Shaking wind turbines may cost Siemens Energy billions of euro

Siemens Energy has said that 15% to 30% of turbines were affected by the flaw whereby a main piece on the frame of its wind turbine can move or twist over time, potentially damaging other critical components.

Wind turbines make money when they spin. But when they shake, it can cost billions of euro. 

Siemens Energy is now struggling to contain the fall-out after discovering a main piece on the frame of its wind turbine can move or twist over time, potentially damaging other critical components, according to people familiar with the matter.

Executives and board members are concerned that fixing the problem may far exceed the company’s estimate of more than €1bn, said one of the sources. The magnitude, which is still being assessed and may involve other issues as well, could determine the viability of a business at the centre of Europe’s long-term climate goals and energy security.

The discovery marks the latest setback for the German manufacturer since taking control of its troubled Spanish division Gamesa. It prompted a record sell-off that wiped billions off Siemens Energy’s market value when it warned of the additional costs last week. The persistent losses have been particularly painful at a time when demand for renewable energy is surging. 

Gamesa’s wind turbines have been plagued by quality flaws, including ongoing trouble scaling up its new onshore platform, known as the 5.X. After expressing confidence in January that it had uncovered all of Gamesa’s technical problems, Siemens Energy finds itself once again opening the book on the unit’s shortcomings.

CLIMATE & SUSTAINABILITY HUB

With the size of the issue still uncertain, the supervisory board is looking into setting up a special committee to manage the situation, and its top members have scheduled a meeting for July 7 to get more clarity on its scope, one of the sources said.

A Siemens Energy spokesperson said the supervisory board is considering how it can best advise and support the executive management, and that no special committee has been established at this time.

While the manufacturer is getting on top of its struggles, Siemens said it cut its stake in Siemens Energy by 6.8% to just over 25%, after flagging last month it’ll “very likely” exit in the long term. 

The company has said that 15% to 30% of turbines were affected by the flaw. It hasn’t specified the number of faulty machines and likely doesn’t yet know.

In the best case scenario, the recently disclosed faults will have caused only limited damage to critical components. Though even if that’s the case, scores of turbines that sit hundreds of feet in the air will need to be serviced, a costly endeavour that can only be done with specialized equipment.

JP Morgan analyst Akash Gupta estimates each faulty turbine will cost as much as €1.55m to repair. And, based on the company’s projections and indications that the defect applies to the newer platforms, roughly 1,000 turbines could be facing issues, bringing the potential cost to €1.6bn, Mr Gupta estimated. 

That would include the cost to replace blades and bearings. The cost, though, could rise as the company expands its probe to see if the issue is also present in older generations of turbines and its offshore wind business, which is more profitable and has been less afflicted by technical problems.

On top of the repair costs, Siemens Energy also faces liability for its customers’ lost revenue related to the fault. And a further complication could come if the company needs to make design changes that would trigger an arduous certification process that could take years. In the meantime, Siemens Energy may have little choice other than continuing to deliver machines it knows to be faulty and incur further losses for years to come. 

Bloomberg