Wind turbine manufacturers are feeling the sting of the COVID-19 pandemic, in large part due to disruptions in their internationalized supply chains.

Despite the longer-term tailwinds for the industry, Denmark's Vestas Wind Systems A/S, Spain's Siemens Gamesa Renewable Energy SA and Germany's Nordex SE all withdrew their full-year financial guidance in the first quarter due to poor business visibility.

While Nordex booked strong earnings growth in the first three months and all three companies observed solid demand from developers, the long lead times in the wind sector — especially in offshore wind — mean certain impacts from the downturn may only materialize later in 2020.

The three turbine makers saw factories in Asia, Europe and the Americas close because of lockdown measures, and the sourcing of components has become more challenging and expensive as a result of the crisis. "The whole world is in a force majeure right now," Vestas CEO Henrik Andersen said on the company's May 5 investor call.

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As it stands, the companies' order books are full, largely fueled by projects backed by government subsidies. But future sales may be slowed by delays to construction during the lockdowns. Some auctions in Europe have been pushed back due to the price volatility caused the pandemic and project developers looking to build unsubsidized wind farms are also facing headwinds in terms of access to capital and dampened economic prospects amid lower power prices.

Industry group WindEurope projects that the pandemic will reduce installations in 2020 across Europe by 25% compared to the previous trajectory.

For large manufacturers with strong balance sheets, weathering the storm will not be an existential challenge. But the crisis, with its impact on workforce deployment and cash flow disruptions, is set to hit smaller supply chain companies and service providers harder, according to Andy Strowbridge, associate director at wind power consultancy BVG Associates.

"At the lower tiers, there will be quite a lot of pain," he said in an interview. These businesses often play an important part in the functioning of the wind industry's regular operations. "There will either be consolidation or support from clients to help them through this," he added.

Green recovery touted as Europe's silver lining

CEOs at all three large European turbine manufacturers highlighted the potential tailwinds of a green recovery, a stimulus plan benefiting businesses with a focus on sustainability. The EU's Green Deal, through which over €1 trillion is earmarked for decarbonizing the energy system and other parts of the economy, is part of that.

"Despite the temporary drop in energy demand and in prices, we see that green energy and wind energy is one of the sectors that governments and politicians are [supporting] to recover economies and to protect employment," said Jose Luis Blanco Diéguez, CEO of Nordex.

Industry observers are in agreement. "There are so many fundamentals that are driving onshore wind and offshore wind. I'm not worried about short-term power prices," Strowbridge said.

Gary Bills, U.K. country manager at K2 Management, a consultancy, said the European offshore wind market should recover fairly quickly from the downturn. "Some other markets may not be so lucky and emerging markets may take a lot longer to bounce back. All of a sudden, people don't have the 'spare' cash to take the risk," he said in an email.

In markets like Taiwan, which is maturing fast, there is enough existing construction, and therefore enough momentum, to carry it through the crisis, he added. "However, markets like the U.S. could be hit hard and the impact of this pandemic could signal yet another hurdle for them to overcome. Travel restrictions alone will have a significant impact on deals and projects moving forward in places like the U.S.," Bills said.

Innovation drive still strong

With cost cutting measures and investment limits in place, questions have emerged about the wind industry's resolve to keep growing the machines and sustain investments in research and development. But initial comments from the turbine makers show that, against a fiercely competitive industry backdrop, slashing R&D funding is not an option.

In the offshore wind sector in particular, where turbines are creeping up toward 12 MW in capacity with General Electric Co.'s Haliade-X machine currently in development, there is little room for retreat.

"You need to be at the forefront of the development in order to help your customers drive [levelized cost of energy] further down," Siemens Gamesa CEO Markus Tacke said on the company's May 6 earnings call. "We will continue to push our technology developments to remain the spearhead of that industry."

Vestas has cut its 3-MW V138 EnVentus platform from its manufacturing portfolio to curb costs, a financial decision that also led to 400 job losses in factories. The market segment can still be served by other machines, Andersen said. Asked about the cost optimization drive on 20 April, a Vestas spokesperson said the measures will not impact the company's R&D segment.

"Management will still want their R&D teams to keep working on new machines," Strowbridge said. "It's a tough old world out there, competitors are still innovating."

And that competition now comes not just from fellow European manufacturers but also from China. According to consultancy Wood Mackenzie, China's big three turbine manufacturers — Xinjiang Goldwind Science & Technology Co. Ltd., Envision Energy Ltd. and Ming Yang Smart Energy Group Ltd. — each recorded their highest ever installation figures in 2019, although the majority of orders still come from Chinese developers.

Ultimately, however, compared with most sectors, renewable energy businesses have a lot to gain in a post-coronavirus world, Bills said. "These times of social upheaval are huge opportunities to drive change and in many ways this might give the industry the space and the kickstart to push forward with innovation," he said. "Wind farms are still turning and making money for investors. As an investment, right now it's still the place to be and this is an encouraging outlook."