Pricing is “probably the underlying mitigation” solution to the supply chain disruptions and cost inflation facing turbine manufacturers, Vestas CEO Henrik Andersen told reporters and analysts in a conference call.
The Danish turbine manufacturer’s average selling price (ASP) for turbines – onshore and offshore – increased from €740,000/MW in 2020 to €830,000/MW in 2021.
These price rises came amid port congestion, shortages in available transportation and installation infrastructure, with the coronavirus pandemic adding to logistical challenges for the wind power industry.
Currency fluctuations and increases in raw material, component, transportation and installation costs have further impacted the turbine maker’s ability to achieve budgeted profitability, Vestas stated in its 2021 results.
It had already reported a 38% yearly decrease in Ebit before special items to €461 million, citing project delays and cost inflation.
Vestas’s CEO Henrik Andersen said he sees the challenges of supply chain disruptions and cost inflation continuing into 2022 – echoing the sentiments recently expressed by his counterpart at Siemens Gamesa Renewable Energy, Andreas Nauen.
“It is not just the hedge of price,” Andersen explained. “It is the instability and the not being able to rely on physical deliveries on the pre-agreed and assumed time.
“Cost inflation is at almost an all-time high for raw materials and transportation has not eased. It is probably still on the same troublesome path and will continue into this year.”
Other turbine manufacturers – including Siemens Gamesa and Nordex – have also confirmed turbine prices to offset cost inflation, while GE Renewable Energy would only confirm raising its “onshore wind prices”, without mentioning “turbines”.
Andersen said: “The longer we go with this ASP, the better we will be (at mitigating supply chain and cost challenges). Price is (only) part of it, but it is probably the underlying mitigation.”
In its results presentation, Vestas also noted that it is using long-term agreements – such as its partnership with shipping giant Maersk – as part of its procurement strategy to mitigate supply chain disruption. It is also using contractual risk allocations and financial safeguards such as hedging instruments to combat cost inflation, it stated.
Reasons to be positive
Despite the challenges Vestas faced in 2021, Andersen said it was “really positive” that Vestas was able to deliver 16.6GW of turbines last year – even though this was down 3.5% from 2020.
The manufacturer’s order intake also fell 19.4% to 13.9GW in 2021. This meant that even with Vestas’s higher ASP of turbines in 2021, the value of its order intake last year fell 8.6% to €11.6 billion.
However, Andersen said he was encouraged by swelling project pipelines in “most markets”, but added that Vestas may need to be selective with which projects it takes on, and opt for projects it can deliver on despite myriad challenges.
“We would rather have a lower market share or lower order intake than be sitting with a loss-making and, therefore, non-value-creating pipeline,” he said.
Looking forwards
Against a backdrop of continuing challenges, Vestas expects its revenue for 2022 to be between €15-16.5 billion. It had reported revenue of €15.6 billion in 2021.
It expects an Ebit margin before special items of 0-4% in 2022, having reported a margin of 3% last year.
Th manufacturer expects to invest about €1 trillion in 2022, up from the €813 invested in 2021.
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