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.
Much of the core focus of both our chemical industry and ESG and Climate research recently has been on inflation and materials shortages; we would point you to: Inaction, Caused By Inflation Fears, Is Driving More Inflation! and Coming Up Short: Materials Availability To Limit Climate Progress. This linked article suggests that, as we have predicted, cost and availability pressures are taking a toll on solar installation plans for 2022 in the US. While the inflation piece is real and the product shortages highlight some of the capacity constraints for materials and panels, the broader conclusions that can be drawn from the headline are more concerning. These shortages (and higher prices) are coming well before we see any step change in attempts to increase renewable power installations associated with all of the green hydrogen projects that have been announced over the last 6-9 months. All of these investments are relying on the deflationary trends continuing, especially for onshore wind and solar.