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Tech company had been pushing to make chip shipments for next year before new restrictions came into effect

SINGAPORE—New U.S. export controls may compel artificial-intelligence giant Nvidia NVDA 1.63%increase; green up pointing triangle to cancel billions of dollars in next-year orders for its advanced chips to China, a move that could deprive Chinese tech companies of crucial AI resources.

The Santa Clara, Calif.-based company had already finished delivering orders of its advanced AI chips to China for this year, according to people familiar with the matter, and was pushing to deliver some 2024 orders in advance before the new rules were scheduled to come into effect in mid-November.

Then the U.S. government told Nvidia in a letter last week that the new export restrictions on the sale of high-end chips to countries including China were instead effective immediately.

China’s biggest AI and cloud-computing companies including Alibaba Group, TikTok owner ByteDance and Baidu had made large orders for delivery next year, the people said. Orders from major Chinese companies for 2024 exceeded $5 billion, one of the people said.

A spokesman for Nvidia said the company has been working to allocate its advanced AI computing systems, which use graphics chips affected by the rules, to customers in the U.S. and elsewhere and is pursuing additional supply. “These new export controls will not have a meaningful impact in the near term,” the spokesman said.

Earlier this year, Colette Kress, Nvidia’s chief financial officer, said that in the longer term prohibiting sales of AI chips to China would result in a permanent loss of opportunities for the U.S. chip industry.

The restrictions on AI chips are part of a wider effort by the Biden administration to curtail China’s access to advanced chips, AI tools and other technology that the U.S. believes China could use to advance its military and cyberwarfare capabilities.

The latest rule, announced on Oct. 17, requires any company whose AI chips exceed a performance benchmark to seek a license from the U.S. Commerce Department before exporting them to China and other countries of concern.

Nvidia’s China stakes

Nvidia bore the brunt of the restriction because its AI chips, which are essential in creating popular AI tools such as OpenAI’s ChatGPT, are the most advanced and widely deployed in the world. Surging interest in AI has sent Nvidia’s sales and stock price skyward, crossing a $1 trillion valuation earlier this year.

In its most recent four quarters, Nvidia has reported around $22 billion of total revenue in the data-center division that houses its AI chips.

After the U.S. government imposed a less-stringent set of chip restrictions late last year, Chinese companies raced to order Nvidia’s A800 and H800, AI chips modified for the Chinese market to comply with the regulations. Under the tougher rules announced on Oct. 17, however, Nvidia must cancel the orders unless it gets export licenses from the U.S. Commerce Department.

Nvidia stopped taking new orders from China for its advanced AI chips in the wake of the new restrictions, according to people familiar with the matter. The company planned to rush some deliveries of previously placed orders during the rule’s 30-day grace period, the people said.

The Commerce Department’s decision to make the new curbs effective immediately meant deliveries were no longer possible.

Nvidia didn’t give priority to production of A800 and H800 chips this year, according to people familiar with the matter. Instead it planned to increase sales of the China-targeted chips in 2024, they said.

Nvidia said its L40S, an AI chip it made available in August, is also affected by the U.S. export curb. Some Chinese companies had talked with Nvidia about increasing purchases of L40S GPUs weeks before the Oct. 17 new rules, as the industry speculated that A800 and H800 were likely to be banned by the U.S. government, the people said. The L40S is designed to be better at operating AI systems than building them, making it a less suitable alternative for those other two chips.

Chip ban may slow China’s AI advances

The latest chip restrictions are likely to slow China’s pace in developing advanced AI capabilities and force Chinese developers to use homegrown alternatives, industry executives and analysts say.

The rules now cover most of the high-performance AI and data-center chips from Nvidia, Intel and Advanced Micro Devices. Chinese companies will have to rely on inventory, use a larger number of less advanced chips or find other workarounds.

Analysts at Bernstein Research estimated in a report last week that using Nvidia’s V100, a less-capable AI chip launched in 2017, would lead to 30% higher costs to train AI systems as it requires more chips and thus consumes more energy.

Chinese companies have started sourcing homegrown chips, including Huawei Technologies’ Ascend 910 and Cambricon Technologies’ Siyuan 590.

The founder of Chinese speech-recognition company iFlytek said in August that Ascend had achieved capabilities and performance comparable to Nvidia’s A100. However, U.S. rules have barred leading foundries such as Taiwan Semiconductor Manufacturing, or TSMC, from manufacturing many of these chips.

Other Chinese companies such as Baidu and Alibaba have also developed their own AI chips and are counting on better algorithms and software to achieve higher performance with less advanced chips, The Wall Street Journal has reported.

