Travails At Siemens Gamesa Could Signal Hiccups Ahead For Wind Energy, Again

Siemens Gamesa, a subsidiary of Siemens Energy, is currently facing challenges in multiple countries. Since its complete takeover by Siemens Energy last year, Siemens Gamesa has been lurching from one problem to another. Parent firm Siemen’s recent announcement of reducing its ownership stake in Siemens Gamesa by 6.8 per cent, bringing it down to 25.1 per cent is just one indicator of the certainty about the issues at the global wind turbine maker.

The decision comes after Siemens previously indicated its intention to likely divest from Siemens Energy in the long term. Since the turbine unit’s listing in 2020, the German engineering company has been the largest shareholder of Siemens Energy.

Quality Issues in Europe

The wind turbines manufactured by Gamesa have been grappling with quality issues, including difficulties in scaling up their new onshore platform, known as the 5.X.

There is a significant issue involving the main piece on the turbine frame. Media reports reveal that this component has the potential to move or twist over time, posing a risk to other critical parts of the turbine. With not enough provisioning done for long term sales and servicing costs for products sold under warranties, the company is now facing the daunting task of containing the fallout and resolving the problem, which could have far-reaching financial implications surpassing over €1 billion. The full extent of the issue is still being evaluated, and additional concerns may come to light during the assessment process. As a company central to Europe’s long-term climate goals and energy security, issues at Siemens Gamesa will impact quite a few numbers across countries. Not to mention the risk of increasing wind energy prices for end users at a time when solar costs have been dropping consistently,

Economic Losses

Siemens Energy’s recent warning about the anticipated additional costs has led to a historic sell-off, causing the company’s market value to plummet by approximately $6 billion.

Based on the company’s projections and indications that the defect applies to the newer platforms, about 1,000 turbines could be facing issues. This may lead up to potential costs incurred up to $1.7 billion to repair.

Siemens Energy is not only confronted with potential liabilities for its customers’ revenue losses resulting from the identified fault but also faces the challenge of potential design changes that could necessitate a lengthy certification process lasting several years. In the interim, Siemens Energy may find itself with limited options and may need to proceed with delivering turbines that are known to have flaws, leading to additional losses in the years ahead. The issue comes even as other major western turbine manufacturers, including GE and Vestas have both had to address concerns around their own turbines, with higher than expected costs being incurred on servicing and maintainance already.

Legal Proceedings in India

In India, a market that has only again started finding its feet for wind energy, Siemens finds itself facing a different challenge.  Sembcorp Industries dragged Siemens Gamesa’s Indian subsidiary into arbitration proceedings. The proceedings involve issues and disputes arising from a composite supply contract and land and site development contract (project contract) entered by GIWEL with Siemens Gamesa, the vendor, for the supply, erection and commissioning of a 300MW wind farm.

GIWEL terminated the project contract, for 143 wind turbine generators and associated transmission facilities, and filed a Statement of Claim against the Vendor for about INR 8.16 billion during its financial year ended 31 March 2023. Siemens Gamesa filed its Statement of Defence and counterclaimed for INR 19.575 billion.

The ongoing legal proceedings are under the jurisdiction of the Arbitration Tribunal in India. Siemens Gamesa is actively disputing the claims, but a potentially unfavourable arbitration award could further compound the challenges faced by Siemens Energy, besides leading to delays.