Siemens Energy wind turbine issues might be an industry-wide problem

Costly failures at wind turbine maker Siemens Gamesa last month sent out shares of moms and dad business Siemens Energy toppling, and experts are worried about larger teething issues throughout the market.

The German energy giant ditched its revenue assistance in late June, mentioning a “substantial increase in failure rates of wind turbine components” at its wind department SiemensGamesa

Siemens Energy CEO Christian Bruch informed reporters on a call Friday that “too much had been swept under the carpet” at Siemens Gamesa which the quality problems were “more serious than [he] believed possible.”

Siemens Energy stock plunged by around 37% on June 23, while other wind business likewise saw shares pull back as financiers fretted that the issues at Gamesa may be a sign of a larger problem for the market.

Nicholas Green, head of EU capital products and commercial innovation at AllianceBernstein, informed CNBC that the rate of growth, and the truth that numerous elements of bigger turbines have not really remained in usage for long, suggests there might be intrinsic dangers throughout the sector.

“We have to acknowledge that putting brand new machinery — whether it’s on-shore or even more difficult off-shore wind farms — and the pace of change in that machinery has put us into slightly uncharted territory,” he stated.

“Although it’s hard to tell at the moment, my best guess is that this probably actually is an industry-wide issue. It wasn’t that Siemens Gamesa is a bad operator as such, it’s that actually some of the normal protocols and time in use, operational data in use, is relatively limited.”

Siemens Gamesa’s board is now due to carry out an “extended technical review” into the problem, which is anticipated to sustain expenses in excess of 1 billion euros ($ 1.09 billion). The business’s shares have actually recovered some losses, however stay down over 33% in the last month.

A difficult 2 years

The wind market has actually broadened quickly over the previous 20 years, reducing expenses to equal– and often undercut– those of nonrenewable fuel sources, while increasing performance with ever-bigger turbines and lowering dependence on state aids.

“These cost reductions have been achieved with innovations in turbine technology and by pushing the boundaries of engineering,” Christoph Zipf, spokesperson for market body WindEurope, informed CNBC by means of e-mail.

He stated that 20 years earlier, a normal wind turbine would have 1 million watts of capability; today, European initial devices producers, or OEMs, are screening 15 MW turbines.

“This means that turbines have become bigger as well, posing challenges to components (quality, materials, longevity). The introduction of competitive auctions has also been a driving factor in this cost reduction,” Zipf included.

The Statistical Review of World Energy report released recently exposed that wind and solar energy represented 12% of the world’s power generation in 2015, with wind power output increasing by 13.5%.

The market was struck hard by the Covid-19 pandemic, as resulting lockdowns depressed commercial activity and decreased worldwide energy need. The taking place supply chain issues then hindered OEMs.

These producers have actually given that sustained an additional shock from skyrocketing inflation and input expenses as Russia’s intrusion of Ukraine interrupted markets and intensified supply chain interruptions. WindEurope approximates that the increase in product rates has actually increased the rate of wind turbines by approximately 40% over the last 2 years.

“OEMs were sourcing some material from Russia (mostly nickel) and Ukraine (mostly steel). The price of both skyrocketed after the invasion. This comes on top of the challenging inflationary environment all European businesses are operating in (i.e. rising electricity prices, etc.),” Zipf described.

“A main problem for the OEMs is that not all countries had indexed their renewables auctions. Consequently wind turbine orders were not necessarily indexed to inflation. The time between the order intake and the commissioning of a wind turbine can take up to 18 months (especially when supply of materials is short).”

However, Zipf rejected that industry-wide technical failures might be on the horizon, firmly insisting that “the problems at Siemens Gamesa are limited to Siemens Gamesa.”

“Big turbine failures are extremely rare given the number of turbines installed in Europe already. However, the competition in the sector is pushing OEMs to come up with bigger and better turbines at a fast rate, may be faster than in other sectors,” he stated.

He likewise challenged the idea that the market has actually gone into “uncharted territory,” arguing that the modifications in turbine innovation have actually been “incremental and evolutionary.”

“Naturally every new turbine model comes with new challenges, requires rigorous testing and certification. But the European wind industry has overcome all of these challenges and maintained its reputation for delivering highly reliable high-quality turbines,” Zipf stated.

Facts and figures

According to ONYX Insight, which keeps an eye on wind turbines and tracks over 14,000 throughout 30 nations, the majority of turbines are developed and accredited for 20 years however include elements that will stop working throughout that time due to a “compromise between the cost of the system and reliability.”

“We have been aware for some time that turbine failure rates across the industry can — and should — be more widely understood, given the scale of their potential impact on the overall profitability of projects,” Evgenia Golysheva, vice president of technique and marketing at ONYX, informed CNBC.

“It’s not that they are made badly, but we now have a compromise between the cost of energy and targeted reliability. Everyone who builds, finances and operates wind turbines needs to have a realistic picture of how many failures to expect.”

In turbines integrated in 2023, more than 40% of transmissions will require to be changed after 20 years of job life, according to ONYX, together with over 20% of primary bearings and more than 5% of blades.

Across the wind market, around 65% of operations and upkeep expenses are unintended, according to ONYX. It tasks that significant restorative costs will increase to $4 billion by 2029.

“The growth of wind installations has been unprecedented, and the industry has had to scale up very quickly with little time to digest it. It’s not a capacity issue, and it’s not new, but it is good that OEMS (who are under pressure from supply chain and from inflation) are bringing this conversation into the public domain,” Golysheva described.

“It’s a conversation that is overdue, because the underlying issues aren’t going away. For example, wind turbine rotors are getting bigger, the turbines are getting bigger, and the development cycles are short, so it’s crucial to have digital and other diagnostic tools to be able to deal with reliability issues.”