How Will Renewable Energy Components Recover from the Supply Chain Crisis?

Prior to COVID-19, offshore wind was expected to compete with fossil-fuel-generated energy and significantly impact the energy transition. However, due to the current supply chain component shortage, the likes of Vestas and SGRE have more than 30 gigawatts of new global capacity at risk.

There are numerous challenges, but many companies are dealing with them remarkably well, according to Richard Turner, the former Chief Executive Officer at JDR Cables Group.

“One thing that’s consistent with everyone who operates in the space is that the pandemic fully tested their business continuity plans, and in many areas, it sort of exposed some weakness in them, and in particular, with procurement strategies.”

Sam Stopps, GLG’s Manager of Client Solutions and Public Equities, spoke with Turner via a November 17, 2021, teleconference, and the following is an excerpt from that broader conversation.

Can you discuss how COVID-19 has impacted renewable energy supply chains and the current crisis in supply chains?

For the last 10 years or so, offshore wind developers have been working collaboratively within the supply chain because there has been such a drive for cost reduction. But this single sourcing — or sourcing among a handful of suppliers — has caused issues whereby that business may have been particularly affected by the pandemic without a plan B. Also, there were issues in installation stages with the timing of componentry arrivals.

There were different places with different lockdown policies at different times on a global basis. But the majority of companies were able to continue because they were deemed as essential workers, and therefore, able to weather the storm reasonably well on the whole.

During the pandemic, the biggest issue was logistical. With the global shortage of drivers, shipping containers, and other resources, there was a pent-up demand exacerbated even further by a surplus of demand in the market. This really hampered offshore companies for new construction projects and operations and management (O&M) activities in existing wind farms. Now that restrictions have eased, there’s a scarcity of skills because everything’s drawn from the same resource pool.

Can you specifically discuss the shortages of wires and cables for offshore wind and potentially comment on how some of the major producers are positioned in this space?

If you segment the market by medium and high voltage, there is no linear relationship between the demand for medium voltage and the number of gigawatts of offshore wind that’s deployed because the turbine is getting bigger. Effectively, if your turbine is twice as big, then you have half as many of them per gigawatt of installed capacity. Therefore, you technically need less array cable per GW.

That (MV) market is growing due to the increase in global volume, but it’s not growing anywhere near as quickly as the high voltage (HV) sector because all of the wind farms need export cables. That growth is further enhanced by the fact that wind farms are moving farther from shore and need more kilometers of cable along with changes in technology. Specifically, above a hundred kilometers, you go from HVAC to HVDC cable, which is required for efficiency, so there’s a shift in the market to HVDC. This puts it in competition with the interconnector cable market, which uses the same HVDC cables where you literally connect countries, or parts of countries, together with a massive, high-voltage cable.

The growth in the HV and the HVDC market is really quite significant, and the market capacity hasn’t increased that much in recent years. There have been some investment decisions, but not enough capacity has been added to really deal with what is going to be a scarcity of supply. All of the cable manufacturers will be extremely busy manufacturing for subsea, HVAC, and HVDC projects, and the majority of the facilities that the cable companies have are also producing power cable and HV cable for land applications.

There is this perfect storm of demand whereby you’ve got massive offshore cable demand growth caused by mass deployment of wind farms and more widespread use of interconnected cables. Plus, the grids in most countries need upgrades, and there is a lot of work ongoing with electrification of railways. This means a lot more power cables are needed, and they are harder to get within a reasonable lead time.

Also, there have been a vast amount of insurance claims relative to cable failures. This is not just because cable manufacturers don’t make the cables correctly. It’s because they get cab damaged during installation, and once they’re installed, they can be damaged by trawlers, ships, anchors, and more.

There is a lot of intervention and repair work along with new cables being added to existing wind farms, so that’s just another layer of demand into these cable facilities. The world needs cable and will continue to need more as far ahead as I can see.

Can you discuss the impact these shortages have had on offshore wind project delays and how some of the world’s existing players are coping?

There have been delays due to the reasons I mentioned previously, but wind farm projects have a long gestation period of more than 10 years. So the time frame of the pandemic isn’t (yet) that much in the grand scheme of the overall development of wind farms. There has been a short-term impact caused by scarcity of componentry where COVID has been a factor, but the majority of developers have adapted very well to get things delivered.

