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Wind Market Moves to Maturity

When can a new industry like wind power be considered mature? One sign is surely when it rises and falls in line with the global economy, indicating that it has left the shelter of state support and is starting to make its way in a less-regulated global market. BTM Consult's recently released 17th annual World Wind Market Update picks this transformation as a headline trend.

The wind industry managed to grow in 2011 despite worldwide economic woes - recording another record year with 41.7 GW of new installations - but the annual rise in new capacity was only 6 per cent. While this figure was slightly up from a 3 per cent increase in 2010, annual expansion in new capacity fell far short of the 23 per cent average for the previous five years, or the 42 per cent registered in 2008 on the eve of the financial crisis. Interestingly, though, the rise in capacity came from slightly fewer turbines. In 2011, 23,460 new units were installed, a 3.7 per cent decline from 24,558 in 2010. Meanwhile, the average wind turbine is now rated at 1.7 MW, up from 1.6 MW the year before.

In terms of overall capacity, the 41.7 GW installed last year raises the global total by 21 per cent to 241 GW, which should cover about 2.3 per cent of world electricity demand in 2012. As recently as 2003, total installed wind capacity was just under 40 GW - less than the amount installed last year alone - and provided less than 0.5 per cent of the world's electricity. Within another decade, we should expect to see wind energy covering more than 8 per cent of global electricity, and 10 per cent by the mid-2020s.

The key markets of Europe, North America and Asia - despite switching their relative importance - continue to host almost all global wind capacity. But markets such as Latin America and Africa are now also stirring. The long-awaited offshore market is, as ever, evolving more slowly than expected.

Asia

In 2011, 52.1 per cent of new global capacity was installed in Asia - and mainly China, where 17.6 GW was installed, fully 42 per cent of global installations. This figure was actually down slightly from 18.9 GW in 2010, when China made up 48 per cent of all global installations. But China still extended its lead in overall wind capacity with 62 GW - well ahead of the US, ranked second with 47 GW, and Germany, placed third with 29 GW.

After a surge in installations, China's wind expansion is now poised to slow, though remaining stable and, one hopes, sustainable. While the market hinges on central government support, China has a significant wind turbine manufacturing base the government will want to see flourish. On the downside, transmission issues continue to drag on development, with almost a quarter of installed wind power yet to be grid connected.

Asia's other wind hotspot is India. Its market has also been affected by government policies and has experienced several stop-start cycles. But 2011 was a good year, with 3.3 GW of new capacity installed. While this figure is barely more than one sixth of China's new capacity, it makes India the third-largest market by annual installation. India's wind capacity now totals 16 GW, about 6 per cent of its overall installed power capacity. The industry now benefits from several supportive regulatory measures as well as a significant wind turbine manufacturing base.

By comparison with the two Asian "giants", the rest of the region saw very little activity, with just 74 MW installed, mostly in Taiwan. Asian capacity excluding China and India is only slightly more than 600 MW, or 1 per cent of China's total.

Europe

Five years ago Europe was the largest regional market, with 51 per cent of new installations. That figure has now slipped to 24.5 per cent. While Europe remains the largest region in cumulative terms - with 97.5 GW of installed capacity - its relative importance for new installations has faded. In 2011, 10.2 GW of wind capacity was installed in Europe, a 7 per cent decline from the total of 10.9 GW installed in 2010.

On a European level, policy broadly supports wind power, but it is at the national level where it really makes a difference. Germany remains the largest national market, with 2 GW installed in 2011, bringing its total wind capacity up to 29.2 GW. This figure covers significant re-powering of older turbines, which added 238 MW, along with a greatly reduced offshore component of just 30 MW - down from 108 MW in 2010 - and decommissioning of 123 MW of turbines. Overall, wind power generated an impressive 10.6 per cent of all electricity used in Germany during the year.

The UK added 1293 MW of wind power in 2011, the second largest European increase, although a drop of 15 per cent from the 2010 figure. The country also leads in offshore installations, with 330 MW of new capacity bringing its offshore total to 2.1 GW, just under 30 per cent of the national total of 7.1 GW. While many projects are now at the pre-planning stage - both onshore (5.2 GW) and offshore (7 GW) - rising political opposition may slow development. But wind already provides 4.5 per cent of UK electricity, with one third of this from offshore wind farms.

Spain had the third largest figure for new installations with 1050 MW, bringing its total to 21.3 GW, the second highest total in Europe. But new capacity slipped by 31 per cent from 2010, leaving the country behind the target of 22.1 GW set by the previous government. Financial turmoil and a radical overhaul of support for renewables in January 2012 are likely to hit future installations, although wind already provided nearly 16 per cent of Spanish electricity demand in 2011.

Elsewhere in Europe, Italy, France and Sweden were ranked fourth, fifth and sixth for new installations. Italy's figure of 950 MW edged up on 2010, while France's 875 MW was a 26 per cent fall. Sweden's 763 MW brings its total to 2.9 GW and gives wind a 4.5 per cent penetration figure for the country. Greece, Poland, Portugal, Romania and Turkey all installed over 350 MW - significant figures in much smaller markets.

