World’s largest offshore wind turbine maker warns of price pressures

Offshore wind turbine makers are facing tougher competition and pricing pressure, the head of the sector’s biggest company has warned.

Andreas Nauen, chief executive of Siemens Gamesa, said the high amounts recently bid for offshore wind development rights would “increase the pressure on us to deliver more competitive turbines”.

Nauen took over as chief executive last June, with a mandate to execute a turnround strategy at Siemens Gamesa, which reported steep losses and declining revenue during the 2020 calendar year.

As new contracts worth billions of dollars fly into offshore wind projects in Europe and the US, turbine makers are being squeezed by high input costs and high steel prices on one side, and pressure from developers who want cheaper turbines on the other.

The outlook for offshore wind has been boosted recently by government targets — including the UK’s goal to quadruple offshore wind capacity to 40 gigawatts by 2030, and a growing number of projects in the US.

An auction last month in the UK, the world’s biggest offshore wind market, resulted in record prices as a number of relative newcomers to the sector, including several oil majors, battled for seabed rights to develop projects. 

When I saw the numbers [in the recent UK auction], I had a tear in one eye and a smile in the other

The soaring prices have led to questions about the potential knock-on effects on the supply chain and electricity costs for consumers, given developers will have to find ways to ensure they make an acceptable return.

The first major offshore project in the US, Vineyard Wind off the coast of Massachusetts, received regulatory approval this week.

Last year total investment in the offshore wind sector rose to $50bn, up from $32bn in 2019, according to recent data from BloombergNEF, although total new completed installations declined 19 per cent in gigawatt terms during the same period. The discrepancy is due to the time lag between when investments are made and projects come online.

However a rush of investment into the sector, including from oil and gas companies under pressure to increase their exposure to, is paradoxically expected to push margins down for turbine makers.

“When I saw the numbers [in the recent UK auction], I had a tear in one eye and a smile in the other,” said Nauen. 

Because developers have paid such high prices for the seabed rights, they will need to lower their costs — and potentially pay less for turbines — if they are to recoup their investment. Turbine manufacturers have come under increasing pressure in recent years to produce ever more powerful and efficient machines.

“A few years ago, we were worried, was there enough money, enough investors, enough drive for the market? Now it is totally the opposite,” Nauen said.

Siemens Gamesa was hit hard last year by the coronavirus pandemic, which slowed some major projects in Scandinavia, and also by declining demand for its turbines in India, where it was recently forced to close a factory.

“Last year, 2020, was an extremely tough year for us, with financial numbers being totally off track,” said Nauen. “My main task . . . is to turn around Siemens Gamesa, especially the onshore side.”

The company is also facing growing competition in offshore turbines from Vestas, which has reacquired its offshore wind subsidiary to focus more on the sector.

Siemens Gamesa recently unveiled plans to develop offshore wind turbines with integrated electrolyser machines that could generate clean hydrogen offshore and tap into the growing interest in the gas.

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