Wind industry must find ‘slow down to speed up’ consensus to hit ambitious renewables targets

K2 Management's Will Sheard explains why the relentless drive to reduce LCOE for wind is hindering the sector’s supply chain – just when it needs to be accelerating deployment.

The European wind industry needs to slow down in its attempts to further drive down the levelised cost of energy and scale back on building bigger turbines. Unless the inexorable push to lower the cost of renewable energy is reined back, the ambitious targets for wind power set by European governments will not be met.

There is clearly a fundamental economic imbalance when – in one of the world’s fastest growing industries, which has huge growth targets this decade – its key manufacturers are making such enormous losses.

Such losses have been acutely demonstrated by Siemens Gamesa Renewable Energy, which reported losses of more than €600 million in the first half of its fiscal year, and Vestas, which recorded an €894 million operating loss in the first quarter of 2022.

Turbine OEMs have said themselves that a relentless, decade-long drive to reduce the LCOE of wind is becoming unsustainable. With the LCOE for wind now at a highly competitive point, there is an opportunity for turbine OEMs to scale back their ambitions for new, ever more efficient equipment and standardise offshore at machines in the order of 15MW to 16MW.

At the recent RenewableUK’s Global Offshore Wind conference, Chinese turbine manufacturer Ming Yang articulated that it still sees demand from developers for ever larger (>16MW) offshore wind turbines. This is, of course, in stark contrast to the European OEMs, and some in the wider wind industry, that have called for a halt to further research and development into larger turbines as European and US manufacturers find themselves under financial pressure, suggesting instead OEMs should coalesce around machines in the 14MW to 16MW range.

By consolidating product portfolios and focusing research and development away from simply increasing wind turbine generator capacity, beleaguered turbine manufacturers may begin to stem the large losses experienced by the firms as they bear the brunt of significant inflation in commodity prices and raw materials, and the impediments in development timelines that prevent smooth and consistent order pipelines.

This is without doubt a multifaceted challenge, exacerbated by the current macroeconomic situation. But the wind industry – and the energy transition generally – may be best served by turbine manufacturers collaborating and taking their foot off the accelerator when it comes to driving innovation, working to deliver a small portfolio of core products in great numbers to help developers achieve these large capacity targets.

More widely, the continuing push for larger turbines may also be contributing to disruption to more ordered methods of turbine procurement from developers, as many grapple with whether to ‘gamble’ and build out projects with turbines currently available, or wait to see if turbine OEMs release larger, more efficient machines in future.

Governments cannot legislate to force our industry to focus on project delivery – and indeed, many of their policies have set us on this path – so it’s up to us as an industry to collectively agree on the type of machines that will be available for the development window out to 2030. It sounds drastic, but the longevity of our key manufacturing partners may depend on such measures.

Will Sheard is director of analysis and due diligence at K2 Management, a renewable energy consultancy headquartered in Denmark