up to 6 percent of overall investment costs. These effects have led major providers to raise their prices by 30 percent or more over the past two years.7
The sector is marked by price wars, quality issues, and changing overall political conditions
Until recently, however, manufacturers engaged in serious price wars, with effects still evident today. In addition, as all the interview partners noted, the sector is plagued by uncertainties given that political priorities, framework conditions, and therefore also budgets can change at any time. In Denmark, for instance, 33 wind farms with a total capacity of 13–21 gigawatts were recently shelved and an investigation launched as to whether the authorization procedure conforms to EU regulations.8 With the EU Commission having recently categorized new gas and nuclear plants as climate-friendly, there is also a risk that EU funding will now be diverted away from wind power.
In addition to these financial uncertainties, lengthy and complex authorization procedures also present challenges. “The overall process from planning to starting up a wind power installation can take three to five years,” observes the head of production for a European manufacturer. “This protracted period of time does not make our lives easy.” In Germany alone, for example, 10 gigawatts of capacity are currently in the authorization stage. And 1.73 gigawatts currently in planning are already past the start-up date originally announced. Here the sector’s own problems should be noted, such as the poor quality of many installations. This becomes apparent when important components or even entire turbines break down. In September 2021 a wind turbine in Germany collapsed, as did a large new turbine in Lithuania in the spring of 2022.
Along with quality issues, the sector faces enormous technological hurdles. Large-scale installations require economical means of compensation and storage to ensure network dependability during periods of low wind levels. The problem is especially acute for weaker and less stable grids.
Another feature of the market is a tendency toward large offshore farms that yield up to 15 megawatts. In parallel to that, the market is intensifying for smaller onshore farms of up to seven megawatts. “They are easily produced by just about any provider these days,” notes one CTO. Overall, as also shown by our interviews, the sector is marked by strong competition and therefore also consolidation. Half of all providers in the gear unit segment, for example, have disappeared over the past decade.
Yet another feature of the sector is the very small market for rotor blades. Just ten manufacturers meet 80 percent of worldwide demand. “The extremely complex manufacturing process makes it hard for new providers to enter this market,” reports a senior manager. “That makes us rather dependent on just a few providers.” Regarding wind turbine manufacturers as such, in China they are expected to merge until just a few large ones remain.