Siemens Energy AG, one of the world’s leading energy technology companies, is facing a major crisis in its wind power division. The company has announced that it expects to incur a net loss of €4.5 billion ($4.8 billion) this year due to technical faults, unprofitable contracts, and rising costs in its wind turbine business. The company is also in talks with the German government to secure €15 billion of guarantees to support its balance sheet and liquidity.
Faulty turbines and fierce competition
The main source of Siemens Energy’s troubles is its subsidiary Siemens Gamesa Renewable Energy SA, which produces onshore and offshore wind turbines. The company has been struggling for years to compete with rivals such as Vestas Wind Systems A/S and General Electric Co. in the global wind market.
The situation worsened this year when Siemens Gamesa discovered serious defects in its latest onshore turbine model, the 5.X, which was launched in 2019. The turbine has a rotor diameter of 170 meters and a capacity of up to 6.6 megawatts, making it one of the largest and most powerful onshore turbines in the world. However, the turbine also has a design flaw that causes a main piece on the frame to twist or move over time, potentially damaging other critical components and leading to breakdowns.
Siemens Gamesa has stopped taking orders for the 5.X and is working on finding a solution to fix the existing turbines, which are installed in several countries including Spain, Sweden, and Brazil. The company has also set aside €1.1 billion ($1.2 billion) to cover the costs of repairs, warranties, and penalties. However, the final bill could be much higher, depending on the extent of the damage and the duration of the downtime.
Rising costs and shrinking margins
In addition to the technical issues, Siemens Energy’s wind business is also facing pressure from rising costs and shrinking margins. The global wind industry has been hit by inflation, supply chain disruptions, and higher interest rates, which have increased the costs of raw materials, components, financing, and construction.
At the same time, the wind market has become more competitive and price-sensitive, as governments and utilities seek to procure renewable energy at the lowest possible cost. This has led to a decline in the average selling price of wind turbines, which has eroded the profitability of wind power projects.
Siemens Energy has admitted that it has signed some unprofitable contracts in the past, especially in the offshore wind segment, where it is the market leader. The company has also warned that it may face further losses or impairments due to delays or cancellations of some projects, especially in the US, where it has faced regulatory and environmental hurdles.
Restructuring and innovation
To cope with the crisis, Siemens Energy is considering various options to restructure and revamp its wind power business. The company is in talks with the German government to secure €15 billion of guarantees, which would help it to refinance its debt and improve its credit rating. The company is also exploring the possibility of selling some of its non-core assets, such as its stake in Siemens Healthineers AG, to raise cash.
Moreover, the company is looking at ways to cut costs and improve efficiency in its wind operations. The company is reportedly weighing factory and sales office closures, staff reductions, and outsourcing of some functions. The company is also reviewing its product portfolio and strategy, and may decide to design a new turbine to replace the faulty 5.X model. The new turbine could be ready in about two years, according to sources familiar with the matter.
Siemens Energy is also investing in innovation and digitalization to enhance its competitive edge and customer value. The company is developing new technologies and solutions, such as hybrid systems, green hydrogen, and artificial intelligence, to optimize the performance and reliability of its wind turbines and services. The company is also collaborating with partners and customers to create new business models and opportunities in the energy transition.
Siemens Energy is expected to provide more details on its plans and outlook on Nov. 15, when it will present its annual results and strategy update. The company hopes to overcome the current challenges and restore its wind power business to profitability and growth.
