WindEurope 2022 in Bilbao has been the most bipolar of all the fairs I have visited in my career: happiness and good atmosphere for the face-to-face meeting with colleagues in the sector and at the same time pessimism and frustration for the very complicated situation of the supply chain. In this article we will try to reflect some of the solutions that have been discussed during the fair.
The now famous table with the summary of financial results in 2021 of the main OEMs is just a reflection of the complicated situation of the wind industry sector.
The OEMs are perhaps the most striking case, but the “unprofitable demand” disease also extends to component suppliers, offshore installers and other companies in the supply chain. The reasons why we have reached this situation are varied: some structural, such as the design of the auctions, fierce competition among manufacturers or excessive development risks, and others circumstantial, such as the prices of raw materials and logistics, but this would be enough for another article and it is well explained by Sergio Fdez Munguía in this article.
But as we have said before, in this article we will try to look to the future and highlight some possible solutions that have been discussed during the fair (in a more or less formal way) to solve this paradox that is threatening the sustainability of the industry because one thing is clear: no matter how much the installation targets are increased, nor the measures taken to speed up permitting, nor the ambition of developers, without strong and healthy turbine manufacturers, there will be no wind sector capable of tackling the challenges that lie ahead.
Possible solutions to the current situation
Before going into the solutions, it is good to clarify that it is unrealistic to think that the situation will be corrected in less than 18-24 months. As several OEMs have already commented, order books have a “toxic” share of loss-making contracts. Some are being provisioned but as the global economic situation worsens, the toxic part is bound to grow. Therefore, the process of liquidating the toxic part of the portfolio plus the process of replacing those MWs with profitable contracts takes time.
Let’s take a look at some of the most talked about measures during the fair.
You don’t have to be an expert in the sector to see that something strange is going on when the last renewable auctions in Spain close with prices between 25 and 30 €/MWh while the pool has been setting record figures for months. Offshore auctions in different countries have closed at zero price and although average prices in the last year have risen, renewable auctions in general show energy prices well below those of other sources of generation.
What was once a source of pride for the sector is now one of its main problems: with revenues so low, profitability only reaches (if at all) the first link in the chain: the developer.
And how can this problem be solved?
- Auctions that reward “value”: everyone recognises that beyond price, wind has other benefits that are more necessary than ever in these times: energy autonomy, local value creation, distributed generation, etc. And why are these elements not monetised in the tariff? It is not easy to design complex auctions, but steps could be taken to move away from the current single criterion of the minimum price.
- “Made in Europe”: although we are entering the minefield of protectionism, there are more and more voices advocating some kind of local manufacturing label that would be mandatory (or at least bonus) for projects in Europe. France has already done this offshore, so there are precedents.
- Avoid multi-technology auctions: solar and wind have different advantages. Both are necessary and very complementary, but it is a mistake to make them compete on price alone. The energy policy of the states must be based on various strategic criteria (independence, diversification, etc.) and not only on cost.
- Floor and cap: this is a concept that has been used a lot in the past and I think it would be very useful now. By setting a reasonable floor, hypercompetitiveness between developers is avoided, which is bread for today, but hunger for tomorrow.
There has been a lot of talk in informal conversations about the need for OEMs to make some kind of “gentleman’s agreement” not to manipulate prices (which would be a legal violation) but to avoid selling at a loss (which is also a legal violation). This simple measure would at least be enough to avoid disastrous contracts signed to fill factories or to steal market share from another competitor.
This is one of the eternal debates in the sector: why is it that in other industries joint development between competitors is standardised, while in wind energy it is an unexplored topic? Current development costs are unsustainable and there are 2 solutions: reduce the pace of new product launches (something we are already seeing) and share development costs. It makes no sense for all OEMs to be developing platforms that are similar in 80% of their components and not collaborate on part of these designs. Competition and differentiation would always be assured with key elements such as control or blades.
Most developers are profitable. Perhaps with vertical integrations between developers and OEMs, margins could be more evenly spread. Although there are OEMs such as Vestas and Goldwind that are moving in this direction, it does not seem to be an industry trend or something we will see in the short term.
Product innovations at the show
Few new products have been seen at this edition. Perhaps due to the proximity of the Hamburg fair or the slowdown in the pace of new launches, there were fewer new products than on other occasions.
- Vestas V172-7.2 MW
New model of the Enventus platform. Its dimensions are impressive considering that it is an onshore model and that the blade will be one-piece so road transport will be a challenge.
- Saitec DemoSath
Possibly the most spectacular part of the fair was not in the BEC but in the port of Bilbao. Saitec organised a tour of its 2 MW floating offshore turbine prototype which is under construction and which it plans to install at sea during the summer. The floating concrete structure is impressive: 65 x 30m and 12m in diameter to support an old Repower 2 MW turbine.
Very interesting visit and we will have to keep an eye on the next steps of this concept that will undoubtedly become more competitive as turbines get bigger (as a fact, Saitec’s people estimate that for a 15MW turbine (7.5 times bigger), a structure only 2.5 times bigger would be needed).
The most talked-about issues
Apart from the delicate situation of the industry, there were other topical issues that were very much commented on
- Floating offshore: undoubtedly the hottest topic of the moment. With the news of a possible offshore auction in Spain in 2023, the developers are already taking positions and the Orsted-Repsol and Naturgy-Equinor alliances were published. In addition, Navantia presented its Seanergies brand with which it will operate in the renewable sector.
- RDL 6/2022: finally a set of measures to unblock the permitting bottleneck. In this article the RDL is detailed but basically it simplifies wind farms below 75MW that are not in the natura 2000 network.
- German targets: Germany presented a new package of measures to accelerate the renewable transition. The so-called Easter package increases targets and facilitates permitting but to date, the supply chain has received these new targets coldly as they seem unrealistic as they require large investments to increase manufacturing capacity, which is impossible right now.
For those who want to know in more detail the main relevant topics of the show, I recommend Recharge’s excellent coverage.
Although the overall feeling of the fair was bittersweet, I believe that there is political will at European, national and local level to put in place the necessary instruments to accelerate the transition. It is already being done with permitting for example, so I am optimistic that there will also be measures to protect OEMs… I just hope it is not too late for some of them.