Repair and maintenance specialists are working overtime as supply chain issues persist

Airlines large and small struggled to cope when demand roared back after the pandemic. But their problems have been a boon for the $110bn industry that keeps the world’s aircraft in the skies.

A shortage of new planes caused by supply chain issues and a jump in labour costs has led to airlines spending more on maintenance and repairs than ever before as they keep their existing aircraft in the air for longer.

“The [maintenance] market is incredibly strong,” said Eric Mendelson, co-president of Heico, a Florida-based company that is one of the world’s leading independent suppliers of replacement parts. “I’ve been at the company for 34 years and I have never seen a demand environment like we are in today.”

Labour and raw material shortages have hampered the large manufacturers Airbus and Boeing and their plans to meet demand for new planes, while problems on some engines have added to the challenges in the supply chain.

Maintenance spending had historically been 8 per cent to 10 per cent of an airline’s cost structure, said Kevin Michaels, head of Michigan-based consultancy AeroDynamic Advisory.

This year, however, he estimated that the world’s airlines would spend more than $110bn on maintenance, including labour and material, or about 14 per cent of total revenues. “It’s the highest we’ve seen it.”

Michaels said three factors were driving the higher spend: airlines investing in discretionary maintenance that had been deferred during the Covid-19 pandemic; older aircraft due for retirement having to fly longer than expected given issues with new generations of engines, as well as supply chain constraints; and inflation as the cost of labour and parts had risen.

While most of the supply chain crisis had been “about the manufacturing side of things this is the first time we’ve had a supply chain crisis that is really impacting the whole after-market in maintenance, repair and overhaul”, Michaels said. “It’s new territory.”

Airlines, already facing higher fuel and labour costs, have had to further increase spending. Delta Air Lines, United Airlines and American Airlines collectively spent $2.2bn on maintenance in the third quarter, a 45 per cent increase on the same period in 2019, according to a recent note by Sheila Kahyaoglu of Jefferies. Trailing 12-month spend by the three is tracking 38 per cent above 2019 levels.

When Mike Leskinen, the new chief financial officer at United, spoke about costs during the airline’s earnings call earlier this month, he cited the “increased need for spare parts” when repairing aircraft as well as engines.

“Some of that is related to supply chain, and it’s difficult to see when that ends,” he said.

Judson Rollins, senior consultant at aerospace consultancy and news site Leeham, said labour shortages and supply chain bottlenecks were also hitting the maintenance sector, driving prices for services higher.

“Any maintenance, repair and overhaul provider right now can push through 15 or 20 per cent increases year over year. What are the airlines going to do? The next provider on the block has no greater capacity than the current provider.”

The maintenance and overhaul market is dominated by the original equipment manufacturers. Airbus, Boeing and engine makers Rolls-Royce, Safran, Pratt & Whitney and General Electric all provide services and sell spare parts. The engine makers make the bulk of their profits from servicing their engines rather than from the original sale, and operate large global networks of repair shops.

Significant players also include operations affiliated with airlines but that now generate a greater share of revenues from servicing other carriers, such as market leader Lufthansa Technik. Germany’s Lufthansa has been looking to sell a stake in its maintenance subsidiary. There are also large independent specialists such as Illinois-based AAR.

Heico is among those that makes the same products and components as original equipment manufacturers but less expensive, similar to generic medicines.

Airlines historically resisted buying alternative spare parts but Heico sends out thousands of components a day from distribution hubs across the globe. Mendelson said carriers had “benefited as a result of having an alternative source of supply both in terms of parts availability and quality and pricing”.

Heico, which is in the process of buying rival Wencor for just over $2bn, reported record sales of $722.9mn in the third quarter ended July 31, while operating income jumped 16 per cent to $149.4mn.

GE reported last week that it sold $42.4mn worth of spare parts a day during the third quarter — up 44 per cent from this period last year. The company told analysts that “given the pace of demand for both after-market services and new engine deliveries” it needed “to do more as do our suppliers”.

France’s Safran on Friday raised its forecast for “civil after-market sales” after a similarly strong quarter.

The engine segment of the market remains particularly strained. US group Pratt & Whitney said in July that more than a thousand of its geared turbofan engines would need to be inspected earlier than expected after a manufacturing flaw emerged.

P&W owner RTX has warned that the additional inspections and potential replacements of engines is creating more work for the company’s maintenance, repair and overhaul network, which is under strain because of problems getting materials.

RTX told analysts last week that “it’s a challenging time for the customers, there will be a fair amount of the aircraft on the ground, we’ve got to accelerate [maintenance and repair] output and the key part of that is capacity and material flow”.

