Winds of change: Europe strives to shield domestic wind turbine industry as Chinese rivals breeze in

After Russia invaded Ukraine in February 2022, the EU’s relationship with Russia changed significantly, particularly in terms of energy trade. To reduce its reliance on Russian fossil fuels and enhance the region’s energy security, self-sufficiency, and long-term reduction of greenhouse gas emissions, the EU launched the REPowerEU Plan in May 2022. In line with this initiative to accelerate the deployment of renewable energy, in October 2023 the EU strengthened its legislation to boost the share of renewable energy. The revised Renewable Energy Directive (RED III) sets a binding target to achieve a share of at least 42.5% renewable energy by 2030, with an aspirational goal of reaching 45%. To achieve that 42.5% renewable energy target, WindEurope estimates that the EU will need to install a total of 425 GW of wind power capacity by 2030 (taking into account recent technological advancements, with capacity factors of 35% for onshore wind and 45% for offshore wind).

By mid-2024, Europe had achieved a total wind power capacity of 278 GW. The EU contributes significantly to this: it holds 225 GW of Europe’s wind power capacity, of which 205 GW is onshore and 20 GW offshore. To meet its 2030 climate and energy targets, the EU needs to build an average of 33 GW of wind power annually, according to WindEurope. However, considering turbine orders, auction volumes, and new permits awarded, WindEurope expects that an average of 22 GW of new wind farms will be built each year across the bloc until the end of the decade, potentially resulting in a cumulative gap of 68 GW. This can be attributed to several factors including a shortfall in grid infrastructure, permitting issues, high inflation, and high commodity prices. The sector also has to deal with a shortage of vessels capable of installing larger offshore wind turbines; electricity price volatility creating investor uncertainty; and limited capacity in the European supply chain for turbines and other components.

Europe urgently needs to ramp up its wind energy development to meet its energy and climate goals. The question is: Can its domestic supply chain deliver the future required volume, and at competitive prices? European manufacturers can supply most of the current European wind turbine demand, but to maintain competitiveness in a growing market they need to rapidly scale up their capacities. If not, supply bottlenecks could soon arise, resulting either in slower deployment or an increase in imports to fill the gap, especially from Chinese manufacturers, which have recently become more pronounced than ever.

Wind turbines are the most expensive component of capital expenditure (capex) in wind projects, accounting for about 40% of the total capex. Currently up to 90% of commissioned wind projects in Europe use European-made wind turbines. However, WindEurope estimates that Europe may see a shortfall of approximately 30 GW of annual turbine manufacturing capacity by 2030, hindering efforts to install the 425 GW of wind capacity needed to meet the EU’s renewable energy goal.

In recent years, increased financial strains have hampered the ability of European wind turbine manufacturers to scale up and accelerate capacity expansion and have eaten into their profit margins. These strains were due to several factors: high inflation of raw materials and key components; elevated logistics costs and supply chain disruptions (mainly caused by the Covid-19 pandemic); geopolitical tensions; and last but not least the gap between the fixed-price contracts signed before costs began to rise and the actual costs at the time of delivery. Despite the challenging past few years, European turbine manufacturers continue to dominate the global market both within and outside Europe (excluding China). In 2023 European manufacturers dominated the global market with a combined 72.8% share, followed by General Electric at 19.7%. Chinese manufacturers, who have so far primarily concentrated on their home market, collectively held a 4.2% share (see figure 1).

European and US original equipment manufacturers (OEMs) have led the way in the design, engineering, manufacturing, and assembly of wind turbines. However, to reduce their costs, some OEMs, including European ones, have moved parts of their production lines to countries where labor and production costs are lower. As cost considerations have become more important than proximity in energy transition supply chain decisions, western OEMs have set up significant supply chain operations in countries like China, India, and Turkey. European OEMs also import components, such as permanent magnets, from non-European manufacturers, mainly China, and depend on these countries for raw materials, such as rare earth elements.

China is the leading supplier of numerous raw materials and essential components for the global wind industry. Although the concentration risk with China is not yet as pronounced in the wind industry outside China as it is in other energy transition industries like solar photovoltaic systems and batteries, Europe’s reliance on imports from China remains a concern for European clean energy independence. This is due to the historical trend of outsourcing the manufacturing of key components like gearboxes, converters, generators, and castings. Figure 2 illustrates EU countries’ imports of wind turbine components, highlighting a surge in 2021 and 2022, peaking at USD 795 million, before declining to approximately USD 280 million in 2023. The decline in 2023 imports is likely attributable to a decrease in turbine prices and slower wind deployment in Europe. Additionally, 2023 imports of towers, blades, and hubs, which include machinery and equipment used in other sectors, totaled over USD 2.5 billion.

