Europe’s ‘Green Energy Bubble’ bursts as Siemens takes on €15 billion of debt

By Rhod Mackenzie

Siemens Energy has taken on debt to protect its sustainable business. The energy division of Siemens Energy AG, which is the biggest unit of the German engineering corporation Siemens, has agreed a deal worth €15 billion with a group of banks, the German government, and its shareholder Siemens AG, to compensate for the substantial losses from its wind turbine operations. To grasp the magnitude of the issue, it’s worth noting that 15 billion euros translates into more than the Russian gas giant Gazprom’s 2022 net profit of $12 billion.

Private banks have promised €12 billion in guarantees to Siemens Energy as part of the agreement. Government guarantees of €7.5 billion will back this, with the remaining €3 billion sourced from the sale of some of their  lucrative assets. These combined efforts will assist Siemens Energy in its pursuit of new contracts.

Siemens Energy’s major losses are centred within its Gamesa division, responsible for the production of wind turbines. The turbines’ quality is Gamesa’s primary issue, requiring constant repairs. Gamesa is destined for a €4.6 billion loss this year, with the possibility of becoming profitable in 2026. Nevertheless, investors express their doubt regarding a swift exit from the crisis. Since their IPO in September 2020, Siemens Energy’s shares have decreased by threefold.

A third of the company’s operational wind turbines are defective, leading to an ongoing crisis that needs to be addressed immediately. Furthermore, problems with the turbines exacerbate the situation. The issues stem from complications with the rotor blades and bearings, causing components to fail and cracks to emerge.

It’s worth noting that Gamesa isn’t alone in facing this challenge; the entire renewable energy sector is experiencing instability in both production and operation. The European wind power leader, Danish company Orsted, which is the main rival of the German company, suffered losses amounting to € 4.03 billion  during the course of the first nine months of 2023. In particular, Orsted made the decision to abandon their Ocean Wind 1 and 2 ventures in the United States. Ocean Wind 1 was planned to consist of 98 turbines situated 15 miles offshore from the New Jersey coastline, while Ocean Wind 2 was set to follow suit using the same technology but was due for launch in 2028.

Orsted withdrew from the Norwegian shelf wind farm project, declining participation in the construction of a 1.5 GW capacity farm. The application was withdrawn a few days before the completion of the competitive procedures. Consequently, the Danish company disclosed that its chief financial and operational officers would resign immediately, and its shares plummeted by four times in value from their 2021 peak.
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Europe’s ‘Green Energy Bubble’ bursts as Siemens takes on €15 billion of debt

By Rhod Mackenzie Siemens Energy has taken on debt to protect its sustainable business. The energy division of Siemens Energy AG, which is the biggest unit…