Recessionary Pricing Has Hit Big Global Wind Projects: Rethink Energy Report

Rethink Energy has come up with a new report which says that it turns out that recessionary pricing has indeed taken its toll on large global wind projects. Rethink Energy said that the wind industry has hit several speedbumps in the last few months, illustrated by the poor results for third quarter of 2022 published by western wind turbine specialists such as Vestas, Siemens Gamesa and GE.

Until now it has been unclear as to how badly the wind power sector has been affected by factors such as the Russia Ukraine war and attempts at recovery from the pandemic, all of which have driven up prices in solar and battery manufacturing and installs.

The report by Rethink Energy titled ‘Wind industry blown off course by recession – promises a full recovery: Q3 2022,’  highlights a dramatic re-appraisal of some wind projects and a need to renegotiate terms for major deals that have already passed final investment decision and which have been suddenly staring losses in the face.

Rethink Energy is the research service focusing on the business of energy transition, renewable and their investment possibilities and is fully available by annual subscription.

Rethink Energy report held that the US Inflation Reduction Act (IRA) has also stopped projects stone dead, as project teams look to make the most out of IRA subsidies. Any suggestions that recession and the IRA Act will do any more than knock out a couple of quarters of projects for the wind majors are vastly overblown. Already wind leaders are clear minded on what needs to be done, and are attacking these issue with expectations of a quick turnaround.

Rethink Energy picked up the mood of the industry at conferences this month and concluded that they all just need time to react.

Vestas, Siemens Gamesa and GE may have recorded losses and some layoffs as there has been a slow-down in a both order flow and completed projects, which has had a knock on effect on their respective share prices.

“This month’s news that one of the largest ever wind contracts ever signed has been re-negotiated because it was in danger of making a loss, is just a typical part of that re-adjustment to recession economics”, says Bogdan Avramuta, Rethink Energy analyst and lead author of the report.

“Steel manufacturing costs have also been playing a part in all this. It means decreasing margin on turbine sales translates into months-old Power Purchasing Agreements (PPAs) leaving energy distributors on the fringes of profit making”, observes Avramuta.

Players and Projections

Rethink Energy had forecasted a stall in completed wind projects for 2022, but that was primarily on the back of delays to US offshore projects, a slowing of onshore approvals both in the US and Europe and despite a continuing Chinese surge in both onshore and offshore wind.

In September Rethink Energy reported that China’s Q2 numbers showed rampant offshore wind installations with additional capacity for the half year at 6.8 GW accounting for 78% of all global new additions. Elsewhere in Asia in Vietnam and South Korea there was also further growth.

In contrast American Clean Power last week reported disastrous figures for the entire US renewables industry in Q3, with both wind and solar falling away and only the battery energy storage market still in growth. This is explained away partly by recession, but also by the Inflation Reduction Act – the recession has made many existing PPAs defunct and in need of renegotiation, while the IRA is a new opportunity that MUST be evaluated right throughout any renewal firm’s pipeline, and it is bound to delay final investment decisions.

Rethink predicts that within a little more than a year all three major western wind turbine makers will be back in the black with health order books and smoother deal flow as the price of steel falls back to more typical levels and global transport pricing also falls back to a semblance of normality.