Europe counters U.S. with clean energy package; Inflation hounds turbine suppliers
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EU sets out state aid, funding plan to compete against U.S.
The European Commission is set to present new measures on February 1 that will support the expansion of clean technology manufacturing and deployment, including mobilising state aid and a sovereign fund for renewable energy companies.
The European Union executive will propose a new Net-Zero Industry Act that supports renewable energy development and prevents firms from moving to the United States, European Commission President Ursula von der Leyen said on January 17.
The announcement comes as a lack of federal financing in Europe, along with volatile regulation and permitting challenges, are making the United States more attractive for investment.
The U.S. and Europe have both set ambitious renewable energy targets but financial support differs greatly and developers in Europe also face permitting delays.
Most importantly, President Biden's Inflation Reduction Act provides $369 billion of green subsidies, including tax credits that increase the profitability of U.S. solar and wind projects as well as new manufacturing facilities.
The EC will propose to "temporarily" adapt EU state aid rules that prevent countries from providing direct support to domestic companies, to "speed up and simplify," von der Leyen said. Funding will be provided through loans and grants and longer term the commission will propose creating a sovereign fund to invest in emerging technologies.
The EU will aim to focus investment on strategic projects along the entire supply chain and "will especially look at how to simplify and fast-track permitting for new clean tech production sites," von der Leyen said.
"To keep European industry attractive, there is a need to be competitive with the offers and incentives that are currently available outside the EU," she said.
Annual wind installations in Europe by country
(Click image to enlarge)
Source: WindEurope
The EC must gain the backing of EU member states and the commission's proposals will recognise that not all EU countries will be able to offer subsidies to the same extent as Germany or France, Reuters reported.
Seven EU countries from the north and east of the bloc wrote to the EC to warn against a subsidy race with the U.S., the Czech Finance Ministry said on January 31.
Vestas predicts slower year as inflation eats into turbine profits
Turbine supplier Vestas warned of a slower year ahead on January 27, due to slow permitting processes in Europe and dampened U.S. activity before President Biden's Inflation Reduction Act takes effect.
The Danish company posted 2022 revenue at 14.49 billion euros ($15.75 billion) in preliminary figures and margin on earnings before interest and tax (EBIT) at minus 8%, impacted by inflation, project delays, and impairment charges.
Vestas predicts revenues in 2023 at between 14.0 billion and 15.5 billion euros, with EBIT at between minus 2% and plus 3%.
"In 2023, we expect high inflation levels throughout the supply chain and reduced wind power installations to impact revenue and profitability negatively," the company said in a statement.
The cost of energy and components in the European Union soared after Russia invaded Ukraine and economies bounced back from the pandemic. Wind turbine production costs surged by 40% and much of this was absorbed by suppliers, according to industry group WindEurope. Suppliers started to raise their prices last year and the rise in global commodity prices is slowly reversing but prices remain volatile and a shifting regulatory landscape in Europe is increasing market uncertainty. Project partners have called for power authorities to index wind contracts to rising component costs to help mitigate volatility.
In addition, permitting delays continue to hamper wind and solar growth and EU members are implementing emergency rules that aim to speed up permitting processes.
GE, the largest U.S. wind turbine supplier, posted an annual loss of $2.2 billion in its renewable energy business as the company faced global inflation and supply chain challenges. GE is reducing the global headcount in its onshore wind unit by about 20% in a plan to restructure and resize the business.
GE Chief Executive Larry Culp said the onshore business is expected to get a boost from tax incentives in the U.S. Inflation Reduction Act which are yet to flow through to new projects.
High inflation is also making offshore wind customers review the economics of their projects, Culp said.
Denmark's Orsted, the world's leading offshore wind farm developer, announced a 2.5 billion Danish crown ($366 million) write down on its Sunrise Wind project off the coast of New York, citing lower projected earnings due to inflation and higher interest rates.
Siemens Gamesa, the largest supplier of offshore turbines, reported a net loss of 760 million euros in the last quarter in preliminary results as it raised warranty and maintenance costs due to problems with a range of components on onshore and offshore platforms.
As a result, Siemens Energy, owner of 92.7% of Siemens Gamesa, slashed its 2023 profit outlook and lowered its predicted profit margin for the year through September to between 1% and 3%, from a previous forecast of 2%-4%. Siemens Energy expects its net loss in 2023 to be on a par with last year's 647 million euro loss, having previously expected its full-year loss to narrow sharply.
Siemens Gamesa shareholders voted to delist the group later this month. Siemens Energy is aiming to take full ownership to get a better handle on operating issues that have become a drag on group performance.
Portugal consults on sea areas in bid to auction floating wind by Q4
Portugal's government has set out seven proposed sea areas for floating wind deployment and plans to launch its first floating wind auction by the fourth quarter of this year.
"Portugal's goal is to reach 10 GW of offshore wind energy capacity by 2030," Prime Minister Antonio Costa said on January 23. "By the last quarter of this year, we will launch our first offshore wind energy auction."
The government launched a public consultation on deepwater sea areas ranging from the north to the south of Portugal, along its Atlantic western coast. The sites are located off the coast of Viana do Castelo, Leixoes, Figueira da Foz, Ericeira-Cascais and Sines and the consultation will last for 30 days.
Portugal currently hosts the 25 MW WindFloat Atlantic (WFA) pilot floating wind farm but is yet to install commercial-scale projects off its long Atlantic coastline.
Last year, Portugal's energy minister said the government would look to auction 3 to 4 GW of floating wind projects in 2022 as it hiked its renewable energy goals. Portugal supplies 60% of its power from renewable energy and the government accelerated its renewable energy target to 80% by 2026, four years earlier than previously planned, after European Union members agreed to end their reliance on Russian oil and gas.
Portugal has 7.3 GW of installed hydroelectric capacity, 5.6 GW of onshore wind and 2 GW of solar power, according to 2022 figures.
The UK, France and Spain are also rolling out tenders for large-scale floating wind projects. Scotland allocated 15 GW of leases in January 2022 as developers race to gain a foothold in the emerging floating wind market.
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