Siemens Energy is in talks with the German government to secure billions of euros of guarantees for long-term projects after warning that losses at its troubled wind turbine business would be higher than forecast.
Without the guarantees, a €110bn portfolio of clean energy projects planned by the company will be in jeopardy, according to executives at the Munich-based company.
Siemens Energy shares plunged 35 per cent, extending their steep decline since June, when the full scale of the technical problems affecting the bearings and rotors in the turbines were first disclosed.
“Their business in wind is in utter disarray,” said William Mackie, head of capital goods research at Kepler Cheuvreux. “Against that backdrop, the company’s opportunity set for financing is impaired due to a crisis of confidence in parts of the business outlook financially.”
The crisis at the wind business, known as Siemens Gamesa and that Siemens Energy only took full ownership of in June, comes as the broader wind industry confronts the drag of higher interest rates and increased costs.
Over-optimism concerning the performance of renewable energy generation created an asset bubble. It is now deflating.
Danish turbine maker Vestas and wind farm specialist Ørsted have had problems too. The harsh reality is that these companies are involved in engineering projects. And the installation of wind turbines is just as prone to cost overruns as conventional infrastructure.
Nearly two-thirds of the operating losses at Siemens Energy between 2020 and 2022, according to S&P Capital IQ, have stemmed from Siemens Gamesa. Most recently, turbine product flaws have borne the blame. Bruch’s inability to scope the full liability from the start has frightened investors.
The balance sheet appears sound, for the moment. As of June, the company had almost no net debt. The rest of the group’s businesses, including gas and power, have made money. But the drain from Gamesa has only grown this year. An expected operating loss of more than €4.1bn (excluding amortisation) at the unit should put the entire group into the red this year, according to Visible Alpha’s analyst consensus.
Siemens Energy has to decide between the lesser of two evils. It can meet current turbine orders and lose money by fixing them and reimbursing customers. Or it can cease production and write off the unit.
The request for government support suggests that the cost of continuing will be greater than walking away. That should be the central assumption of investors unless munificent German ministers step in.