Construction costs are exploding, and the European model can no longer withstand Chinese competition

Among wind turbine manufacturers, the story is still on everyone’s mind: due to downward pressure on prices and intense international competition, the European PV design industry was decimated in its infancy at the beginning of the twenty-first century, replaced by the unbeatable competitiveness of China, which is now largely dominant in the global market. A losing battle for the Old Continent, and a pattern that could repeat itself, this time in the giant blade segment, is alerting European turbine manufacturers today.

And with good reason, between selling at a loss and destroying jobs, all at great difficulty. Thus, the Danish giant Vestas, No. 1 in the sector, lost 765 million euros in the first quarter of 2022, and announced its intention to close three factories and eliminate 275 jobs. For its part, Siemens Energy had to launch a takeover bid in May to save its Spanish subsidiary Gamasa, which specializes in making wind turbines, from financial bleeding.

Several setbacks threaten to undermine the EU’s ambitious goals in this area: In order to reduce its dependence on Russia, the Commission intends to increase the installed wind capacity in the twenty-seventh from 190 GW to 480 GW by 2030. Soon – three times that the money-losing European industry cannot Bear it … for the benefit of foreign manufacturers who seek to develop outside their home markets. And this is despite the will of Brussels to increase its sovereignty in the field of energy.

High cost of raw materials

As rising prices for steel (used in towers and blades) and other important materials, such as copper, have caused the cost of infrastructure to skyrocket, European manufacturers are worried. Not to mention the disruptions associated with the logistics chain, including the shortage of container ships, with bottlenecks exacerbated by the explosion in global demand linked to the war in Ukraine and the race for “cleaner” alternatives. .

The state of the supply chain is currently unhealthy […] Because we have an inflationary market that is way beyond what anyone expected until last year. The price of steel multiplied by three! […] If the government thinks That in the blink of an eye, this supply chain will be able to go around and meet double or triple demand, which is unreasonable. ‘, was confirmed in April by Sherry Hickok, general manager of French group GE Renewable Energy for onshore wind energy.

In addition, the strict sanitary measures in place in some countries, especially in China with the “Covid zero” policy that paralyzes many factories, exacerbates this phenomenon. And for good reason,” About 85% of the industry components come from China ”, a few days ago Jose Luis Blanco, General Manager of the giant German manufacturer of wind turbines Nordex. An addiction that results in big risk According to the leader, it is weakening European equipment manufacturers more than ever due to the lack of visibility.

“If you buy materials now to build a wind farm, you won’t have it for months, or at a very high price,” explains John Blassard, director at Mirabaud & Cie and an expert on macroeconomics.

Click on prices through the auction mechanism

But that’s not all: according to Nordex CEO, the problem existed before the war in Ukraine or the health crisis of Covid-19. Because according to him, the economy of the wind industry is also severely affected by pressure on auction prices, through competitive bidding mechanisms put in place by European countries for the selection of operators.

In fact, when a call for bids for a future garden is launched, manufacturers don’t know who will win the auction. ” There is uncertainty about the winner and the asking price level, and therefore about all orders notes Jacques Perseboa, economist and director of Creden. Especially since the system works according to the logic ” to say less “, int. In other words,” Choose the country that is least greedy, i.e. the country that offers the lowest price per MWh for a given specification Which leads, mechanically, to lower prices, despite the difficulties manufacturers face in coping with inflationary pressures on the supply chain. However, the increase in component costs, which account for up to 80% of the final price of the electricity generated , causing severe pressure on the margins of the entire industry.

“This bidding system is now broken. It obliges them to exercise prices below 60 or 70 euros per megawatt-hour, while electricity prices today are exploding to 500 euros per megawatt-hour. There is a real gap, which does not allow European turbine manufacturers to secure their industrial supply in the region” , also worries Michel Gioria, Director of France Energie Eolienne.

Especially as the industry still faces an unstable pipeline of work in the future, doubling the stop and go In some component plants, WindEurope, the European wind energy lobby, argues regularly. And with good reason, the creation of new parks has proven to fall far short of EU expectations and goals, particularly in France, due to local resistance and repeated administrative appeals.

“We invest in volumes, confident in market dynamics, then volume doesn’t come, then the factory goes empty […] The sector is entering a cycle of self-destruction,” Nordex CEO recently confirmed.

Multiplier effect on electricity prices

It is enough to stem the decline in the cost of wind electricity that has been observed for nearly a decade, despite the surge in hydrocarbon prices from which the sector “benefits.” ” There is a real change in the price dynamics which are back on the rise again after falling by about 40% compared to 2010. John Blassard notes.

at the global level,” From batteries to solar panels and wind turbines, the rapid cost-cutting trends seen over the past decade are mostly reversed in 2021, with wind turbine prices rising 9% For its part, the International Energy Agency (IEA) emphasized on May 18 in a note titled “Critical minerals threaten a multi-decade trend in lower costs for clean energy technologies.”

However, “in Over the past eight years, cost has been the only driver of development, with balanced low energy costs and low turbine prices driving the overall business “This is what Jürgen Zischke, managing director of German wind turbine giant Enercon, said recently. The result: European OEMs have fallen behind, saying they will compete for fewer projects in fewer markets, raise prices, simplify production lines and lower manufacturing costs.

Chinese turbine manufacturers look to Europe

While, at the same time, the Chinese competition has been able to keep their systems remarkably low, ” The real danger is to see the entire European wind industry leave for low-cost countries Michel Gioria warns. Indeed, China sees valuable opportunities in the European market, and many of its companies are planning to invest there, from Goldwind to Envision Group to Ming Yang. The latter notably provides wind turbines for the first offshore wind farm in the Mediterranean, off the Italian coast, financed by the subsidiary of French investment bank Natixis. As for Goldwind, the company has won markets in Greece and Kazakhstan, to promote ” Low Price Package Deals “.

Under these circumstances, France Energie Eolienne is campaigning for criteria other than price to be used in bid requests. ” We must at least take into account the inflation of materials and the development of labor cost, in order to secure a production base on European and French lands. “He defends Michel Gurría. Otherwise, he says, the sector will not be able to achieve its goals, and it will suffer the same fate as photovoltaics, between intensive migrations and heavy dependence on Asia.