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Clearing up after a devastating storm can be a lengthy exercise. So it was proving for some of Europe’s leading wind energy businesses. They just got hit by a new weather front: Hurricane Trump.
Donald Trump’s election victory sent shares in European wind companies tumbling on Wednesday morning, thanks to his pre-election pledge to scrap offshore wind projects in the US. Vestas is now down more than 60 per cent since early 2021. Ørsted has also lost more than two-thirds of its value since its January 2021 peak.
This ill wind undermines the sector’s efforts to fix its operations following the last tornado, the result of huge cost inflation and higher financing costs.
Wind companies had made some progress towards recovery, but it was partial at best. At Ørsted, a February recovery plan that involved cutting jobs and its renewable energy capacity targets helped to support its share price before the US election. At Vestas, operating profit margins at its turbine business were recovering, reaching 4.2 per cent in the third quarter. Low-margin legacy contracts should all be fulfilled by the end of this year.
But Vestas shares had already slumped this week as cost issues hit its more profitable services business. This manages and repairs turbines once installed. Salary increases in some markets have outpaced the inflation-linked uplift baked into contracts. Third-quarter operating margins in services were just 16 per cent compared with an average of 25 per cent from 2018 to 2022.
The market was already doubtful that the negative news was all flushed out. To reach its full-year guidance on profitability, Vestas needed to achieve a services margin in the final quarter of above 20 per cent and more than 12 per cent in its turbine business, said Jefferies analyst Lucas Ferhani.
Now a Trump victory has thrown a shadow over the entire sector’s prospects stateside. Ørsted has been trying to complete two offshore wind projects in the US without any fresh surprises after a string of impairments over the past 12 months. Chief executive Mads Nipper said this week he did not think a Trump presidency would affect the projects’ construction.
But the lack of clarity about Trump’s plans — and concerns about the scaling back of incentives for green energy developers — means confusion over the outlook for new projects and turbine orders. Of Vestas’s 4.4 gigawatt firm order intake in the third quarter, more than 40 per cent was from the Americas. The US is its biggest individual market, accounting for about 16 per cent of 2023 deliveries.
Europe’s wind power recovery has been blown seriously off course.
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