Tue.
Aug 16
2022

Wind Turbine Prices Need to Rise: Vestas

Stephen Bierman
Jan 26, 2022
The costs of wind turbines are set to increase in step with the rising prices of components, but this should not affect their profitability in the long term, the manufacturer says.
Image: Superbass via Wiki Commons.

Prices for wind turbines need to increase as costs for materials and components have jumped, according to Vestas, one of the world’s largest wind turbine manufacturers.

“Increasing prices on wind turbines are a necessity to address the external cost inflation,” the Danish company said in a release of its full-year results.

Shares in the world’s leading wind turbine producers suffered over the course of 2021, even as markets boomed and the green agenda took center stage – with Vestas making a start on Germany’s first ever non-subsidy offshore wind project. The decline reflects higher costs for manufacturing.

This is important because the steadily decreasing cost of wind generation has helped it to compete with fossil fuels up until now. One of the main aims of subsidies is also to bring down the price of wind energy.

That might not be possible any time soon. Global business prospects for wind remain volatile in the short term and prosperous in the long term, according to Vestas.

“We expect the near future and at least 2022 to be heavily impacted by cost inflation, while the emergence of an energy crisis caused by geopolitics and fossil fuel volatility has also resulted in dramatic increases in energy prices,” Vestas said.

The external conditions were present last year and resulted in the company underperforming guidance expectations. Vestas delivered 16.6 GW of wind power capacity generation last year, and a revenue of €15.587bn. While this was a record, revenue came in at the bottom end of expectations of €15.5-16.5bn.

Earnings before special items is expected to amount to €461m, equalling a margin of 3.0 percent, compared to an outlook of around 4 percent, Vestas said.

“Supply chain instability and rising energy prices as well as accelerated cost inflation from raw materials, transport, and turbine components, however, continued to amplify costs throughout the year, which severely impacted visibility and profitability,” Group President & CEO Henrik Andersen said.

Vestas sees the headwinds persisting in its outlook for this year.

Revenue is expected to range between €15.0bn and €16.5bn. The company expects an EBIT margin before special items of 0-4 percent.

This outlook aims to take into account greater uncertainty than usual around forecasts related to execution in 2022, Vestas said.

The news may not be great for investors, as stocks are down in general ahead of expectations that the US federal reserve will exit covid-linked stimulus and fight inflation by increasing interest rates. Energy prices also remain high.

However, longer-term conditions are likely to play out in favor of Vestas and other wind turbine manufacturers as governments and investors seek massive expansion of the sector.

So while wind turbine manufacturers will no doubt try to negotiate higher prices for their products, that doesn’t necessarily mean they will become less competitive.

Increasing prices for power agreements present an opportunity for customers to accelerate investments in renewable energy, according to Vestas.

Elevated prices for natural gas or crude oil, for instance, are eroding their competitive advantage as a fuel over other sources of generation like wind.

So it seems wind generation will face headwinds in 2022, but as the world seeks renewable power on an entirely different scale to the existing capacity, there may yet be greener pastures ahead.

Stephen Bierman

Stephen Bierman is a finance and energy reporter with over 15 years of experience, including at Bloomberg News and Energy Intelligence.

Tweets at: @StephenBierman1

bierman@neweconomy.site

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