We include a couple of headlines and charts in today's daily report that step into the central theme of this week’s ESG and climate report, which will be published tomorrow (see here). The offshore wind ambitions and the EIA solar and battery projections both assume that the materials are available to build the capacity. In the case of the offshore wind leases, the winning bidders do not need to be in the market for all of the projects today and while the opportunities will lead to a step-change in demand for turbines in the US, the timing is less clear today that it will be in a few months and that timing may be adjusted to reflects equipment timing and costs, etc.
The linked Siemens Gamesa news could not have been a more clear example of one of our key research themes of the last year – backlog up, suggesting strong demand for new wind power capacity – deliveries and profits down because of material shortages – price inflation and logistic issues. While the company is getting squeezed because of higher costs on contracts that have limited opportunity to pass through the cost, at the same time slide 8 of the earnings release deck shows that selling prices rose in fiscal 1Q 2022. This breaks a declining trend in pricing and one of the core assumptions behind many energy transition plans – that renewable power prices can keep falling. Onshore wind orders are falling, but offshore orders are rising – and these come with higher costs and the need for more materials as we showed in a chart in yesterday’s daily. The added costs burden of more offshore wind projects may only serve to tighten markets for materials further, leading to further increases in installed costs.