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The secular growth potential of renewable energy was supposed to offer an antidote to the cyclical vagaries of markets and economies. But it has not worked for Christian Bruch. Siemens Energy’s chief executive has spent years carrying the buck for widening losses at the Gamesa wind turbine unit.
The renewables group has just issued its second profit warning in four months. It is asking for government guarantees on long-term projects that its balance sheet may not be able to support. The shares fell 29 per cent.
Over-optimism concerning the performance of renewable energy generation — in which Lex partook — 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.
Consider that Gamesa’s implied value was around €15bn about a year ago when Siemens Energy bought out the bulk of its minority shareholders. Even before Thursday’s wipe out, Gamesa’s value had collapsed to minus €15bn, says Berenberg’s Philip Buller.
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.
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