Siemens Energy, a prominent player in the energy sector, is grappling with substantial challenges within its wind turbine operations, as outlined in a recent press release. The company’s wind power subsidiary, Siemens Gamesa, has quantified the financial impact of both quality concerns and ramp-up issues in the offshore wind sector. Siemens Energy is revising its current wind business strategy and action plan as it navigates these difficulties. At the November Capital Markets Day, a thorough strategic plan is anticipated to be presented.

As stated by Christian Bruch, company’s chief executive on his Linkedin message – “The detected quality issues in parts of the installed onshore platforms as well as increased product costs and ramp-up challenges in the offshore business of Siemens Gamesa are a severe setback for us. As a result, we have initiated remediation actions and took substantial charges this quarter.”

Offshore Wind Sector Under Strain

Siemens Energy’s press release highlights the difficulties faced by Siemens Gamesa’s offshore wind operations. The report underscores the challenges posed by higher product costs in the offshore sector, which have rendered certain contracted projects unprofitable if implemented by customers. The company has also faced challenges in the ramp-up of offshore activities, further compounding the situation informing:

In addition to the quality-related charges, Siemens Gamesa expects higher product costs in the offshore sector, which means that projects already committed to contractually cannot be completed profitably if implemented by the customer. In addition, there are further challenges in the ramp-up of offshore activities. Both effects lead to additional charges of €600 million in the 3rd quarter. The cash outflow resulting from these burdens will be spread over several years and amount to a low two-to-three-digit sum in the current year.

Siemens Gamesa is currently in the process of ramping up various factories for offshore production or converting them to larger turbines, including in France, Germany, Denmark and the United Kingdom. The continuing tight procurement market and the strained labor market are contributing to these burdens.

The offshore wind sector is pivotal in achieving ambitious EU-wide renewable energy targets. The imperative to rapidly expand offshore wind turbine installations to meet these targets has exposed the challenges of managing supply chains and labor markets. Siemens Energy underlines – Every year, 30 gigawatts (GW) must be added to reach the targets set by 2030 (comparison: total installed capacity currently 255 GW).”

Quality Concerns and Financial Implications

Siemens Energy also addresses quality issues within the onshore platforms 4.X and 5.X of Siemens Gamesa. These challenges predominantly pertain to rotor blades and main bearings. To address these quality issues, a task force comprising experts from Siemens Gamesa, Siemens Energy, and AlixPartners has been established. The anticipated costs for resolving these quality concerns are estimated at €1.6 billion, with the majority of expenses expected in fiscal years 2024 and 2025.

In addition to the costs related to quality issues, the press release also outlines the financial impact of the challenges in the offshore wind sector. These challenges lead to additional charges of €600 million in the third quarter. Despite the immediate financial burdens, the cash outflow resulting from these challenges is expected to be spread over several years.

Reassessment and Mitigation Measures

Siemens Energy’s Supervisory Board has formed a special committee to thoroughly investigate the quality and productivity issues within Siemens Gamesa. The assessment process involved independent external experts who evaluated the methodology used to estimate future failure rates and associated costs.

As Siemens Energy navigates these challenges, the company is reevaluating its current strategy and action plan for the wind business. A comprehensive strategic plan is expected to be presented at the Capital Markets Day in November.

The complexities and challenges highlighted in the press release reflect the intricate nature of the renewable energy sector. Siemens Energy’s determination to overcome these challenges and realign its offshore wind operations underscores the importance of innovation and adaptability in the rapidly evolving renewable energy landscape.