Wind power faces serious cost inflation and project delays as raw materials prices rise
The wind power industry continues to be challenged by the current environment, characterized by supply-chain instability, which is causing significant cost inflation and delays in execution of projects, according to Denmark-headquartered producer Vestas
The company, which is working to be a world leader in sustainable energy, said that the increased cost of raw materials and wind turbine components had led to protracted negotiations in its contract talks with customers.
“Increasing prices on wind turbines are a necessity to address the external cost inflation and ensure the industry’s long-term value creation,” the company said.
“Our focus on protecting the value of our products and solutions requires strong discipline to address the increased cost of raw materials and components in customer dialogues, which have prolonged negotiations,” it added.
The comments come amid a backdrop of high commodity prices, particularly in markets on which the wind power industry depends for the production of its turbines.
According to the International Energy Association (EIA), offshore wind requires about 15.5 tonnes of critical minerals - including copper, zinc, manganese, chromium, nickel and molybdenum, along with rare earths - per megawatt (MW) of capacity. Onshore wind is less mineral-intensive, requiring about 10 tonnes per MW, the IEA said.
Vestas has over 145 gigawatts of wind turbines installed in 85 countries, something that the company estimates has already prevented 1.5 billion tonnes of carbon being emitted into the atmosphere and contributed to a more sustainable energy system.
The group’s president and chief executive officer Henrik Andersen said that while Vestas was focused on executing its strategy and driving the energy transition forward with its customers, the company nonetheless expected the current challenging business environment to continue throughout this year.
“We expect the near future and at least 2022 to be heavily impacted by cost inflation, while the emergence of an energy crisis caused by geopolitics and fossil fuel volatility has also resulted in dramatic increases in energy prices,” the company added.
Renewable energy sources like wind, solar and hydrogen are viewed as central to assisting in the global reduction of carbon dioxide emissions and the transition to a net-zero-carbon economy.
But wind companies face the challenge that the materials they seek will be in high demand and short supply, and therefore will inevitably cost more.
This is expected to be a key challenge to companies and governments working to keep temperatures from rising by more than 1.5°C, a central goal of the Paris Agreement and the United Nations Framework Convention on Climate Change.