Increasing commodity prices, logistics costs and COVID-19 related challenges are likely to up the cost of wind turbine by up to 10 percent over the next 12 to 18 months, according to a new analysis from research agency Wood Mackenzie.
According to the report, the rise in steel, copper, aluminum, and fibre prices, coupled with a four-fold increase in logistics costs have increased turbine prices over the past six months and it is expected that this trend will continue for the next four to five quarters as well.
“Turbine manufacturers and component suppliers face a double whammy of cost increases and demand softening over the coming two years due to the US Production Tax Credit and China feed-in-tariff phase-outs,” said Shashi Barla, principal analyst, WoodMac.
However, despite the rise in costs, the report notes that the turbine prices will return to normal levels by the end of 2022.
According to the analysis, with the US-China trade tussle not showing any signs of improving, turbine manufacturers are facing further cost pressures, which has forced Vestas, SGRE, and Nordex to explore alternative supply hubs, such as India.
The ‘India for India’ and ‘India for Global’ supply chain strategies are encouraging leading turbine component suppliers to follow their turbine manufacturers into the Asia-Pacific nation, added Barla.
According to the analysis, as the expected demand increases in India have failed to materialise, which allows manufacturers and suppliers to leverage excess production capacity to serve export markets cost-effectively.
“As original equipment manufacturers continue to manufacture the latest generation turbines in India, component suppliers are expanding within the market to produce components closer to their clients’ factories,” added Barla. If the capacity of critical capital components and raw materials do not expand over the next two years, the wind turbine industry will encounter supply constraints that could pose issues for country-level decarbonisation targets noted the report.