The wind energy industry is optimistic that it will soon recover from billions in losses, with companies such as GE and Siemens leading the way.

• The wind energy industry is facing a crisis due to decreased tax incentives, increased interest rates, and inflation, which has affected turbine manufacturers and both land-based and offshore wind projects.
• Nearly $1 billion in losses for Siemens on wind last year, while Vestas experienced a 369% decline in pure-play operating profit.
• The Inflation Reduction Act has motivated renewable energy companies to increase wind manufacturing in the U.S., with high stakes, as Siemens Energy CEO Christian Bruch stated in November, "An energy transition without wind energy is not possible."

Despite the need to shift towards renewable energy sources to combat climate change, the U.S. wind energy industry has faced challenges due to a combination of factors. These include rising inflation and interest rates, the ongoing conflict in Ukraine, and reduced tax incentives, which have disrupted supply chains and impacted the economics of project financing. Both land-based and offshore wind turbine manufacturers and developers have been affected.

The wind energy industry is optimistic due to billions of dollars in new tax credits and subsidies for clean energy investments in the Biden administration's Inflation Reduction Act. Despite a sluggish 2023, leading wind turbine makers such as Renewable Energy, Siemens Energy, and Vestas Wind Systems, along with their suppliers, are banking on growth in the offshore wind niche over the next decade.

According to Aaron Barr, an industry analyst at Wood Mackenzie, the wind energy market is currently facing a paradox. Although there is long-term climate policy certainty across major markets, the industry, particularly the supply chain, is facing issues that have resulted in destroyed profit margins and negative profitability for top OEMs and their component vendors.

According to Barr, OEMs that sold turbines to project developers in the 2020-21 timeframe experienced declining capital expenditures and pricing. However, when it was time to deliver the turbines, the costs of raw materials, specialized logistics, and labor increased significantly, resulting in a loss of profitability for these OEMs.

Siemens Gamesa reported a net loss of over $943.48 million in its fiscal year ending September 30, according to CEO Christian Bruch in a November interview with CNBC's "Squawk Box Europe." He cited challenges in the wind energy industry, particularly with supply chains.

In January, three months after GE announced it was laying off 20% of its U.S. onshore wind workforce, GE Renewable Energy posted a loss of $2.24 billion for 2022, compared to a decline of $795 million the previous year. Despite this, CEO Larry Culp expressed a positive outlook when speaking with analysts. "While the demand drop due to the [production tax credit] lapse significantly impacted our renewables results in 2022, the Inflation Reduction Act is a real game-changer for us and the industry going forward," he said.

In 2022, Vestas experienced a 369% decline in operating profit, which the company attributed to geopolitical uncertainty, high inflation, and supply chain constraints. The turbine manufacturer recorded a EBIT loss of over $1.2 billion last year, compared to a $456 million gain in 2021.

Recent quarterly numbers from the American Clean Power Association, representing U.S. renewables industry companies, showed that the wind market's paradox was further revealed in the fourth quarter of 2022. Despite the wind, solar, and battery storage sectors installing 9.6 gigawatts (GW) of utility-scale clean energy capacity, enough to power two million homes, it was the lowest fourth quarter since 2019.

In 2022, the industry invested $35 billion in renewable energy capacity, but this was a 16% decline from the record year in 2021 and a 12% decline from 2020. Wind energy also faced a good news-bad news conundrum, with land-based wind ending the year with its strongest quarter, commissioning 4 GW of new projects. However, the total of 8.5 GW installed for the full year represented a 37% year-over-year drop, mainly due to the expiration of the production tax credit for new projects at the end of 2021.

The IRA revives the PTC and offers other incentives to the wind industry, resulting in an estimated $369 billion in clean energy and climate investments, according to the ACP. The trade group reports that this investment has already taken place, with over $150 billion invested in utility-scale clean energy projects and manufacturing facilities in the past nine months, surpassing the total investment between 2017 and 2021. Since August, 48 renewable energy facilities have been launched, expanded, or reopened, including 10 wind manufacturing facilities.

Wind manufacturing in the U.S. coming back

In the U.S., there are approximately 72,000 land-based wind turbines generating around 140 GW of energy, which accounts for about 9% of the nation's electricity. The production of these turbines is part of a growing domestic wind energy supply chain, established in the early 1980s, that involves the assembly of various components such as turbine towers, blades, and nacelles, which house the drivetrains.

The reduced demand for new land-based turbine orders due to industry supply chain disruptions forced manufacturers to scale back their operations, according to Patrick Gilman, program manager for the U.S. Department of Energy's Wind Energy Technologies Office. However, it seems that this trend is beginning to subside.

With the passing of the IRA and the resulting long-term policy certainty, OEMs are either reopening or spinning back up mothballed factories, announcing new facilities, and expanding production, according to Gilman. Siemens, for example, announced plans to reopen two turbine component factories that it had mothballed last year, citing the IRA as the reason for the increased demand.

The U.S. offshore wind industry is finally gaining momentum after years of obstacles in obtaining permits, environmental approvals, and power purchase agreements with utilities. In March 2021, the Biden administration set a target of 30 GW of offshore wind energy deployment by 2030 to accelerate the sector's growth.

There are currently seven operational offshore wind turbines in the US, with five located off the coast of Block Island in Rhode Island and two off Virginia Beach. In contrast, globally, there were 246 offshore wind farms in operation at the end of last year, resulting in 54.9 GW of energy generated from thousands of turbines, according to the World Forum Offshore Wind.

Off the coast of Massachusetts, a single offshore wind farm, Vineyard Wind 1, is currently under construction. This project is a joint venture between Copenhagen Infrastructure Partners and Iberdrola, through a subsidiary of Avangrid Renewables, with GE supplying 62 Haliade-X turbines. With an estimated cost of $3.5 billion, Vineyard Wind will begin generating power later this year and, upon completion in 2024, will produce 800 MW of electricity annually. On the East Coast, there are 17 other offshore wind projects in various stages of development.

To achieve the White House's 2030 goal for offshore wind farms, a U.S.-based manufacturing supply chain must be rapidly built out and at least $22.4 billion in investments made between now and then, according to a report published in January by the National Renewable Energy Laboratory, the Business Network for Offshore Wind, and other partners.

The construction of 34 new manufacturing facilities, including specialized ports and vessels, would be part of the supply chain, according to the report. By utilizing their existing manufacturing capabilities in sectors such as land-based wind energy, oil and gas, and shipbuilding, individual states and companies can generate significant workforce and economic benefits throughout the country, not just in coastal locations.

In preparation for the growth of East Coast offshore wind projects, Vestas, Siemens, and GE have announced plans to construct new turbine component factories in New York and New Jersey, subject to securing orders and obtaining state and federal funding. Meanwhile, the federal government is collaborating with OEMs to develop floating offshore turbines as a solution for building wind farms in deep waters off Maine, New Hampshire, Gulf Coast states, California, and Oregon, where conventional fixed-bottom offshore turbines are not practical.

The Biden administration aims to reduce the cost of floating offshore wind by more than 70% and deploy 15 GW by 2035, as seen by U.S. Secretary of Energy Jennifer M. Granholm at a related summit in February.

The U.S. wind energy industry is doing well, but it needs to overcome short-term economic challenges, mainly caused by supply chain issues. According to Wood Mackenzie's Barr, "If all the players involved can make it through the end of this year, we think the future is bright for the industry."

According to Bruch, who spoke to CNBC in November, "an energy transition without wind energy is not feasible."