As figure 3 shows, until 2023 China was the major exporter of wind turbines and components to the EU, but in 2023 India overtook it. India’s share has significantly increased in recent years, growing from 9% to nearly 60% between 2018 and 2023, while China’s share decreased from 83% to about 30%. Figure 3 shows each exporter’s share of wind turbines and components to the EU between 2017 and 2024.

As one of the major producers and exporters of key components and raw materials for wind turbines, China provides a significant competitive advantage to its turbine makers, enabling them to produce cheaper turbines compared to their western rivals. According to a recent IEA report, about 80% of the total cost of producing wind turbines (including nacelles, blades, and towers), comes from materials and upstream components. While input costs fell in 2024 compared to the previous two years, prices for wind turbines have risen again. However, Chinese-made turbines are bucking this trend, and the pricing gap between Chinese- and Western-manufactured turbines has widened. According to BloombergNEF, prices for onshore turbines delivered in China dropped by 57% from the first half of 2020 to the first half of 2024, while prices of turbines made outside China rose by 31% on average over the same period. Between 2019 and 2024 the median price of Chinese onshore turbines sold outside the country was almost 30% lower than prices from European and US peers. This is due to several factors, which include a strong local supply chain, stable raw material prices, cheaper labor costs, and intense price competition at home. The end of the Chinese government’s feed-in premium subsidy scheme for offshore wind projects has pressured developers’ margins, leading them to push turbine manufacturers to offer lower prices.

As the domestic market becomes more competitive with lower margins, Chinese manufacturers are increasingly looking to export their cheaper turbines abroad, including to Europe, where projects could be more profitable than in their home market. Western wind developers have traditionally relied on Western-made turbines for their projects, particularly in Europe. However, the lower prices of Chinese turbines and the (perceived) faster delivery times (thanks to increased manufacturing capacity), have prompted some developers active in European markets to consider Chinese options. In fact, some developers, including Luxcara, are openly planning to use Chinese wind turbines in EU offshore projects. Chinese OEMs are also planning to build factories in Europe. A recent example is Mingyang’s agreement with the Italian government and Renexia to construct a turbine factory in Italy. This aligns with the recent strategy of some Chinese OEMs to move production outside of China due to local content requirements, other trade restrictions, and the high logistics costs of transporting large components, especially given the strong market trend for larger turbines.

Importing turbines from China might seem like a cost-effective solution to meet European wind energy targets. After all, there is potential to reduce the levelized cost of energy (LCoE), accelerate renewable energy production, and support efforts to combat climate change. However, there are concerns that need to be addressed regarding sustainability and product quality of the imported turbines, as well as the potential impacts on energy security and the just transition in Europe.

While Chinese manufacturers may have the capacity to supply turbines for the non-domestic market pipeline, one of the key questions is whether their turbines can maintain technical quality and efficiency over their design lifetime. This concern is amplified by the lack of transparency in data regarding product quality, fabrication, and performance from Chinese suppliers. This issue is crucial for the bankability of projects using Chinese turbines. European banks and their advisors are known for their stringent due diligence processes, which assess technical quality, sustainable fabrication conditions, track records, spare parts storage plans, third-party certifications, and alignment with the Equator Principles. Given that even European manufacturers find it challenging to comply with these requirements, how likely is it that Chinese suppliers will be able to meet these standards?

The quality factor is not limited to the initial years of turbine operation; it becomes increasingly critical as turbines age and maintenance needs grow, impacting strategic, operational, and cost considerations. Therefore, access to long-term service and maintenance, post-installation, is crucial when considering a change in turbine suppliers. Western wind turbine manufacturers typically offer multibrand service support, which currently does not include Chinese turbines. If data were available on the technical track record of Chinese turbines, the warranties on equipment and services (including performance guarantees and liquidated damages for underperformance), and the OEMs’ adherence to commitments (for example, to provide repair services or spare parts) in non-European wind markets, such as South America, that could provide valuable insights to support decision-making.

Another issue, not exclusive to Chinese wind manufacturing, is the future availability of spare parts for installed turbines, especially given the trend toward larger turbines. Chinese OEMs are leading in launching larger new platforms, but as they retool their factories for these bigger models, the capacity to manufacture components and service older, smaller turbines may be limited. This raises concerns about the availability of spare parts for smaller operational turbines and the risk of early decommissioning due to a lack of spare parts.