They are more worried about the availability of materials, the possibility for lockdowns, getting stuff moved around, mobilizing people in the execution phase of the project, and the technical issues that have a large financial impact on them. Overall, they’re in an industry that is growing incredibly rapidly, so the future pipeline and outlook for all of the developers, suppliers, and offshore wind is incredibly bright.

Can you discuss the current inventory supply of critical wind components, what the current inventory stocks look like, and if there are any specific components that you think will be shorter than others?

The vast majority of components for wind are engineered and manufactured to order with a 15-plus-year design life, so a lot of what’s available, and the cutting-edge technology available to these developers, changes dramatically throughout that period. There’s not much new stock sitting around in the industry at all, but what is emerging is in the O&M side where wind farms 10-plus years old need to be repaired, replaced, overhauled, repowered, etc. A turbine can be brought onshore, refurbished, put into stock, and then put back in the supply chain and sold when one fails.

A strong area of the market that’s emerging is how to repair, overhaul, maintain, upgrade, and remanufacture componentry, and then use it again like a recycling project. That’s where I think there may have to be a level of inventory in the future, along with things like spare blades, etc., in case there is storm damage.

With the current crisis in supplies and project delays, do you believe this could lead to an increase in price for renewable energy, specifically offshore wind, or that the price won’t be impacted by this?

The price of components, raw material, and pretty much everything shot up of late, and that cost needs to go somewhere. Many developers have already won contracts for differences (CFDs) at a strike price, and the cost of materials is what the price is (unless they’ve managed to hedge or lock in prices with the supply chain), and they’ll have to absorb it themselves. That could translate into a higher cost on the project and affect their return.

Ultimately, I don’t see the strike price in auctions going up significantly. However, I don’t expect it to go down as quickly as it has… It couldn’t possibly go down at the rate that it has in recent years.

I expect through innovation and economies of scale, the cost of floating wind will come down from where it is because it’s at the “demonstrator” stage, and there’s still quite a way for it to go. I expect that will maintain a decent trajectory in terms of cost reduction. But, in terms of fixed offshore wind, I think the price will stay relatively flat. Hopefully, the price of componentry and raw materials will start to come down to a more manageable level as the world and the economies of the different countries, in particular in Europe, start to recover.

Do the current labor shortages impact the supply of renewable energy components?

It has because the labor market for skilled employees in Europe is fairly buoyant. Post-Brexit, it has been more difficult to recruit people from abroad, so that’s had an impact. But I would say the biggest area where I have concern, in terms of our ability to deploy large volumes of gigawatts in the next 10 years, is the offshore skillset. There will be a need for people who are competent and qualified to go offshore and operate safely in a sort of customer-facing environment to do the technical aspects of installation.

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About Richard Turner

Richard Turner is Chief Executive Officer of Bel Valves and Bel Engineering. Before this, he was the JDR Cables Group Chief Executive Officer and Chief Operating Officer. Prior to this, Richard was the Technip Umbilical Systems Vice President of Global Manufacturing. Richard is a leading executive on the market for subsea cables and offshore wind.

This renewable energy industry article is adapted from the GLG teleconference “Renewable Energy Components Crisis.” If you would like access to events like this or would like to speak with renewable energy experts like Richard Turner, or any of our approximately 1 million industry experts, please contact us.

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Full List of Questions Addressed During the Teleconference:

• Can you discuss how renewable energy supply chains have been impacted by COVID-19 and the current crisis in supply chains?

• Going forward with the newer generation of wind turbines being developed and installed, do you foresee individual components becoming more durable and failure rates in wind turbines reducing? Or is the expectation that the failure rates will in fact increase due to increased stress placed on the individual components?
• Can you specifically discuss the shortages of cables for offshore wind? Can you also potentially comment on some of the major producers and how they’re positioned in this space?
• Have projects been and are projects currently being delayed and pushed back? How are some of the existing players coping?
• Are there any specific components that you think will be currently shorter than others?
• Can you discuss the current crisis in supplies and the delays to projects? Do you believe this could lead to an increase in price for renewable energy, specifically offshore wind, or that the price won’t be impacted by this?
• Can you touch on your views and if the current labor shortages are impacting the supply of renewable energy components? I know many industries have been impacted by the shortage of truck drivers and also by a shortage of key workers. I wonder if you could share your views on if this has been specifically impacting the renewable energy supply chains.