It has emerged that the German government is in talks to provide a multibillion-euro bailout to engineering giant Siemens, one of the world’s biggest wind turbine makers.
It comes amid problems at the company’s wind turbine division, as shares in the company plunged by nearly 40 per cent, tumbling to record lows on the German stock exchange – knocking €3 billion euros from its market value last week.
International reports state that the company was in talks to secure guarantees from the German government as part to a rescue package valued at €15 billion.
The Germany company, which owns Siemens Gamesa, a turbine manufacturer, expects to suffer significant losses this year after faults were found in its newest turbines.
As reported by The Financial Times, U.K. head of energy at KPMG, Simon Virley, recently highlighted the challenges facing the global wind supply industry.
“Offshore wind projects around the world have faced a triple whammy of high supply chain inflation, rising interest rates and a reluctance on the part of governments to adjust auction parameters to respond to these new market conditions as they prioritise keeping costs to consumers down,” Mr Virley said.
Final investment decisions in European offshore wind farms fell to a decade-low last year, as developers reported steep inflation, sharp interest rates and infrared seabed leasing fees, coupled with unpredictable energy markets.
It was also reported on Wednesday that Danish company Ørsted had cancelled two major offshore windfall projects in the United States, costing more than £3 billion, amid soaring costs confronting the wind industry.
Ørsted, the world’s biggest wind power company, saw shares tumble by 25 per cent on Wednesday after it informed investors it had “no choice” but to take the £3.3 billion impairment charge and cancel the developments which were to be built off the New Jersey coast.
The company said the reason behind cancelling its Ocean Wind I and II schemes was high inflation, increasing interest rates and supply chain problems.
Ørsted’s chief executive, Mads Nipper, said he was extremely disappointed however it was a sensible decision given the sharp rise in costs.
He said there was no doubt that the offshore wind industry has found itself facing a “perfect storm” of sharply rising costs, created by soaring interest rates and inflation.
“This industry does not need to be in a crisis. We are of the opinion that it all hinges on being realistic about [what] power prices need to be,” Nipper said.
Munich-based company Siemens, meanwhile, said it was looking at measures to “strengthen its balance sheet”, and was in talks with banks and the government to secure the billions of euros needed to guarantee its long-term projects – as it cautioned that losses at its wind turbine business would be worse than expected.
Siemens Energy has been in sharp decline since June, when the technical problems facing the bearings and rotors in its turbine models were first revealed. In August, the company issued a warning that it was recovering to see losses in the region of €4.5bn this year.
The company also makes turbines for gas-fired power stations, electricity grid transformers, and electrolysers.
William Mackie, head of capital goods research at Kepler Cheuvreux, described their business in worn as being “in utter disarray.”
“Against that backdrop, the company’s opportunity set for financing is impaired due to a crisis of confidence in parts of the business outlook financially,” Cheuvreux told The Financial Times.
While full details of the technical problems have not been disclosed by Siemens, The Financial Times reports that those familiar with the issue said problems were linked to the company’s 5.X turbine, as well as problems with its predecessor, the 4.X.
At the same tome, the company said last week that its gas and power businesses were set to meet targets this year because it “excellent performance.”
Other wind turbine makers including Vestas and Norse’s have all suffered losses in relation to the industry’s flawed market design.
The problems facing Siemens come as European Commission President Ursula von der Leyen pledged there would be more support for the wind industry during a speech for the European Parliament in September.
“We will fast-track permitting even more. We will improve the auction systems across the EU. We will focus on skills, access to finance and stable supply chains,” she said.
The EU has one of the most ambitious targets internationally to expand renewable energy – and is presently finalising a legally binding target to produce 42.5 per cent of all EU energy through renewable sources by 2030.
This comes despite warnings from Europe’s wind industry that it is not big enough to fulfil the green power targets.