Headwinds: a Siemens Gamesa turbine plant in Hull, where rising costs have contributed to layoffs © Paul Ellis/AFP via Getty Images
Europe has put the rapid expansion of renewable power at the heart of its race to meet ambitious climate targets and — in the shorter term — to wean itself off Russian energy more quickly, after Moscow launched its assault on Ukraine.
European Union commission president Ursula von der Leyen recently emphasised the need, telling a conference that renewable energy deployment is “not only good for the climate; it is also good for our independence”. She explicitly added that it was imperative to counter Russian president Vladimir Putin’s use of “fossil fuels as a weapon”.
But snarled supply chains and the rising cost of key raw materials are now slowing the deployment of wind and solar power across Europe, just as it is needed most — threatening the continent’s ability to meet its ambitious growth targets for the renewables industry.
Henrik Andersen, president of Vestas, a major wind turbine maker, told analysts this month that “cost inflation, supply chain disruption and Covid-related lockdowns” were undermining the sector’s growth, even as the energy crisis underscored “wind power’s criticality to meet both the electricity demand, ensure energy supply.”
Costs for key components for the wind and solar industries have risen sharply this year — part of a broader increase in commodity costs after Russia’s invasion of Ukraine. For example, the price of polysilicon, a key input for solar panels, has tripled since 2021, largely because of a slowdown in production in China, where tight Covid-19 restrictions remain in place, according to the International Energy Agency.
Prices of steel and aluminium, which are also crucial for renewable power projects, are up 70 per cent and 40 per cent, respectively, says the IEA.
These surging materials prices, along with more expensive transportation and financing, have driven the costs of wind turbines and solar panels up between 10 and 20 per cent this year, according to the IEA. And that increase has brought an end to a decade-plus run of steep cost declines that had helped to drive renewable energy’s rapid growth.
Now, with costs reversing, the European renewable energy industry’s profitability has been undermined, prompting a wave of lay-offs just as it should be scaling up its capacity.
Siemens Gamesa, the third-largest maker of newly installed turbines last year, reported a loss of €1.2bn in the nine months ended in June, which was 233 per cent more than the loss it suffered in the same period a year earlier. It has also announced that it is slashing 2,900 jobs, or 10 per cent of its global workforce.
General Electric Renewables has also recently announced job cuts, while Vestas has warned that its revenues will be sharply lower than previously thought.
However, European policymakers have been boosting their renewable energy targets as part of a broader rethink of the region’s energy security following Moscow’s assault on Ukraine. As EU member states imposed economic sanctions on Russia, it subsequently slashed its flows of gas to the continent, exposing Europe’s heavy reliance on Russian fossil fuels.
The EU’s REPowerEU plan, rolled out in May after the Russian invasion, lifted the target for renewable energy in the power mix from 32 per cent of total electricity generation to 45 per cent, by 2030. This would necessitate a rapid acceleration of new wind and solar projects across Europe — far beyond what is currently taking place.
But, rather than accelerating, new orders for wind turbines have fallen sharply, causing WindEurope, a trade body, to raise the alarm over a potential slowdown in deployment.
It has found that new turbine orders totalled just 2 gigawatts, in terms of their capacity, in the third quarter this year — which is down 36 per cent compared with the same quarter the previous year.
According to WindEurope’s data analysis, the two full quarters since Moscow launched its assault on Ukraine in February have been the slowest for new turbine orders since 2017.
Total orders this year have accounted for just 7.7GW of power, far short of the 39GW of new wind capacity needed each year to hit the EU’s 2030 target of 510GW. WindEurope said this was “far off from what Europe needs to reach its energy and climate targets”.
In addition to causing growth targets to be missed, the supply chain and financial problems have also prompted concerns that Europe’s renewable’s industry could grow overly reliant on Chinese manufacturers and suppliers — mirroring the reliance on Russian fossil fuels that the continent is trying to break.
An IEA report over the summer found that the world relied on China for more than 80 per cent of the supplies needed for solar panels, and warned that, for some components, the reliance could rise to 95 per cent by 2025.
Siemens Gamesa chief executive Jochen Eikholt has said that Europe’s wind industry could end up in the same place and has called on more government support for the sector, including a quota for European-made supplies.
Last year, Chinese manufacturers accounted for 53.5 per cent of new global turbine installations, according to the Global Wind Energy Council, up from 36.6 per cent in 2018. Eickholt believes there is now “definitely a risk” that the wind turbine industry could come to look like the solar panel industry, where Chinese manufacturers dominate the market and the supply chain.
Rystad Energy, a consultancy, has suggested that surging electricity costs brought about by the war in Ukraine could heighten that risk of relying on China — further undermining European efforts to build a homegrown clean energy supply chain.
“High power prices not only pose a significant threat to European decarbonisation efforts but could also result in increased reliance on overseas manufacturing,” Audun Martinsen, Rystad’s head of energy service research, warned recently.
“Building a reliable domestic low-carbon supply chain is essential if the continent is going to stick to its goals . . . but, as things stand, that is in serious jeopardy,” he added.