https://www.telegraph.co.uk/business/2024/01/21/energy-bills-must-rise-pay-for-net-zero-siemens/
Energy bills must rise to pay for net zero, says Siemens Energy boss
Interview: Joe Kaeser says ‘a lot of big mouths but little action’ pushing wind turbine makers into the red
Matt Oliver
and
Szu Ping Chan
IN DAVOS
21 January 2024 • 12:00pm
The German boss of Britain’s biggest wind turbine maker has warned energy bills will have to keep rising to pay for the green transition as he attacked “fairytale” thinking about
net zero.
Joe Kaeser, chairman of Siemens Energy, suggested
higher energy bills were inevitable as turbine makers grapple with huge losses, forcing them to pass on costs to their customers.
The company is the owner of the UK’s biggest wind turbine manufacturing site, in Hull, and employs thousands of British workers.
Mr Kaeser said manufacturers had become locked in a harmful “rat race” to build ever-bigger turbines and claimed developers and governments were in denial about the costs this entailed.
He also warned that inflation is battering industry balance sheets and warned of separate growing problems with faults and breakdowns in the sector.
Mr Kaeser told The Telegraph: “Every transformation comes at a cost and every transformation is painful. And that’s something which the energy industry and the public sector - governments - don’t really want to hear.
“I believe that for a while [customers] need to accept higher pricing.
“And then there might be innovation – about the weight of the blades, other efficiency methods, technology – so the cost can then go down again.
“But the point is, if there is no profit pool in an industry, why should that industry innovate?”
His comments come after the UK Government bowed to industry pressure in November and increased the power prices offered in future renewable energy auctions, after a competition in the summer received
no bids from offshore wind developers.
The earlier auction flop triggered serious doubts that the UK would be able to meet its target of 50 gigawatts of offshore wind capacity by 2030.
Speaking at the World Economic Forum in Davos, Switzerland, Mr Kaeser criticised what he described as “a lot of big mouths but little action” that had
gone on for years in the wind industry.
Governments and developers are failing to follow through on their own green transition promises quickly enough, he said, while many are reluctant to admit the full costs of their plans to reach net zero carbon emissions by 2050.
Wind turbine manufacturers have faced surging prices for materials such as concrete and steel as well as labour and specialist ships used to move large components such as blades and towers.
These rising costs were not factored into many contracts with wind farm developers, pushing turbine makers into the red as a result. Some, including Siemens Energy, have also had to
set aside large sums to fix faulty equipment.
After crashing to a €4.6bn (£3.9bn) annual loss last year - blamed mainly on Siemens Gamesa, its offshore wind unit - bosses at the company had to go cap in hand to the German government for support. Gamesa announced 6,000 job cuts in November.
Inflation has also led to the cancellation of many offshore wind projects. 15 gigawatts’ worth of projects were cancelled or postponed last year in the UK and US alone, which would have provided enough electricity to power 12m homes.
As well as inflation, Mr Kaeser, who took over as chairman in 2021, argued that the problems are also down to foot-dragging by developers and governments.
“One of the shortcomings of the wind industry in the last five years is that there were a lot of announcements, a lot of plans,” he explained. “But they took four, five or six years sometimes to go from the order to execution.
“Now, if you have five years in between, you have a massive
risk of inflation, which has hit us really, really hard. Not just Siemens Energy, but also others.
“We need to have a long-term energy plan, that this is what we’re going to do in the next three years, five years.”
Mr Kaeser, 66, also criticised a “bigger is better” mentality in the industry that has seen
turbine heights more than double in the past 20 years. For example, General Electric’s Haliade-Xs stand at 853 feet each - two and a half times as tall as Big Ben - compared to a typical turbine height of around 300 feet at the turn of the century.
A dash to build bigger and bigger turbines has in some cases proved counterproductive, Mr Kaeser said, by forcing manufacturers to spend large sums of money upfront with too little time to recoup their investments.
“Industry was in quite a rat race. It was 3 gigawatts and then somebody would come out with 3.5 and then someone else 4 and on and on. They hadn’t even tested the old one yet but announced a new one.”
At the same time, flip-flopping on projects or delays caused by slow planning processes have left manufacturers without the certainty they need to invest in even bigger factories, let alone research and development that could bring costs down.
He said: “It’s up and down and up and down, and promise here and promise there and then, ‘Oh, well, renewables are too expensive’. Well, the cost of energy doesn’t go down on renewables if you don’t innovate.
“And if you’re making all the losses, why should you innovate? So you have a sort of a Catch 22, which you can only break if you have a long term energy agenda.”
Ultimately, money talks. If countries and developers are not prepared to put their money where their mouths are, they should rethink their plans for net zero altogether, he suggested.
“I think [the net zero targets] are realistic, but they come at a cost,” Mr Kaeser said. “You need to stick by the facts at some point, even though facts sometimes may not be liked.”
He added that energy supplies are governed by a triangle of “reliability, affordability and sustainability”, but “sustainability and affordability may conflict”.
“If you want to have cheap energy, you need to be gas fired. That’s the cheapest way, the most secure way if you calculate the whole thing, from the beginning to the end.
“I believe people need to become reasonable about the energy transition.
“The matter of renewables being volatile - if there is a windless night, it could get complicated if you don’t have storage. So you need to think: what is my energy agenda? How much do I want to have on renewables? How do we deal with the fact that sometimes availability and demand don’t match?
“So you say, okay, maybe we do baseload nuclear. Then maybe gas fired or even hydrogen-fired gas turbines for peaks [in demand].”
But he added: “Where does the hydrogen come from? That story of green hydrogen is another fairytale. If you believe in the next five years, in industry it’s a feasible option - it’s not.”
Mr Kaeser seemed faintly exasperated by the state of the industry.
“There’s just now, every week, every month, another debate about something. Do you bring nuclear back, or that or this? And this is what causes friction,” he sighed. “Uncertainty is great, but I have enough uncertainty already.”
Mr Kaeser is a Siemens lifer who joined the company after graduating in 1980. He was chief executive from 2013 to 2021, during which time Siemens Energy was spun-off as part of a split. Siemens retains a 25pc stake in the energy business, while the company’s pension fund owns a further 30pc.
(20min delay)