Europe's major wind-turbine makers continue to raise their prices in a market being battered by inflated raw material costs and supply chain snarls. Analysts and company executives expect that the challenges will persist into 2023.

Vestas Wind Systems A/S, Siemens Gamesa Renewable Energy SA and Nordex SE have hiked the price of their turbines to long-term highs in 2022. Siemens Gamesa's onshore machines are up 41% year over year in the second quarter to €890,000/MW, and market-leader Vestas is up 22% to €960,000/MW.

Yet, all three companies still incurred second-quarter losses as new orders dwindled, eating into profitability.

The higher turbine prices might partly explain the drop-off in orders, but price increases were necessary, according to Indra Mukherjee, senior analyst on clean energy technology and renewables at S&P Global Commodity Insights. The manufacturers had kept their prices broadly stable as inflationary pressure began to bite in early 2021 but could only hold firm for so long.

"A price adjustment was kind of overdue," Mukherjee said in an interview. "[The turbine-makers] cannot lead the energy transition and be loss-making."

The quest for profitability

Input costs in the wind industry have changed dramatically in recent quarters. The price of key raw materials used in turbines — such as steel, resin and copper — doubled in the two years to the first quarter of 2022 before easing slightly in the second quarter, according to research by Moody's.

"There was some optimism at the [turbine-makers] at the beginning of the year [that they could] stop the negative trend," said Oliver Giani, vice president and senior analyst at Moody's. "But the situation in Russia and Ukraine and the overall market response calls this into question."

The turbine price increases would have been seen as a "last resort," Shashi Barla, director and head of research at consultancy Brinckmann, said in an interview. "They would typically not raise prices [to this extent] ... because they're altering the competitive dynamics."

However, the manufacturers said the price increases give them the best chance to return to profit.

"If costs remain at this level ... then you should expect to see pricing continuing at this level," Vestas CEO Henrik Andersen told analysts Aug. 10. "We're happy with [the second-quarter average selling price]. It plays to the long-term EBIT targets we have."

At the same time, the price increases alone "are not going to [produce] black numbers," Barla said, adding that the companies have had to combine the increases with internal restructuring measures.

For Siemens Gamesa, that means an overhaul of its ownership structure, with parent company Siemens Energy AG launching a €4 billion takeover bid in May to acquire the 32.9% stake it does not already own. The deal will enable up to €300 million of annual cost synergies and help Siemens Gamesa better navigate its operational challenges, the companies said.

The turbine manufacturers have also looked to lock in certain costs, with Vestas signing a partnership with logistics giant A.P. Møller - Mærsk A/S for access to shipping container capacity at a fixed price.

Other restructuring measures include increased outsourcing. Vestas agreed Aug. 10 to sell its converters and controls business to KK Wind Solutions, after Nordex transferred operation of a rotor blade production plant in Mexico to TPI Composites Inc. in 2021.

Tailwinds emerging

The European turbine majors are all guiding toward negative or zero profit margins for full year 2022, with S&P Capital IQ consensus estimates showing losses in excess of €300 million for each company.

Executives said the market turbulence will persist for at least the rest of the year and maybe into 2023. "We will see if there is an easing in [2023]," Vestas' Andersen said. "And if the easing comes, no one would welcome it more than us."

It remains unclear to what extent how poor order intake will continue to be. Given the many uncertainties, developers are still being cautious before locking in turbine contracts, according to Dirk Goedde, vice president and senior analyst at Moody's.

"The big question going forward is how many projects will come to the market," Goedde said, adding that financing conditions "have materially changed globally" with the recent inflationary pressure also pushing up borrowing costs for developers.

That said, executives pointed out that the wind industry's longer-term trajectory is encouraging. That includes, most significantly, the Inflation Reduction Act in the U.S., which contains an extension of federal tax credits for clean energy projects.

The bill is "by far the biggest change in the history of wind when it comes to policy," Barla said, adding that it moves the U.S. from a place of historical "policy flip-flop," where tax credits are only available for short periods.

The U.S. is a major market for the European turbine-makers and for local manufacturing giant General Electric Co., and the companies' lower order intake in recent quarters can be also explained by the lack of activity there, Barla added.

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