In addition to combating climate change, the European wind industry is an essential tool in a just transition, job creation, and economic growth. As fossil fuel demand declines in Europe, the wind industry and other energy transition sectors may ensure that the labor market evolves into a cleaner and more sustainable form. These sectors provide opportunities to create new jobs in manufacturing, installation, maintenance, and research and development. This transformation could not only support climate goals but might also foster a resilient and future-proof job market, contributing to a just energy transition in Europe. In 2023, the wind industry supported approximately 330,000 jobs in Europe, with potential growth to 564,000 full-time jobs by 2030, according to WindEurope’s 2030 targets scenario. Over 60% of these jobs are in the manufacturing of various wind project components spread over 250 factories around Europe. In the EU region alone, the wind industry contributed EUR 42 billion to the EU’s GDP in 2022.

In the face of geopolitical uncertainties, maintaining a strong European wind industry could be a crucial strategy for ensuring energy sovereignty and independence. There are concerns that if Chinese turbine makers were to dominate the European market, security risks could arise, including the risk of non-European countries gaining significant influence over Europe’s electricity generation infrastructure. Another concern is that dependence on Chinese technology and components might lead to vulnerabilities in the supply chain, making Europe susceptible to disruptions in maintenance and spare parts availability. Geopolitical tensions could impact the reliability of these supplies, potentially compromising the stability of Europe’s energy grid. Moreover, there are concerns in Europe that control over critical energy infrastructure by foreign entities could pose national security risks, as it might limit Europe’s ability to independently manage and secure its energy supply.

European OEMs have repeatedly raised concerns and called for fair competition in the turbine manufacturing industry, pointing to practices by Chinese rivals that they consider unfair. In response, the European Commission has officially initiated an inquiry into Chinese wind turbine suppliers under the new Foreign Subsidies Regulation. This regulation aims to ensure fair competition for all companies operating in the EU’s single market by addressing the unfair advantages that foreign subsidies might provide. The EU will initially investigate unfair trade practices in the markets of Bulgaria, France, Greece, Romania, and Spain.

In October 2023 the European Commission released its Wind Power Package, detailing 15 urgent measures to enhance the competitiveness of Europe’s wind supply chain. With backing from the European Commission, individual EU member states and financial institutions, particularly the European Investment Bank, European companies are investing billions of euros to construct new factories and expand existing ones, as illustrated in Figure 4.

In addition, the EU’s Net-Zero Industry Act (NZIA), which entered into force in June 2024 sets a non-binding target of 36 GW for the minimum annual production capacity of wind turbines in Europe by 2030. However, this target does not mandate that all components of these wind turbines must be manufactured within the EU, which is not surprising given the level of imports of components and raw materials from non-EU countries already. This target is part of a broader goal in the NZIA to ensure that at least 40% of the EU’s needs for strategic technology products (such as wind turbines, solar panels, and batteries) are met through local production. The NZIA includes provisions requiring non-price criteria to be applied to at least 30% of renewable energy auctions or a minimum of s6 GW of capacity annually. These criteria prioritize factors such as sustainability, resilience, and cybersecurity, thereby indirectly aiming to reduce reliance on non-European equipment in renewable energy projects.

The NZIA includes measures to streamline and expedite the permitting processes for clean technology projects. This can involve waiving certain regulatory requirements to minimize delays and reduce development costs. In line with that, the NZIA permits a higher tolerance for cost variations in procurement. This means that if the cost of equipment for a project increases by up to 15% to 20% beyond the initial estimates, the project can still move forward without facing regulatory hurdles. While the 15% to 20% flexibility in the NZIA is intended to help manage cost overruns and ensure the smooth progression of wind energy projects, it could in fact have the unintended consequence of neutralizing the policy’s effectiveness. As mentioned, Chinese wind equipment is often significantly cheaper than European-made equipment. Given this price difference and the 15% and 20% flexibility range, European OEMs might find it challenging to compete on cost alone.

The aim of the opt-out clause and the provision to waive cost inflation is to provide European developers with the flexibility to continue projects even if costs exceed initial estimates. This approach is designed to ensure project viability and profitability, maintain high interest in developing more projects in Europe, and reduce the risk of project abandonment. But that begs an important question: Would it not be more effective for EU member states to focus on reducing costs that are within their control (e.g., limiting negative bidding) rather than simply allowing more flexibility to purchase cheaper, non-European turbines and equipment?

