Wind Turbine Troubles Send Stocks on a Downward Spiral

Siemens Energy had its shares taking a negative turn as costly failures from its turbine maker Siemens Gamesa were reported last month. Analysts are now concerned that the “widespread issue” is starting problems across the industry.

The German energy giant cut its profit guidance last week, citing a “substantial increase in the failure rate of wind turbine components” at its wind division Siemens Gamesa.

According to Reuters, Siemens Energy had warned that quality problems at its wind turbine unit would take years to fix, “wiping a third off its market value and dealing a heavy blow to one of the biggest suppliers to the world’s renewable business.

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Siemens Energy stock plummeted nearly 37% on June 23, investors now worrying that Gemesa’s problems could be a symptom of a wider problem since they were not the only company to fall short.

Siemens Energy CEO Christian Bruch told journalists on a call Friday that “too much had been swept under the carpet” at Siemens Gamesa and that the quality issues were “more severe than [he] thought possible.”

Nicholas Green, head of EU capital goods and industrial technology at AllianceBernstein, told CNBC that the increased pace of expansions has left larger turbines without being used for long periods of time, meaning inherent risks throughout the sector.

“We have to acknowledge that putting brand new machinery — whether it’s on-shore or even more difficult off-shore wind farms — and the pace of change in that machinery has put us into slightly uncharted territory,” he said.

Dealing with these issues could cost more than $1.09 billion, with rotor blade flaw needing to be fixed, ranging from small cracks to component failures needing replacement.

“This is a disappointing and severe setback,” Siemens Gamesa CEO Jochen Eickholt, a Siemens veteran, told journalists on a call. “I have said several times that there is actually nothing visible at Siemens Gamesa that I have not seen elsewhere. But I have to tell you that I would not say that again today.”

This is not the first time Siemen Gamesa discovers faulty components – back in January, the company had already been charged half a billion euros on fixings and replacements.

“If the problem is serious, you have to remove the turbine and repair it onshore by sending in a massive ship. That can be done only in summer for safety reasons. All in all, it can be very costly,” said an industry expert who declined to be named.