In last week’s capital market, the European renewable energy sector giant Siemens Energy in Germany suddenly suffered a crash-type plunge, a one-day drop of more than 37%, the total market value of 6.92 billion euros (about 54 billion yuan) evaporated in a single day.
The plunge originated from the company’s wind turbine manufacturing business part of Siemens Gomeza company was exposed to major quality problems, the production of wind turbine parts wear much faster than expected, which also led to Siemens Energy unexpectedly withdrew the 2023 earnings guidance, which also triggered a panic in the capital market on the company’s performance.
The following questions address parts of the problem in detail:
What is the actual problem with the quality of onshore wind turbines that emerged this time?
The quality crisis revolves around Siemens Gomersa’s onshore wind turbines with a total capacity of 108GW, where quality issues including blades and bearings have been found in certain components.
Siemens Energy conveniently stated that a total of 15-30% of wind turbines could be adversely affected by this quality issue, with abnormal vibrations in certain components, as well as potential problems related to product design.
Affected onshore wind turbine models
According to Siemens Energy’s management, the recently launched model platforms are mainly involved, including the 5X model platform, which was reported to have problems last year. In addition, the 4X platform also has quality issues.
Offshore wind turbine business affected
Siemens Energy said the company’s offshore wind turbine manufacturing business is also facing a number of challenges, mainly focused on production delays of up to 30 percent.
These include staff shortages, slow capacity building, poor supply chain, failure to meet component quality standards and higher than expected material costs.
Potential financial risks of up to billions of euros
Siemens Energy said it expects to spend at least 1 billion euros ($1.1 billion) to address these quality issues, adding that this is only a preliminary assessment of the ongoing review and includes the estimated cost of repair work.
Earlier this year, Siemens Gomez has received nearly one billion euros in claims for quality problems.
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This means that nearly one-third of Siemens Gamesa’s O&M orders will not earn any profit for the remainder of the O&M contract period.
Related industry analysts believe that the related aftercare costs will amount to 2 billion euros, of which 1.75 billion euros for onshore and 250 million euros for offshore projects.
Some analysts believe that Siemens Gamesa will face a maximum aftercare cost of 5.6 billion euros.
These aftercare cost estimates do not include any mitigation measures, including claims that Siemens Gamesa may receive from its downstream suppliers.
Siemens Energy declined to comment on its suppliers of bearings and wind turbine components, but said that its suppliers will likewise be part of the pursuit of liability.
These include the world’s top wind turbine bearing manufacturers, such as China’s Dalian Wafangdian Bearing Group, Japan’s NTN and NSK, Switzerland’s Liebherr-International AG, as well as Germany’s Thyssenkrupp, Germany’s IMO and Schaeffler.
Siemens Gomersa’s current status
Siemens Gamesa is a Spanish-based multinational company that manufactures onshore and offshore wind turbines and provides a wide range of services to wind power developers worldwide, with its main markets being Europe and the Americas.
By the end of April, the company had supplied more than 132 GW of wind turbines worldwide, including 108 GW of onshore wind turbines and 22 GW of offshore wind turbines.
Last year, the company generated annual sales of €9.8 billion and had orders on hand of €34.6 billion.
Siemens Gomersa’s main customers
Siemens Gomersa supplies wind turbines to a wide range of major power companies and oil and gas headquartered companies around the world.
In March, the company announced an order for offshore wind turbines from Scottish Power Renewables in the United Kingdom to supply 95 turbines with a total capacity of 1.4 GW to the East Anglia 3 offshore wind project in the European North Sea, which will be sufficient to meet the electricity needs of 1.3 million UK households.
In May, the company signed a contract with Repsol REP.MC (Repsol) in Spain to supply 40 onshore turbines that will provide electricity to approximately 160,000 homes in Spain.
In addition, the company has partnered with PGE Group in Poland and Ørsted in Denmark to supply 107 wind turbines for the Baltica 2 offshore wind project.
Next steps for Siemens Gamesa
The company said it has already started a technical assessment of the installed onshore wind turbines and product design, and that all the problems identified so far have been included in the quality issue bulletin published last Thursday.
The company is now accelerating its assessment of solutions to the problems and determining the cost of remedial measures.
The company said that following a full analysis of the situation, it plans to publish a more accurate estimate of the various costs resulting from the quality issues when it releases its second quarter operating report on 7 August.