In line with the European Commission’s efforts, the German Ministry for Economy and Energy (BMWK) recently issued a five-point action plan to ensure a level playing field between European and international wind turbine manufacturers. The plan addresses several key areas including: cybersecurity of wind turbines; fair competition conditions; reducing dependencies on critical components (especially permanent magnets); financing production ramp-up; and revising the terms of project financing provided by German and EU banks and institutions for projects using Chinese wind turbine technology. This revision aims to prevent risks to national and European industrial policy interests, avoid distorting fair competition, and ensure compliance with environmental, social, and governance rules. It remains to be seen if and how Chinese manufacturers will meet these increasingly stringent European requirements.

Another EU policy tool that could significantly impact the European wind supply chain is the Carbon Border Adjustment Mechanism (CBAM). It is expected to enter its definitive phase in 2026, coinciding with the phaseout of free CO2 allowances for industry under the current EU Emissions Trading System (EU ETS). It aims to encourage other countries to either reduce their emissions or implement a carbon pricing mechanism to avoid tariffs on their exports. However, there are concerns that the EU industry might import more finished products made with these materials if they are cheaper than domestic finished products once all production, logistics, and CBAM costs are considered. The European wind industry, which imports semi-finished products with substantial steel content from China and a few other countries, could be particularly affected by this issue.

Regarding the potential impact of the full implementation of the CBAM on European-made turbine prices in 2034, EY and the British consultant Penta conducted a study using two price scenarios. The study assumed that only 24% of the components used in the turbines were sourced from outside Europe. Based on this study, if the European Emissions Allowances (EUAs), which are currently around EUR 60 to EUR 70 per metric ton, were to reach around EUR 200 per metric ton, the cost of an average offshore wind turbine (10 MW to 12 MW) could rise by EUR 910,000. It should be noted that an EUA of EUR 200 per metric ton is an extreme scenario. Such high prices are more likely to be seen further in the future, around 2035, particularly for the hardest-to-abate industries. At an EUA of EUR 100 per metric ton, the increase would be EUR 450,000. Onshore wind turbines would see a smaller price increase due to their lower steel and cement content.

Beyond the cost implications, there are concerns about the administrative burdens introduced by the CBAM. Each EU member state will have its own method for recording CO2 data, and obtaining this data could be challenging since suppliers are not legally required to provide it. Additionally, there are worries about how the CBAM might affect the competitiveness of European-made turbine exports if prices increase in Europe. Therefore, it remains to be seen how the CBAM will actually impact the European wind industry, whether by offering support or presenting challenges.

The European wind turbine manufacturing industry has long been a leader in wind energy development, maintaining the largest share of the global market outside of China. However, global market dynamics seem to be changing as Chinese manufacturers, after years of concentrating on their domestic market, are now seeking to expand their exports internationally, including to Europe. European turbine manufacturers are concerned about a scenario similar to that of solar panels, where Chinese manufacturers more or less eradicated European producers within a few years. European manufacturers are dissatisfied with what they perceive as unfair competition, citing examples such as state subsidies.

Meanwhile, with the recent US election results and Donald Trump’s return to the White House in January, European manufacturers may need additional support. They might face heightened pressure due to the possibility of import tariffs and potential reduced order volumes, stemming from the new administration’s lack of support for wind projects, which could significantly impact their business. Additionally, with Trump taking over the US presidency, some expect that it will become more difficult for Chinese manufacturers to enter the US market. Consequently, Chinese manufacturers might shift and intensify their focus on Europe. This would squeeze European manufacturers from both sides.

The EU and national governments have already started adopting policies and measures to safeguard the domestic wind supply chain, particularly in turbine manufacturing. Trade defense measures (such as anti-subsidy actions) and pro-climate policies like the CBAM could partly help protect the wind industry from unfair competition by imposing tariffs on subsidized imports and materials with high CO2 content. However, it is crucial to ensure that these policies do not backfire in the long term. Strengthening supply chain resilience through diversification and investing in local production capabilities is essential. This includes ramping up renewable energy production to provide cheap and clean energy, while simultaneously preparing heavy industry to use this clean energy for producing cost-competitive, climate-friendly materials like green steel. Implementing stringent regulatory standards for safety, quality, and environmental impacts can ensure high standards for all products entering the European market. Additionally, rewarding mechanisms like the recently launched UK Clean Industry Bonus could incentivize developers to invest in the local supply chain and shift their procurement policies toward the local market.