A snapshot of European wind energy sector

As WindEurope 2024 is about to be held in Bilbao, the annual event of reference for wind energy in Europe, it is a good time to review the current situation of the sector in our continent. After the desert crossing that the last two years have been for the sector, especially for the supply chain, it seems that the goal of profitability is finally beginning to be glimpsed.

 

1. Demand

 

As can be seen from the graph in the latest Windeurope report, the level of installations in Europe is rather stagnant. In 2023, 18.3 GW were installed, 21% of which were offshore projects. The reasons for this stagnation are many and varied, but among them are the slowness of the permitting, the generalised rise in costs and the strong competition from solar.

 

 

If we look at the breakdown by market, it is surprising to see countries that have traditionally been very powerful, such as Spain or the UK, with very low levels of installation. Germany, however, remains the strongest market with almost 4 GW installed in 2023.

 

 

As for the forecasts up to 2030, Windeurope draws a fairly optimistic scenario thanks to the huge growth of offshore, which even surpasses onshore in annual installed capacity in 2030. In my opinion, forecasts more than 4 years ahead in offshore tend to fail a lot as they are very complex projects that tend to be delayed or cancelled (as we saw in the article on offshore in the USA) so I would take the forecasts up to 2026 as quite viable and the rest as aspirational.

 

 

2. Turbine manufacturers

 

The situation of the main European OEMs has been one of the main concerns of the industry for the last few years and 2023 may have been the year of change. As  explained in this linkedin post, Vestas and Nordex have given very encouraging financial results in 2023. SiemensGamesa, however, is still in the doldrums and, according to its CEO, does not expect to reach breakeven until 2026, while GE expects to do so in 2025, so we will have to be patient.

Looking at quarterly developments, there are several pieces of information that point to a general recovery:

 

• EBIT

 

 

Profitability has obviously been the main thing for the last 2 years but at last we see that in the last quarters both Vestas and Nordex have reached timid black numbers. GE and SGRE are still making heavy losses but at least GE is now declaring that its onshore business has reached profitability, which is a very good sign.

 

• Order Intake

 

 

Another aspect that has developed very positively has been the incoming orders where 2 clear trends can be seen:

• • SiemensGamesa‘s commercial hiatus has led to the transfer of orders to Vestas and

• • Overall, orders have grown by 42% in the last quarter compared to the last quarter of 2022.

 

What about the famous ASP or average selling price?

 

 

Although it shows a downward trend and could lead one to believe that prices are falling again, my reading is different. Those of you who read this blog already know that ASP has many limitations as a price level indicator (see article on ASP and its limitations) and this fall could indicate that manufacturers are focusing on projects with a more limited scope, an aspect that would be in line with the strategy of limiting risks. As an example, by simply eliminating turnkey (or EPC) projects, the ASP is reduced but that does not mean that profitability is lower.

 

3. Offshore

 

It is worthwhile to spend some time on the business that, according to WindEurope forecasts, will be the main growth vector for the sector.

 

• Installation: In 2023 and installed 3.8 GW of offshore spread over 11 projects. Surprisingly, the Netherlands installed more than half of all capacity. The UK and France complete the podium, while Germany has only 257 MW of installed capacity.

 

 

• Auctions: a total of 13.6 GW have been awarded, with 8.8 GW in Germany as the main market. It is worth highlighting the offshore auction in the UK (AR 5), which was deserted due to a very low maximum price, as explained in this excellent analysis by ORE-Catapult. The government has already reacted and in the 2024 auction (AR 6) has raised the strike price by 44% to 73 pounds, although the failure of AR5 will undoubtedly delay the fulfilment of targets.

 

In Spain, the draft of the offshore auction mechanism has finally been published, which will hopefully lead to the first auction this year. It should be remembered that offshore in Spain will be floating, so the complexity, risk and cost will be multiplied.

 

• Floating: in 2023 we saw the completion of the world’s largest floating wind farm: Hywind with 95 MW installed by Equinor. Also worthy of mention is Saitec’s installation of its 2 MW DemoSath prototype, which recently provided us with images of how it withstood the onslaught of the storm. And we cannot forget X1’s PivotBuoy prototype, whose first year in operation was summarised in this linkedin post.

 

• War of the giants: the battle of the mega turbines to reign supreme in the coming years is more interesting than ever. It seems that 2023 has been very positive for Vestas with the bombshell Norfolk contract from Vattenfall, which has seen the V236 take the lead as the model with the largest announced order backlog.

 

 

4. Legislation

 

The year 2023 was undoubtedly marked by the Wind Power Action Plan, which we discussed at length in this article. Also by the advances in the Net Zero Industry Act, especially with the non-price criteria in the auctions that will have to account for 30% of the total selection criteria.

 

It will be very interesting to see what non-price criteria are used as there are some, such as cybersecurity or resilience, that could be barriers to Chinese manufacturers.

 

5. New turbines

 

Almost the good news here is that there is virtually no news. With the reliability problems in the industry so serious, the best strategy is to slow down the pace of new turbine launches and devote all efforts to making existing turbines reliable, a message that the big OEMs like Vestas never tire of launching.

 

Enercon launched in September its upgraded version of the E-175 E5 with 6.X MW of power. GE Vernova, for its part, announced at its first Investor day as an independent company that it would simplify its product portfolio as much as possible, leaving two main models onshore and the Haliade-250 for offshore.

 

 

As can be seen in the graph below, Western manufacturers (as opposed to the Chinese) have focused on onshore models around 6-7 MW and 160-170m rotors as the products of the present and future.

 

 

In conclusion, something that has already been repeated many times: it doesn’t matter what targets are set for wind energy by the different governments because it will all be a dead letter without a profitable and capable supply chain. If the manufacturers’ improvement is confirmed together with the clear will at the institutional level to boost the sector and the market’s appetite for wind energy, the years ahead promise to be very good for the industry.