The suspected sale of falsely documented parts which has affected a small portion of older engines sold by CFM, the GE-Safran joint venture, has added to the challenges for engine makers.

Industry experts expect conditions in the maintenance market to remain constrained for some time, with lack of workers and the availability of parts cited among the biggest challenges by executives, according to Adil Slimani, director of after-market advisory and appraisal at IBA Group. “There are price wars for lead times,” he added.

Iván González Vallejo, director of strategy and supply chain at Iberia Maintenance, said the industry would remain constrained for some time yet. “The supply chain constraint will still be with us for another two years . . . Demand will not go down.”

Stronger growth figures for third quarter had buoyed hopes that recovery was turning a corner

China’s manufacturing activity unexpectedly contracted in October, damping hopes of increasing momentum in the world’s second-largest economy.

The country’s official manufacturing purchasing managers’ index came in at 49.5 this month, missing forecasts and trailing a reading of 50.2 in September. A reading below 50 marks contraction against the previous month.

The contraction, which reversed last month’s return to expansion, marked a further blow for policymakers, who are under pressure to tackle a slowdown across the country’s economically critical property sector and jump-start lagging growth.

It also followed better than expected gross domestic product growth of 4.9 per cent year on year in the third quarter, which had raised hopes that China’s economy was turning a corner after low post-pandemic activity disappointed projections.

“Up until this latest data release, things were looking better,” said Julian Evans-Pritchard, head of China economics at Capital Economics.

He added that the combined manufacturing and non-manufacturing data was “the worst on record, if you ignore Covid lockdowns” and suggested that the services sector was “barely growing at all”.

The non-manufacturing PMI on Tuesday came in at 50.6, remaining in expansionary territory but rising at its slowest pace this year. Economists polled by Bloomberg had forecast a reading of 52, after the gauge hit a figure of 51.7 in September.

Robert Carnell, head of Asia-Pacific research at ING, wrote in a note that the PMI figures came as a “slight shock” and suggested that the economy was “still struggling” despite the recent GDP figures.

China’s economy had been showing more signs of growth, expanding 1.3 per cent quarter on quarter, significantly ahead of the April-June rate of just 0.5 per cent.

China’s manufacturing PMI figures edged above the 50 mark in September after five consecutive months of decline, when disappointing trade, retail and property data had dashed expectations of a boom following the removal of pandemic restrictions in January.

The government has targeted 5 per cent economic growth for 2023, its lowest official target in decades.

The property sector has come under renewed focus in recent weeks, with Country Garden, once China’s largest private developer by sales, defaulting on its international debts.

A restructuring plan at Evergrande, whose default two years ago helped trigger a sector-wide liquidity crunch, was derailed at the last minute, with the company citing regulatory constraints.

Separate manufacturing and non-manufacturing indices from private data provider Caixin will be released on Wednesday.

The weaker official figures will add to pressure for more fiscal stimulus from Beijing. Policymakers have gradually eased monetary conditions, marginally cutting benchmark lending rates and relaxing some constraints on housing purchases that were designed to avoid overheating prices.

Restrictions on foreign currency transactions are aimed at shoring up rouble

Russia has restricted western companies selling their Russian assets from withdrawing the proceeds in dollars and euros, imposing additional de facto currency controls in an effort to shore up the weakening rouble.

Western companies exiting Russia must agree on a sale price in roubles or, if sellers insist on receiving foreign currency, face delays and even losses on the amounts that can be transferred abroad, according to people familiar with the matter.

The fresh restrictions underscore Moscow’s concerns about the rouble continuing to depreciate as its economy grapples with western sanctions imposed in response to Russia’s full-scale invasion of Ukraine last year.

The rouble has depreciated more than 20 per cent against the dollar this year, passing Rbs100 to the dollar in August. That marked a “psychological threshold” for President Vladimir Putin, forcing authorities to take “palliative measures”, said one of the bankers involved in recent exits by western companies. “It’s like applying a Band-Aid to gangrene.”

Kremlin spokesperson Dmitry Peskov told the Financial Times it was the duty of every government to create “the most favourable conditions for its currency, so we create the most favourable conditions for the rouble”.

“The rouble has absolute priority,” Peskov said. He added that when it came to the exit of foreign companies, Russia was being guided by “its own interests and benefits”.

When the rouble began to weaken in July, Russian authorities first imposed limits on the ways companies exiting the country could take the sale proceeds with them, according to a document published by the government subcommittee on foreign investments whose approval is required for transactions involving western-owned assets.

