BAKU, Azerbaijan, March 3. Production costs at the wind energy market, according to the base forecast, are expected to increase by 3-5 percent over the next to years, Endri Lico, Senior Analyst at Wood Mackenzie, a global research and consultancy group, said, Trend reports via WoodMac.
This is due to continued inflation increase, which, eventually, will affect raw materials and labor cost, as well as supply chains located in higher-value markets and growing demand leading to a shortage of critical components.
Turbine original equipment manufacturers (OEMs) and suppliers have just begun to feel the first signs of cost relief as the costs of specialized logistics and raw material start to soften. However, the current cost baseline remains almost 20 percent up, compared to pre-COVID-19 levels.
Lico explains that orders for low-priced turbines placed a few years ago are now being fulfilled because of the long delivery times for turbines. This exposes OEMs to the sharp volatility of raw materials. Significant regional differences in facilities due to policy uncertainties and timing of permits led to underutilization of some plants, further reducing profitability.
"As a result, western OEMs lost more than 3.7 billion euros in the first nine months of 2022. The operations and maintenance (O&M) sector became the lone steady source of profits for OEMs supplying spare parts and technical support to the massive fleet of installed wind turbines," the analyst said.
At the same time, as Lico noted, Chinese wind companies are active throughout the wind energy value chain and aim at overseas expansion through several channels. This is particularly relevant for developing markets through the "Belt and Road" initiative and projects to produce green hydrogen on a gigawatt scale.
"As a result of growing geopolitical tensions and rapidly rising logistics costs, we expect many new announcements for production expansion in Europe and the Americas," he added.
Meanwhile, as the WoodMac analyst noted, an average growth rate of new wind installations is still expected at 6.4 percent and 139 GW per year from 2023 until 2031.