North America

The U.S. installed 6.8 GW of new capacity in 2011, up 31 per cent from the 2010 figure but well short of the highs of 2008 and 2009. Total capacity has now reached 47 GW and the US is the second largest market after China in both new capacity installed and cumulative installations.

As always, U.S. installations hinge on the tax regime. A 30 per cent cash grant as an alternative to the Investment Tax Credit (available in lieu of the Production Tax Credit) applied to projects in operation before the end of 2012 that had started construction before the end of 2011. This has not been renewed. The longer-standing Production Tax Credit is due to expire at the end of 2012. While activity in 2012 is holding up reasonably well, longer-term planning continues to be difficult due to uncertainty about the tax credits that may be available.

The other key feature of the U.S. wind industry is the variation in installations between states, reflecting great differences in wind resources, economies and policy. The four states with the largest levels of installation are Texas, Iowa (which sells a lot of wind energy to other states for renewable credits), California and Illinois. While California has missed its 2010 target of 20 per cent renewables penetration, it has set a goal of 33% by 2020, and Illinois has set a target of 25 per cent by 2025.

Installations in Canada almost doubled from 2010 to 1267 MW, bringing total capacity to 5.2 GW. This in turn is set to more than double in the next five years with another 6 GW contracted. A target of 20 per cent of electricity from wind by 2025 looks eminently achievable.

Other markets

Latin America saw some significant growth, with Brazil, Mexico and even Argentina seeing quite big jumps in installed capacity. Australia and New Zealand both continued with steady growth, although installations in Japan dropped in 2011 as the original feed-in tariff (FiT) system expired. Only small increases were recorded for Africa, the Middle East and Russia and the transition economies.

Offshore wind

Only 470 MW was installed offshore in 2011, a drop of nearly two-thirds from 2010. Almost all of this was in Europe, with just two non-European projects, both in China. Within Europe, almost all development was in UK waters. The cumulative installed offshore capacity is now just short of 4 GW, or 1.6 per cent of global installations.

Almost as much capacity, about 3.89 GW, is under construction, and 1.5 GW of this is due onstream in 2012. Offshore wind continues to be hampered by longer delivery times, siting difficulties and limited supply of equipment such as tending vessels and cabling. Turbine availability has also been an issue with rising prices for larger turbines. But eight suppliers now have turbines larger than 3 MW available for offshore deployment, and further progress should now be possible.

The supply side

Supplying wind turbines is, clearly, a global business. The six largest manufacturers are all in different countries and the top 10 now account for 78.5 per cent of global production. Vestas of Denmark remains the leading manufacturer with a 12.9 per cent market share. China's domestic market has provided an excellent platform for Chinese manufacturers, and there are now four in the top 10 in the world (and seven in the top 15).

Chinese manufacturers hold 90.8 per cent of their domestic market and are now exporting more, albeit from a low base. In 2011, five Chinese manufacturers supplied 140 MW in turbines across five foreign markets. But none of them operate in more than five export markets, while the six non-Chinese manufacturers in the global top 10 all operate in more than 10 markets.

Market share figures appear to be converging further. Last year's top three manufacturers (Vestas, Sinovel and GE) all lost market share, while the other seven in the top 10 all gained market share. The overall share of the market enjoyed by the top 10 has declined steadily in the last five years, from 90.7 per cent in 2007 to 78.5 percent now.

This partly reflects the emergence of more manufacturers in China, raising price competition to bring down prices by about 40 per cent in the past three years. This has been coupled with a move to develop machines that can be effective in lower wind speed areas, with larger rotor diameters and higher efficiencies. There has also been an increase in the average size of wind turbines being supplied.

Forecast to 2016 and beyond

In many ways it is becoming increasingly difficult to forecast the likely developments with confidence. The political will that had propelled growth has now cooled in many parts of the world. Almost everywhere the economic situation is much weaker. However, the industry is now larger, and with scale comes, to some extent, more predictability.

Looking at the market country-by-country and assessing a range of factors - and, in particular, support mechanisms - the report forecasts growth of 3.6 per cent in 2012, of about 10 per cent in subsequent years, and, possibly, of nearer 20 per cent in 2016. This would more than double existing installed capacity and see it at 510 GW by the end of 2016, when wind power should meet about 4.4 per cent of global electricity demand.

If these forecasts are accurate, two other important signs of the industry's maturity could be apparent. First, these growth rates are steadier and more sustainable. While national policies will affect growth in individual countries, sometimes quite dramatically, the number and range of markets should afford significantly more stability worldwide.

Above all, however, the industry is now at a scale where the amount of electricity it is providing is unarguably more than just a politically convenient token, an almost invisible slice of a global pie chart for which there are ready substitutes. Real maturity comes from supplying in a significant quantity and at an economic price, something for which there is real, lasting demand - and that is even without mentioning other key factors, such as wind power's very low emissions and lack of fuel costs. 

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