Western companies were presented with two options when selling their assets in foreign currencies: having the money transferred to a highly restricted type “C” account at a Russian bank, or having the proceeds wired to an account abroad — in which case the sum was to be to be paid in several instalments. Alternatively, the seller could cash out in roubles and receive the entire sum immediately into a regular Russian bank account.

But the first two options were in practice further restricted in terms of volume and frequency of payments abroad, as authorities sought to strong-arm companies into doing business in roubles.

As the rouble continued to drop, Russia’s central bank has raised its interest rate four times since August, bringing it to 15 per cent on Friday. Another move came earlier this month, when Putin signed a decree forcing 43 companies to sell some of their foreign currency revenue on the domestic market.

The central bank did not support that decision, its governor Elvira Nabiullina said on Friday in a rare public display of disagreement with the Kremlin. She called the impact of the measure “insignificant” and “felt only in a short period of time”.

The rouble has stabilised at about Rbs95 to the dollar but it remains well above prewar levels and higher than Putin’s target rate for a ballooning war budget.

The restrictions on currency repatriation have added to the growing list of criteria deals must meet before they can be approved. These include a “voluntary” contribution to the Russian budget, recently raised from 10 to 15 per cent of the transaction amount, and sale at a discount of at least 50 per cent to the fair value of the assets.

An investment banker who recently helped close a deal worth about $300mn said the commission had set a seven-day deadline on the completion of the sale into a foreign account, but that the buyer was unable to transfer more than $20mn per day. “Simple math shows that it was impossible for the seller to receive all the proceeds from the deal,” he added.

Another person working on a number of exits said the commission told them there was an informal cap of $500mn that could be transferred overseas.

“The state has imposed capital controls without saying so. The state says, ‘It’s not forbidden to be paid in euros or dollars, it’s just complicated.’ It’s up to you whether you cash out in foreign currency or in roubles, or whether you do not cash out at all,” the person said.

Russia’s finance ministry did not respond to a request for comment.

A western seller experienced Russia’s successive rule changes within one deal.

First, they applied and obtained a sale permit nominated in euros, but the buyer backed off at the last minute. When they applied with the same deal and a new buyer in July, they were told only 50 per cent of the euro proceeds could be received immediately and the rest would be deferred. However, if the seller agreed to a rouble-denominated deal, they were told they could receive the entire sum right away.

After being paid in roubles, the seller can either exchange the amount in Russia or try to buy foreign currency abroad.

“Both options are bad,” the person said. “In the first case, the exchange rate is terrible and it is difficult to exchange large quantities. In the second case, it is difficult to find a bank that will accept the money.”

The struggles of the offshore wind industry

Governments around the world have set ambitious targets to tackle climate change, but developers say power prices will have to rise to pay for it

“Today is a good day,” declares Graeme Watters, as he watches the 114 turbines at the giant Seagreen wind farm rotate. It is mid-October, and the project that began off Scotland’s east coast almost 14 years before is now fully operational. 

Seagreen, a joint venture between French group Total Energies and SSE Renewables, a division of energy group SSE, is Scotland’s biggest wind farm. It can generate electricity to power 1.6mn homes and potentially displace around 2mn tonnes of carbon dioxide emissions from fossil fuel generation each year to help tackle global warming.

But while the full commissioning of the project marks a good day for Watters, a former Coastguard watch manager who now works as SSE’s lead marine co-ordinator for the £3bn project, it has been a more difficult year for the offshore wind industry as a whole. 

A surge in financing costs due to rising interest rates, along with higher prices for many of the materials that go into today’s giant turbines, have led some developers to back out of power sales or subsidy deals covering certain projects, mainly in the US and the UK, and put others under pressure. 

“Offshore wind projects around the world have faced a triple whammy of high supply chain inflation, rising interest rates and a reluctance on the part of governments to adjust auction parameters to respond to these new market conditions as they prioritise keeping costs to consumers down,” says Simon Virley, UK head of energy at KPMG.

The industry has developed rapidly since the world’s first offshore wind farm was built off the coast of Denmark in 1991, with 11 turbines capable of powering a mere 2,200 homes. Today’s farms can power millions of homes, while increases in turbine sizes and ultra-low interest rates helped push overall costs of construction and operation down 60 per cent between 2010 and 2021, according to the International Renewable Energy Agency. 

Wind-powered generation is key to governments’ plans to cut CO₂ emissions. In the UK, the world’s second-largest offshore wind market, it generates around 13 per cent of the country’s power. Globally the industry is still a minnow, accounting for about 0.8 per cent of electricity output in 2022. 

That will need to grow as the world tries to limit global warming by replacing coal, oil and gas-fired power plants with renewable alternatives. The International Energy Agency and Irena believe offshore wind capacity will need to rise above 2,000GW by 2050, compared to almost 70GW globally today. 

