Like one of its many gigantic turbines on a blustery day, Germany’s world-leading wind-power industry is starting to look shaky.
The €13 billion ($15.4 billion) sector has been hit by falling subsidies around the world, with producers facing the unfamiliar task of having to compete on prices. As a result, prices are tumbling: The price of a wind turbine has dropped by about 40 percent in the past three years, seriously hurting firms’ revenues and earnings.
To make matters worse, experts have long warned that Europe’s – and especially Germany’s – wind-engineering firms are losing their technological edge as turbines, like solar panels, become a mass-market product. The fate of the country’s solar-power industry, which crumbled under the weight of low-priced Chinese competition, is a cautionary tale.
“The wind energy sector is going through turbulent times,” said José Luis Blanco, the head of Hamburg-based Nordex, Germany’s third-biggest maker of turbines and rotor blades, at the presentation of his firm’s latest results on Tuesday. He announced a more than 50 percent slide in earnings to €28 million ($32.9 million) in the first three quarters, from €64 million in the year-earlier period. He cut the sales forecast for 2017 to less than €3.1 billion and predicted a further decline in demand in 2018.
Warburg Research analyst Arash Roshan Zamir forecast that sales would plunge to €2.5 billion next year following a 49 percent drop in orders in the first three quarters.
Nordex may not be alone in feeling the pain. Windresearch, a market research group, said the turbine market in Germany is on the brink of a major downturn, predicting that the installation of new windmills will likely fall to a capacity of 2,500 megawatts in 2019 from 4,625 megawatts in 2016. In a worst-case scenario, the market could even tumble to just a quarter of its current size, meaning new capacity of just 1,100 megawatts would be built.
“The industry is under enormous pressure,” said Dirk Briese, the head of Windresearch. The unpredictability of government policy is a major problem, with markets collapsing abruptly in response to sudden reductions in subsidies, as happened recently in India and South Africa. In many countries, wind power is now cheaper than coal, oil or gas-fired electricity.
Significant excess capacity in major markets is forcing German turbine makers to make spending cuts. Siemens Gamesa, the wind subsidiary of industrial giant Siemens, plans to shed 6,000 of its 27,000 jobs worldwide, and rival Senvion is axing 660 jobs. Nordex is expected to lay off 500 of its 5,200 workers to cut costs by €45 million by 2018. Roughly 135,000 people work in the country’s wind sector. But the company is also investing €150 million and in the summer presented two new turbines with blade lengths of up to 149 meters in a bid to reclaim the technological edge.
Experts argue that it is such expertise that will ensure the German industry maintains its technological advantage, as firms in emerging markets are yet to develop advanced manufacturing skills. Observers also say that falling prices could tempt countries with little wind-power infrastructure to invest in the sector, meaning big orders for companies like Nordex and Senvion. “Over the medium term I see good opportunities for our business,” said Mr. Blanco, prediciting a recovery from 2019.
But investors are skeptical. The Nordex share price fell by as much as 7 percent on Tuesday. It’s fallen to around €7.50 from €30 at the start of the year. That’s the lowest level in almost five years.