The future of energy is renewables. Whether you accept the reality of climate change or not, the cost story is becoming too compelling. While storage remains the technological and cost challenge to solve, there is no question – we have found cheaper ways to generate energy than coal, oil and gas.
Many of the expert investors we have spoken to have discussed the opportunities in the wind power supply chain (e.g. Mary Manning on the podcast, or Munro Partners on the Equity Mates website). Unlike the solar panel industry, which is fragmented across many players, wind power turbines are only built by a few big players – Vestas being the market leader and one we often hear discussed.
This article outlines some of the problems being faced by Vestas and their big competitors. Higher input costs, supply chain bottlenecks, changes in key clean-power subsidies and pressure on turbine prices is challenging profitability across the whole industry. This is slowing down the rate of production, just as the world needs it to ramp up.
The International Energy Agency suggests that to limit warming to 1.5 degrees, the world needs to be rolling out 390 gigawatts of wind power generation every year from 2030. In 2021, we only rolled out a quarter of that. So we need to 4x the industry’s output within the decade. These profitability challenges won’t help.
There is also a geopolitical aspect to this. Europe has been the dominant makers (and consumers) of wind turbines for the past decade. But as many of their biggest companies slow growth plans, raise prices and focus on profitability, analysts believe China will move to capture more of the market. Given China already dominates the supply chain for solar, this has some governments and analysts nervous.
This is an excerpt from our Thought Starters email. Once a week we send you 5 interesting articles that have caught our attention, to get you thinking. No spam, we guarantee.