Siemens Energy wind turbine problems could be an industry-wide issue

Costly failures at wind turbine manufacturer Siemens Gamesa last month sent shares of parent company Siemens Energy tumbling, and analysts are concerned about wider teething problems across the industry.

The German energy giant scrapped its profit guidance in late June, citing a “substantial increase in failure rates of wind turbine components” at its wind division Siemens Gamesa.

Siemens Energy CEO Christian Bruch told journalists on a call Friday that “too much had been swept under the carpet” at Siemens Gamesa and that the quality issues were “more severe than [he] thought possible.”

Siemens Energy stock plunged by around 37% on June 23, while other wind companies also saw shares retreat as investors worried that the problems at Gamesa might be a symptom of a wider issue for the industry.

Nicholas Green, head of EU capital goods and industrial technology at AllianceBernstein, told CNBC that the pace of expansion, and the fact that many components of larger turbines haven’t actually been in use for very long, means there could be inherent risks throughout the sector.

“We have to acknowledge that putting brand new machinery — whether it’s on-shore or even more difficult off-shore wind farms — and the pace of change in that machinery has put us into slightly uncharted territory,” he said.

“Although it’s hard to tell at the moment, my best guess is that this probably actually is an industry-wide issue. It wasn’t that Siemens Gamesa is a bad operator as such, it’s that actually some of the normal protocols and time in use, operational data in use, is relatively limited.”

Siemens Gamesa’s board is now due to conduct an “extended technical review” into the issue, which is expected to incur costs in excess of 1 billion euros ($1.09 billion). The company’s shares have recouped some losses, but remain down over 33% in the last month.

A tough two years

The wind industry has expanded rapidly over the past two decades, lowering costs to rival — and sometimes undercut — those of fossil fuels, while boosting efficiency with ever-bigger turbines and reducing reliance on state subsidies.

“These cost reductions have been achieved with innovations in turbine technology and by pushing the boundaries of engineering,” Christoph Zipf, spokesman for industry body WindEurope, told CNBC via email.

He said that 20 years ago, a typical wind turbine would have 1 million watts of capacity; today, European original equipment manufacturers, or OEMs, are testing 15 MW turbines.

“This means that turbines have become bigger as well, posing challenges to components (quality, materials, longevity). The introduction of competitive auctions has also been a driving factor in this cost reduction,” Zipf added.

The Statistical Review of World Energy report published last week revealed that wind and solar power accounted for 12% of the world’s power…