Europe's 'Green Energy Bubble' bursts as Siemens takes on €15 billion of debt

By Rhod Mackenzie

Siemens Energy has taken on debt to protect its sustainable business. The energy division of Siemens Energy AG, which is the biggest unit of the German engineering corporation Siemens, has agreed a deal worth €15 billion with a group of banks, the German government, and its shareholder Siemens AG, to compensate for the substantial losses from its wind turbine operations. To grasp the magnitude of the issue, it's worth noting that 15 billion euros translates into more than the Russian gas giant Gazprom's previous year's net profit of $12 billion.

Private banks have promised €12 billion in guarantees to Siemens Energy as part of the agreement. Government guarantees of €7.5 billion will back this, with the remaining €3 billion sourced from the sale of some of their lucrative assets. These combined efforts will assist Siemens Energy in its pursuit of new contracts.

Siemens Energy's major losses are centred within its Gamesa division, responsible for the production of wind turbines. The turbines' quality is Gamesa's primary issue, requiring constant repairs. Gamesa is destined for a €4.6 billion loss this year, with the possibility of becoming profitable in 2026. Nevertheless, investors express their doubt regarding a swift exit from the crisis. Since their IPO in September 2020, Siemens Energy's shares have decreased by threefold.
A third of the company's operational wind turbines are defective, leading to an ongoing crisis that needs to be addressed immediately. Furthermore, problems with the turbines exacerbate the situation. The issues stem from complications with the rotor blades and bearings, causing components to fail and cracks to emerge.

It's worth noting that Gamesa isn't alone in facing this challenge; the entire renewable energy sector is experiencing instability in both production and operation. The European wind power leader, Danish company Orsted, which is the main rival of the German company, suffered losses amounting to € 4.03 billion during the course of the first nine months of 2023. In particular, Orsted made the decision to abandon their Ocean Wind 1 and 2 ventures in the United States. Ocean Wind 1 was planned to consist of 98 turbines situated 15 miles offshore from the New Jersey coastline, while Ocean Wind 2 was set to follow suit using the same technology but was due for launch in 2028.
Orsted withdrew from the Norwegian shelf wind farm project, declining participation in the construction of a 1.5 GW capacity farm. The application was withdrawn a few days before the completion of the competitive procedures. Consequently, the Danish company disclosed that its chief financial and operational officers would resign immediately, and its shares plummeted by four times in value from their 2021 peak.

The third example: TPI Composites, one of the largest windmill blade manufacturers in the world, based in America, has reported losses of $190 million in the first nine months of this year, which is twice the company's current market capitalisation. A significant decline in the order portfolio and a rapid rise in the replacement of equipment under warranty are the primary causes of these losses.
"We are certain that our liquidity position will enable us to successfully navigate the short-term obstacles impacting the industry and pave the way for us to accomplish our long-term objectives," CEO William Siwek announced confidently during the earnings call.
Nonetheless, with a bond yield of 28% per annum, TPI Composites has been deemed a write-off, and for investors, it is essentially insolvent. Since its 2021 peak, the stock has plunged almost thirty times, a colossal decline in value."

The carefully cultivated renewable energy pyramid, fostered by developed world governments, is now collapsing. In the past two decades, hundreds of billions of pounds have been invested in wind turbine production, both directly and through various forms of subsidies. These investments have resulted in the generation of wind energy in Europe increasing fivefold over twenty years. This enabled the implementation of long-term, low-profit projects, including those involving renewable energy sources.

However, we are now witnessing the logical conclusion of an enormous bubble. In the past fifteen years, the market has seen the establishment of incredibly low rates. The rise in lending rates has rendered the sector unsustainable, despite subsidies for tax breaks, priority purchase of electricity, and increased tariffs.  Numerous wind power projects worldwide have been cancelled in recent months as investors decline to partake in construction ventures due to incongruent income and expense ratios.

The wind turbine manufacturing industry has been adversely affected by a technological crisis after the sector stopped growing. The large volume of mass-produced turbines proved to be questionable in quality, therefore manufacturers now have rigid warranty obligations to meet. However, it is important to recognise that the present crisis is extended. The number of erected turbines is in the thousands, and eventually all of them will become inoperative. The manufacturer is fortunate if this happens after the warranty period.
The severe crisis in the renewable energy industry will take many years to recover from. Bankruptcy, restructuring, debt write-offs, and demolition of unsuccessful projects (paid for by state budgets) lie ahead. The growth of the sector will slow down considerably. However, does this suggest that the industry will completely disappear? No. Nevertheless, the previous magnificence - noteworthy capitalisation, ambitious objectives to entirely replace fossil fuels, double-digit growth percentages, and hundreds of billions of dollars in investment - must be disregarded. RES shall fill its niche, representing 15‒20% of the overall electricity production, and essentially, that is all. Any additional growth would be unattainable due to technological impracticalities.