Most in the industry expect that capacity will continue to rise and that financial pressures will eventually ease. But analysts increasingly doubt whether governments’ demanding targets for the technology will be met on time.

Energy consultancy Wood Mackenzie estimates that to meet 135 offshore wind targets set by governments around the world since 2021 would require more than 60GW to be installed in 2029 and 77GW in 2030. That compares to the 3GW installed on average each year, outside China, between 2015 and 2021.

“In many ways, we see this as the first significant hurdle for offshore wind,” says a spokesman for Equinor, Norway’s majority state-owned energy company, which is developing offshore wind projects in markets including the US, UK and Vietnam. “Changing energy systems is very demanding.”  

Everything costs more

The turbines at Seagreen have a 164-metre span — half as big again as the pitch at Hampden Park, Scotland’s national football stadium — and required a 1,200-tonne capacity ship-mounted crane to slowly hoist them into position. Bigger turbines have increased efficiency and driven down generation costs, but created problems for manufacturers.

According to Wood Mackenzie, companies in the wind farm supply chain reported declining margins or losses between 2015 and 2021 as they overexpanded to meet soaring demand while simultaneously striving to develop larger products to meet developers’ push for scale. 

That has left them less able to respond to rising demand now. “Financially, the supply chain is not in very good health, at the same time as it needs to grow significantly,” says Sven Utermöhlen, chief executive of German energy giant RWE’s offshore wind unit. 

Turbine and other manufacturers are unwilling to shoulder losses in order to keep projects viable, with some now passing on more of their costs or requiring stronger commitments at an earlier stage. “We don’t think it’s fair that we have established our technology that lasts decades and then we lose money,” says Henrik Andersen, chief executive of Danish manufacturer Vestas, which made the Seagreen turbines.

Despite their vast size, installing them and the related cabling took just under three years. The previous 10 were taken up with planning applications, design changes, a legal challenge from the Royal Society for the Protection of Birds, land deals and subsidy auctions.

Lead times like this were less of an issue when conditions in the wider industry were relatively stable. But a sharp rise in financing costs over the past 18 months has added to the cost inflation in supply chains. Swedish developer Vattenfall said in August that project costs had climbed 40 per cent this year. 

RWE’s Utermöhlen adds that the combination of inflation and supply chain issues “makes for pretty rough waters at the moment for the offshore industry as a whole”.

At a control room in Montrose, technicians can adjust the blades of Seagreen’s turbines remotely, flexing the output from the site. Frequently, they are asked to reduce generation or switch off to avoid overwhelming the system, although SSE is compensated for this. 

The UK’s electricity grid has limited capacity to take energy from Scotland to meet demand in the south. “We need more interconnection and storage,” says Paul Cooley, global offshore wind director at SSE, which is investing in transmission lines as well as wind farms. 

Large industrial consumers trying to develop cleaner generation capacity have run into the same issue. German chemicals giant BASF paid €300mn in 2021 for a 49.5 per cent stake in Vattenfall’s Hollandse Kust Zuid project on the Dutch side of the North Sea and helped finance its construction, avoiding the need for government subsidy.

“We expect up to a threefold increase in our power consumption by 2040 [as part of the transition away from fossil fuels], so this makes a huge amount of sense to us,” says Lars Kissau, in charge of BASF’s efforts to cut its CO₂ emissions. 

But the company, which currently has thermal power plants on its site, is having to adjust to the realities of renewable power, including its location. “With offshore wind farms, the power plant is in the North Sea,” adds Kissau. “There needs to be a couple of hundred [grid] transmission lines in between. We can’t build such a power line. There is a lot more engagement with stakeholders.”

The pricing conundrum

While costs have risen steeply, the prices agreed for the power generated by offshore wind farms have not. Owners typically sign long-term deals to sell their electricity or secure subsidies before construction begins, so investors have a clear picture of future revenues and are less exposed to volatile spot power prices. Many such contracts now look out of kilter with increased construction costs. This has particularly hurt projects in development in the US and the UK.

Analysts at Bernstein calculate that, out of 53GW of projects around the world awarded electricity sales deals or price guarantees between 2017 and 2022, about 23GW have secured financing. Of the rest, about 18GW are “experiencing some level of stress” and 5GW have backed out of their long-term power sales deals to try to renegotiate.

The vast majority of those projects are in the US, where developers face a long time gap between striking deals that lock in their revenues and getting permits for projects. Most of the remainder are in the UK.

