Danish power group Orsted and wind turbine maker Vestas have warned of difficult conditions for the renewable energy industry as projects in Europe have had to contend with low wind speeds while supply chain hold-ups, rising energy prices and raw materials costs have hit manufacturers. Vestas warned on Wednesday of an “increasingly challenging global business environment for renewables” as it cut its full-year operating profit margin forecast for the second time in three months.
Orsted, the world’s largest offshore wind farm developer, said it had taken a DKr2.5bn ($389m) hit from lower wind speeds this year compared with 2020 as it repeated an expectation that its 2021 profits are expected to come in at the lower end of a guided range. Third-quarter operating profits were slightly below analysts’ expectations, the group said, as it presented its results for the first nine months of the year. The relatively downbeat assessment from both companies came a day after global leaders at COP26 in Glasgow had lauded clean energy technologies as critical to meeting goals to curb global warming.
The intermittency of renewables such as wind power has come into focus in Europe in recent months as some of the slowest wind speeds in decades have led to a greater reliance on gas and coal for electricity generation in many countries, including the UK, the world’s biggest offshore wind market. Vestas has cut its full-year profit margin guidance before special items to 4 per cent, having trimmed it to 5 to 7 per cent in August from 6 to 8 per cent.
The turbine maker blamed “supply chain instability and rising energy prices as well as accelerated cost inflation from raw materials, transport and turbine components”. It suffered a 21 per cent fall in earnings to €325m before interest, taxes and special items in the third quarter compared with the same period a year ago, pushing its profit margin for the three months down to 5.9 per cent versus 8.6 per cent last year. This was despite a 16 per cent increase in revenue to €5.54bn as demand for turbines and related services remained high.
Although Vestas maintained its latest full-year revenue guidance, chief executive Henrik Andersen said supply chain blockages and cost inflation had “severely impacted profitability and limits visibility”, adding that the problems were “expected to last throughout 2022”. Orsted insisted it was on track to meet its full-year guidance, despite third-quarter operating profit falling 11 per cent to DKr2.9bn compared with a year ago, which was about 3 per cent lower than analysts’ expectations.
Chief executive Mads Nipper said demand for offshore wind remained strong. “This year, we have been able to secure 3.6GW of new offshore wind capacity in 2021 and now have 18GW of firm offshore wind capacity secured towards our 30GW target by 2030,” he said.