Wind power has been widely promoted as a “cheap” energy source. What was never the most convincing pitch is looking increasingly threadbare.
I wrote about this topic in the most recent Capital Letter, and the bad news keeps coming.
German Chancellor Olaf Scholz ratcheted up pressure on Siemens Energy AG’s biggest shareholder Siemens AG to help shore up the troubled wind-turbine maker’s finances as part of a joint package with the government and banks.
Scholz said Wednesday at a Siemens Energy event in Berlin that he’s confident a deal can be reached if the various parties agree to shoulder a sufficient part of the burden.
Siemens Energy has been seeking as much as €16 billion ($17.1 billion) in loan guarantees over two years after its credit rating was downgraded in July. Siemens, its former parent, indicated it was no longer willing to help it weather a string of losses at its Gamesa wind-turbine unit. . . .
Siemens Energy’s share price has slumped roughly 45% this year, as problems at Gamesa mounted. Faults in thousands of wind turbines have left the company with a repair bill of at least €1.6 billion ($1.7 billion), though the company is still conducting a broad review of the issues to determine a final cost.
Turn to Siemens Energy’s website to find this:
One thing is clear: Business as usual is not an option. It is critical to act now to protect the climate while meeting the growing energy demand.
Say what you will, Siemens Energy is fulfilling the first part of that statement: A collapsing share price, a credit rating downgrade, and a request for massive loan guarantees are not “business as usual.” Then again, when it comes to the energy transition, different rules seem to apply.
Oh well, scroll on down the same web page for some happier news:
Siemens Energy’s ESG Risk Rating places it in the lowest risk group in the Electrical Equipment industry assessed by Sustainalytics.
Phew!
And there’s more:
In September 2023, Siemens Energy has been awarded a Gold medal by EcoVadis with an overall score of 75 points out of 100…
Siemens Energy’s Sustainability rating places it at 98% percentile assessed by EcoVadis.
The arm-twisting in Germany seems to be working.
Reuters: (November 9):
The German government, Siemens AG and other parties involved in talks to cover billions of euros in project-related guarantees for Siemens Energy have agreed a deal in principle, three people familiar with the matter said. . . .
Some details of the agreement are still being discussed, the people said, adding that Siemens AG, Siemens Energy’s top shareholder with a 25.1% stake, was prepared to help by providing some of the guarantees. . . .
The agreement still needs to be formally drawn up and approved by all stakeholders, which could still take some time, the people said.
Siemens Energy in October disclosed talks with the German government, banks and Siemens AG over what sources said were 15 billion euros ($16 billion) in guarantees for project and warranty bonds needed to safeguard the company’s 109 billion euro order book.
Banks have become stricter in granting those due to higher interest rates, Siemens Energy’s wind turbine problems and S&P’s move in July to downgrade the group’s long-term credit rating to BBB-, just one notch above junk.
Ah yes, higher interest rates.
One of the factors — other than government edicts — underpinning the growth of the wind sector has been the ultra-low interest rates that prevailed until recently, interest rates which (on some calculations reached 4,000-year lows) that were, in part, distorted by state intervention. Messing with the price of money (the interest rate charged for borrowing it) almost inevitably leads to trouble. A transaction or a project that makes sense when the cost of borrowing is, say, 3 percent, may make none at all when rates stand at 6 percent. Given that 4,000-year lows were unlikely to endure, it doesn’t seem unreasonable to argue that there have been some, uh, flaws in the calculations underpinning the expansion of the wind sector in recent years.
In any event, it seems as if the arm-twisting in Germany may have worked.
The German government, Siemens AG and other parties involved in talks to cover billions of euros in project-related guarantees for Siemens Energy, have agreed a deal in principle, three people familiar with the matter said. . . .
The agreement still needs to be formally drawn up and approved by all stakeholders, which could still take some time, the people said.
In other wind power news (via The Virginian-Pilot):
A Spanish wind turbine manufacturer vacated its lease and pulled out of a planned $200 million project at Portsmouth Marine Terminal.
“Siemens Gamesa discontinued plans to build and operate an offshore blade facility in Virginia, as development milestones to establish the facility could not be met,” a company spokesperson said in an emailed statement.
Across the pond, the U.K. government is getting ready for the next round of the auctions in which it allocates offshore wind contracts. Somewhat awkwardly, there were no bids in the last one: Changing economic conditions (higher inflation, higher interest rates, and so on) meant that the contracts on offer were no longer priced attractively enough. No developers entered any bids. Embarrassing. According to the Daily Telegraph, “the failure put the UK’s offshore wind programme, which is central to net zero, back by a year.”
Oh well.
The Daily Telegraph:
The government had set a “strike price” of £44 per megawatt hour — guaranteeing wind farm operators this as a minimum price for electricity from new wind farms. . . .
Claire Coutinho, the Energy Secretary, is widely expected to raise the minimum price to at least £70 when the next allocation round is announced later this month. The extra cash would be added to consumer bills.
But of course.