The UK operates a “contracts for difference” regime, under which developers get top-ups [from bill-payers] if the UK’s wholesale power price falls below a set price they agree with the government (and, confusingly, expressed in 2012 terms). If the wholesale rate is above the set price the developers have to pay the difference back to the government. So far, offshore wind projects have received £5.5bn under the scheme and paid back £798mn, according to data from market experts Cornwall Insight.

At the first round in 2015, the price was set at almost £120 per MWh, but has fallen every year since and reached a record low of £37.35 per MWh in June 2022. Five offshore wind projects accepted that price, but only two have so far been given the green light by their owners. 

Denmark’s Ørsted, the world’s largest offshore wind developer, has yet to decide whether to go ahead with its Hornsea 3 project, which would be capable of powering over 3mn homes, while in July, Vattenfall halted work on its Norfolk Boreas scheme, arguing it was no longer viable at the June 2022 price. This year’s round attracted no bids from offshore wind developers, who warned the maximum set price of £44 per MWh was too low to offset their rising costs. 

The CFD scheme has helped the UK get about 14GW of offshore wind built, second only to China. “It provides good price stability for us and for the consumer,” says Richard Crawford, at The Renewables Infrastructure Group, which invests in wind farms once they are built.

But the government now has a difficult balancing act ahead of the announcement, expected in November, of the draft cap level for offshore wind in the next annual auction round.  

“There was a bit of a game of bluff between industry and government,” says one senior industry executive, with ministers under even more pressure to raise the price for next year’s auction to avoid another failure.

While many in the sector expect costs to fall again, they struggle to predict when that will occur. “Increased demand is likely to lead to increased investment in the supply chain, which will help bring costs down in the medium to long term,” says Alex Weir, director at the UK consultancy Baringa.

“But we may well see a period of elevated prices for a few years.”

Signs of progress

Developers are lobbying politicians and regulators on both sides of the Atlantic to strike long-term deals at prices that reflect the higher costs of construction and financing and to put in place other support. They argue that projects need to be kept on track even at a time of high costs, both to sustain the supply chain and to meet clean energy targets. 

“Input costs for offshore wind aren’t going to reset any time soon,” says SSE’s Cooley. “We need to reset offtake prices to something that’s sustainable for the next five to 10 years, not five to 10 months.”

Jonathan Cole, chief executive of developer Corio Generation and chair of the Global Wind Energy Council, says it’s “important we don’t let this short-term issue become a long-term crisis”.

“We have to have the courage of our convictions [ . . .] and do everything we can to take risk out of the sector and keep projects on track.”

Attentive Energy, Corio’s venture with TotalEnergies, plans to build wind farms off the coast of New Jersey and New York, and was among three offshore wind projects to win support contracts this month from New York authorities at an average price of $145.07 per MWh.

Deepa Venkateswaran, senior utilities analyst at Bernstein, says the contracts are a sign of “the willingness of US policymakers to pay for offshore wind”, after authorities in New York earlier spooked the industry by refusing to renegotiate existing deals.

Several industry executives point to Ireland’s decision to award contracts this year at €86 per MWh as indicative of the pricing now required. Tom Glover, UK country chair for RWE, says strike prices in the range of £55-£75 per MWh are needed to secure large scale offshore wind projects in the UK. 

Adjusted for inflation, £75 in 2012 equates to £103.06 per MWh today — above current British wholesale prices, which averaged £84 in October. Because the subsidies that bridge the gap are ultimately paid for by households, any rise is politically tricky at a time of high inflation generally. 

Virley at KPMG says the government must now take “a strategic long-term view” on the technology, which it has said it wants to grow almost fourfold by 2030, to create “the right conditions for that investment to happen, while minimising costs to consumers”.

Despite all the challenges, developers are still pushing ahead with projects. More than 6GW of capacity has been given the go-ahead so far in 2023, according to Wood Mackenzie.

“There’s a lot of noise in the market, and it’s true that costs have climbed across the supply chain,” says Keith Anderson, chief executive of Scottish Power. Its parent, Spain’s Iberdrola, has about 3GW of offshore wind projects fully contracted in France, Germany, the US and the UK, and almost 12GW more in the pipeline. “But this is not just the case for offshore wind, and as a group we are incredibly positive about the industry’s prospects.”

Mark Dooley, senior managing director at Australian infrastructure group Macquarie, which owns Corio Generation, says offshore wind is “still very competitive” even with its higher costs. “It’s the future that we want to have whereas conventional energy is not,” he adds. 

Martin Neubert, partner at investor Copenhagen Infrastructure Partners, describes the challenges as “bumps in the road, rather than [the] industry being in crisis. The fundamentals are intact.”

