The wind generation industry has taken a hit over the course of 2022 with Rethink Energy citing recessionary pricing as a key stumbling block.
According to the research firm’s ‘Wind industry blown off course by recession – promises a full recovery: Q3 2022’ report, there has been a dramatic reappraisal of wind projects and now there is a greater need to renegotiate terms for major deals that have already passed final investment decisions.
The hit to the wind industry has primarily been inflicted by the energy crisis which has been caused by volatility in the wholesale gas market. In doing so, the globe, especially Europe, has been impacted significantly by these developments and the war in Ukraine.
The damage being done to the wind industry will be of concern to the UK primarily due to the nation boasting the “largest offshore wind pipeline” in the world, according to EY Global.
Both onshore and offshore wind have seen significant investment and backing from the UK Government in recent years in order to prepare the UK’s energy grid for net zero emissions.
Several renewable generation targets had been outlined in the British Energy Security Strategy released earlier this year. The strategy outlined a new target of up to 24GW of nuclear power by 2050, and up to 50GW of offshore wind by 2030.
This targeted expansion of the wind sector has already reaped rewards. Including onshore facilities, UK wind generation surpassed 20GW in early November according to the National Grid, where it hit a new record for the second week in a row.
However, with the current financial climate having a wide scale effect on the global wind industry it is crucial that urgent changes are made to ensure the long-term viability of the UK’s wind projects and to maintain its large pipeline of projects in the future.
According to the report, one of the biggest issues surrounding the development of wind farms is the current issues plaguing the steel manufacturing industry. With increased costs to produce steel on a wide enough basis for the manufacturing of wind turbines, it has in turn increased the overall cost of projects and thus wind developers could be in jeopardy due to pre-agreed terms.
“This month’s news that one of the largest ever wind contracts ever signed has been re-negotiated because it was in danger of making a loss, is just a typical part of that re-adjustment to recession economics”, says Bogdan Avramuta, analyst at Rethink Energy and lead author of the report.
“Steel manufacturing costs have also been playing a part in all this. It means decreasing margin on turbine sales translates into months-old Power Purchasing Agreements (PPAs) leaving energy distributors on the fringes of profit making.”
Rethink stated that within a little more than a year, it expects Vestas, Siemens Gamesa and GE major, wind developers who posted negative results recently, to be back in the black with healthy order books and smoother deal flows.
This will be achieved as the price of steel falls back to more typical levels and global transport pricing also falls back to a semblance of normality.