The head of Siemens Gaimsa warned on Wednesday that a decade-long race to lower the cost of wind power production could not continue, as it would reduce the financial muscle of turbine manufacturers to continue investing in new technologies.
A boom in green energy investments to address climate change has helped lower the cost of wind power to a level where it can compete with fossil fuels like coal and natural gas.
“What we have clearly achieved is that wind power is now cheaper than anything else. But I believe we should not make it too cheap,” CEO Andreas Nawan told Reuters.
In Europe, wind and solar are now significantly cheaper than coal, natural gas and nuclear power, according to a Bernstein study.
Demand for wind turbines is at its peak, driven by the green transition, but falling prices and increased competition have squeezed out margins.
“We’re probably pushed it too far,” Nawan said. The industry’s ability to continue investing in new technologies and factories will diminish if the urge to cut wind power continues at the same pace, he added.
The operating margins of wind turbine manufacturers are also pressured by rising costs resulting from supply shortages and high prices of raw materials like steel.
Both Siemens Games and its main rival, Vestas, said they were able to pass on some of the high costs to customers, which is likely to be reflected in higher auction prices and long-term power purchase agreements.
Earlier this month, Vestas lowered its 2021 forecast for the second time this year, and now it expects an operating profit margin of 4% from 5-7% previously – far from its long-term target of 10% profit.
Siemens Gamsa has also pushed the horizon where it expects to reach its long-term target of 8-10% by 2024 or 2025, from 2023 earlier.
Governments around the world are gradually eliminating generous wind subsidies, opting for more competitive contract tenders, and preferring project developers who submit the lowest bids.
“We need to change auction systems in the future,” Nawan said. He suggested that criteria such as the creation of local jobs should be considered instead of focusing only on price.
(Report by Stein Jacobsen; Edited by Jan Harvey)