Renewable Power’s Big Mistake Was a Promise to Always Get Cheaper

Source: By Will Mathis, Bloomberg • Posted: Wednesday, November 9, 2022

Vestas CEO says industry went too far with cheap-energy pledge Producers are losing money even as clean-power demand grows

Photographer: Krisztian Bocsi/Bloomberg

Renewable-energy producers have long touted the promise of cheap electricity, an assurance that’s helped them eat into the dominance of fossil fuels. But the pledge has gone too far, according to the world’s biggest wind-turbine maker.

Manufacturers such as Vestas Wind Systems A/S are seeing losses pile up as orders collapse at a time when they should be capitalizing on the turmoil in natural-gas markets. To blame — at least in part — is the industry’s insistence that clean electricity can only get cheaper, according to Henrik Andersen, chief executive officer of the Danish wind giant.

While wind-power costs have steadily declined, to the point where many people concluded prices would eventually hit zero, technological advances can only go so far. Now the industry needs to charge more so that it can deliver the massive scale-up needed for countries to achieve ambitious climate goals.

Soaring commodity costs and supply-chain bottlenecks have wiped out profits for much of the wind industry this year. Vestas expects its profit margin to be around -5% in 2022.

“The output from the turbine has never been more valuable,” Andersen said. “But we are losing money in manufacturing a turbine.” Vestas has raised prices more than 30% in the past year to help stem losses.

To be sure, wind power remains competitive with other energy after Russia’s invasion of Ukraine drove up prices for fossil fuels. But government auctions for new wind farms put pressure on companies to keep prices low, while costly and lengthy processes to gain planning permission continue to inhibit growth.

Permitting in Europe is the “overriding biggest challenge,” Andersen said. While long-term targets for the electricity sector are set in the nations’ capitals, the actual approvals for individual projects are made on a local level in offices that are often understaffed and under-resourced.

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“You have actually right now delegated your defense and energy policy furthest away from where it needs to be,” the CEO said. “You cannot run energy and defense policy in the municipalities.”