The Supply Chain in the Electro-Technical Industry’s effects on Wind Energy

The entire electro-technical industry in general has experienced supply chain problems and price rises. This has been largely due to raw material shortages and price increases, and in the more traditional sectors of the industry, because of reductions in production capacity, as demand follows a cyclical pattern. In the established electrical industries, for example transformers, a collapse in demand followed the peak building period in the power sector in the 1960s and 70s. During the ensuing market downturn in the 1980s and 90s, production capacity contracted as factories were systematically closed down all over the world.

Raw material shortages have been created by escalating demand in the BRIC (Brazil, Russia, India and China), notably in China. There have been unprecedented rises in the price of raw materials which affected much of the electrical industry, causing price rises and longer lead times for delivery.

Raw materials used in a wind energy system include steel, copper, fiberglass, epoxy, aluminum, plastics, and rubber and rare earth metals.

75% to 80% of the ex-factory cost of most electrical equipment consists of materials; hot and cold steel, copper, electrical steel, aluminum being the main cost components. Therefore, the price of wind projects are strongly affected by commodity prices, especially steel as it counts for 80% of the material in a turbine.

As the biggest ‘component ‘cost for a wind farm is the blades; small increases in steel prices result in large increases in turbine costs.

It is estimated that fifteen to twenty tons of cast steel is needed per megawatt of installed capacity, and ten tons of forgings. More steel and concrete is needed for offshore wind farms than onshore wind farms, driving up the price of offshore wind farms.

In common with other electrical products the wind industry is facing extended lead times in supplying orders. Long lead times make it more difficult to maintain profitability, which becomes highly dependent on risk management. As an industry executive put it to us, ‘a lot can happen to your margin in two years’.