Nonetheless, bumps in the road matter given the targets that governments have set for offshore wind. “I think the UK and north-west Europe will continue to be the largest offshore market in the world,” Cooley says. 

“But only if the pricing is right. That’s the big challenge right now.”

Turkey-based Arçelik fears high energy prices and rising borrowing costs will weigh on consumers

Arçelik, one of the world’s biggest household goods’ manufacturers through its Beko branded refrigerators and washing machines, has warned that next year will be “very tough” for Europe’s home appliance market as persistently high energy prices and rising borrowing costs hit consumers. 

Turkey-based Arçelik expected the European appliances market to shrink 5 per cent on a unit sales basis in 2024, said chief executive Hakan Bulgurlu. He added that the contraction could reach 10 per cent “if things go bad”.

“I see headwinds pretty much everywhere at the moment in Europe,” Bulgurlu said in an interview with the Financial Times, adding that “it’s increasingly looking very likely that 2024 will continue to be very tough”.

The gloomy outlook from one of Europe’s biggest appliance makers highlights how the region’s economy is sustaining an outsize blow from elevated energy prices, rising interest rates and cooling Chinese demand.

“We’re predicting very, very low [economic] growth for Europe as a whole,” Bulgurlu said. He pointed to Germany as a particular weak spot, saying Europe’s economic powerhouse was “really slowing down”.

Germany’s federal statistical agency said on Monday that Europe’s largest economy had contracted for a third quarter in a row, pointing particularly to a slump in consumer spending amid high interest rates. 

Large German chemical groups such as BASF, Evonik and Covestro have likewise in recent months warned of slowing demand for consumer goods, as they have reported severe slumps in sales of chemicals that go into a wide range of products ranging from plastics to cosmetics and furniture. 

Industry-wide shipments of major home appliances in Europe fell 7 per cent in the third quarter on a year-on-year unit sales basis and were down 10 per cent in 2022, according to an estimate by Sweden-based Electrolux, which competes with Arçelik. Electrolux has also said it has a “negative” outlook on European sales volumes for 2023 as a whole. 

Arçelik’s revenue in Europe was steady at €787mn in the third quarter of this year compared with the same period in 2022, according to the group’s quarterly earnings figures. The company had been helped by a rise in eastern European revenues and as price increases and an improved product mix dulled the impact of sharp unit declines in western Europe, Bulgurlu said.

Bulgurlu said he thought the cycle of price rises in Europe “is kind of through”. Still, he said “geopolitical risks” represented a major source of uncertainty since Arçelik’s business is sensitive to commodity prices. International crude benchmark Brent is up 20 per cent since the start of June and analysts say the oil price could rise more if the Israel-Hamas conflict escalates into a broader regional conflagration.

Despite the struggles in Europe, Arçelik is pushing ahead with a deal that will hand it control of Whirlpool’s European home appliance business. The EU approved the deal this month, but the UK has opened an in-depth review of the tie-up on concerns it “could reduce choice in the supply of washing machines, tumble dryers, dishwashers and cooking appliances”.

In contrast to the European market, Turkish demand for appliances has been high this year as soaring inflation has prompted consumers to buy up white goods as a store of value.

The government has been attempting to cool consumer demand through interest rate and tax rises that are part of a broad economic overhaul that began after President Recep Tayyip Erdoğan’s re-election in May. But Bulgurlu said Arçelik’s home market was still holding up “surprisingly well”. 

Arçelik generated revenues in Turkey of TL22.4bn (€770mn) in the third quarter, up 121 per cent from the same period in 2022. The increase was a slimmer 37 per cent on a euro basis, according to FT calculations. Overall, the group’s operating profit before financial expenses rose 120 per cent in the third quarter to TL4bn, a rise of 37 per cent in euro terms.

Bulgurlu said he was “confident” Erdogan’s new economic team would be successful in reviving Turkey’s $900bn economy and luring back foreign investors who have fled after years of unorthodox economic policies. Arçelik issued a $400mn dollar-denominated bond in September, making it the first Turkish non-financial company to sell a bond on international markets since January 2022. 

Bulgurlu said he expected Turkish consumer demand would eventually falter as the new economic programme took effect. “There will be a big slowdown. We will all suffer from it, but we’ll come out the other side a much healthier economy,” he said. 

Sanctions-hit billionaire’s properties in Paris and southern France searched

Police in France detained Russian billionaire Alexei Kuzmichev and carried out a dramatic raid involving 60 officers on two of the oligarch’s properties on Monday as they investigate allegations of tax avoidance, money laundering and violating sanctions.

Kuzmichev, a co-founder of the Alfa Group conglomerate in Russia and UK-based LetterOne, is being questioned by police and remained in custody on Monday night, according to a French judicial source.

Searches were carried out at his home in Paris and an estate in the Var region of southern France, the person added.

The preliminary investigation relates to allegations of violations of international sanctions, tax avoidance and money laundering, although no charges have been filed to date.

Financial prosecutors in France have three inquiries under way against Russian oligarchs, while another prosecutor in Paris is investigating others, including billionaire Nikolai Sarkisov.

Kuzmichev, who could not be reached for comment, is one of the few Russian oligarchs to be detained in the west since president Vladimir Putin ordered the invasion of Ukraine last year.

The EU imposed sanctions on Kuzmichev alongside his partners Mikhail Fridman, Petr Aven and German Khan in March 2022 for “actively supporting materially or financially and benefiting from Russian decision makers responsible for the annexation of Crimea or the destabilisation of Ukraine”.

It said that Kuzmichev was also “one of the leading Russian business persons involved in economic sectors providing a substantial source of revenue” to the Kremlin and claimed that he was “one of the most influential persons in Russia [with] well-established ties to the Russian president”. 

The UK’s National Crime Agency arrested Fridman last year in a dramatic raid with 50 officers on Athlone House, his £65mn mansion in Highgate in north London, but quickly scaled back the investigation and dropped the final remaining charge against the oligarch in September.

Kuzmichev was in Switzerland on a skiing holiday when the war broke out, then moved to France, where he has lived with his wife and three children most of the time since the early 2000s, according to people close to him.

Kuzmichev, who has a Cypriot passport, is one of the few sanctions-hit Russian oligarchs to have remained in Europe during the war, along with Aven, who lives in Latvia.

France previously targeted two yachts he owns on the French Riviera as part of an asset freeze last year. Judges later ruled that French customs authorities had “clearly misused” their authority in raiding the yachts. Kuzmichev’s court victories, however, were largely symbolic as he is still unable to move the yachts under the asset freeze.

Kuzmichev first met his fellow Alfa partners in the 1980s while studying at the Institute of Steel and Alloys in Moscow during perestroika.

The group largely moved to the west after selling their stake in oil company TNK-BP to state-owned Rosneft in 2013 and invested the proceeds in European companies through LetterOne.

Since the early 2000s, however, Kuzmichev had stepped back from Alfa’s businesses to a great extent, according to people familiar with the matter, leaving management of their empire to Fridman, Khan and Aven.

Unlike Khan, who returned to Russia last year, and Fridman, who went back to Moscow earlier this month, Kuzmichev and Aven have not visited the country since the invasion, the people said.

Following EU and UK sanctions against the four oligarchs, Kuzmichev and Khan sold their stakes in LetterOne and Alfa-Bank last year to Andrei Kosogov, another Alfa-Bank shareholder who is not under sanctions.

Kuzmichev’s arrest was first reported by Le Monde newspaper.

With the Kioxia tie-up apparently dead, the question is whether another transaction is in the works

Eighteen months ago, Elliott Management declared that Western Digital could be worth $100 per share or more by the end of 2023. To meet that target, the tech company has to more than double its share price in the next two months.

This is not likely. But on Monday, Western Digital announced that it would follow Elliott’s advice and separate its hard disc drive and flash memory segments into listed companies. The decision comes as a long-rumoured tie up with Japan’s Kioxia to create a fortified, East-West NAND memory chip colossus collapsed last week when Western Digital walked away from discussions.

Elliott’s thesis is that Western’s 2016 acquisition of SanDisk for $19bn proved confusing to investors. Today, Western’s total enterprise value is roughly $20bn. With the Kioxia tie-up apparently dead, the question is whether some other transaction is in the works. Otherwise, Western Digital needs some other means to achieve the sum-of-the-parts valuation Elliott cobbled together.

Western Digital’s struggles look stark when compared with the HDD leader, Seagate Technology. Seagate’s enterprise value to trailing annual revenue ratio is approaching 3 times. Western Digital trades at under 2 times. In the past five years, Western Digital shares are down more than 15 per cent while Seagate has rallied more than half.

Elliott has pointed out that by simply applying roughly the Seagate multiple the market to the Western hard disk business, the remaining implied worth of the flash business is only a few billion dollars, too low. Back in 2022, it said that it was willing to invest a billion dollars into the flash segment at as much as a $20bn valuation.

In the end, Elliott and Apollo Global Management teamed up earlier this year to buy $900mn of convertible preferred stock in Western Digital. This pays a juicy 6.25 per cent dividend. It also converts into company stock at just under $48.

Forget $100, this is the threshold Elliott will be focused on.