European Wind Energy Market Shows First Signs of Slowdown

In the past three or four years, the demand for such components has been growing tremendously and to secure supplies of critical components such as gearboxes and bearings, turbine producers were resorting to strategies such as vertical integration and signing long-term contracts with suppliers and sub-suppliers.

However, suppliers were not prepared to meet the increasing demand, a situation which, coupled with some design problems of components, was causing a shortage of supply that was affecting the industry. Prior to the onset of the economic meltdown, this trend was expected to continue for the next two or three years at least. However, with the situation at hand, the strategies of the component suppliers as well as those of turbine manufacturers will be different considering a slowing down of demand. This will lead to a more balanced demand supply situation, the company adds.

Frost adds this will foster a fiercer competition between suppliers, turning into a growth opportunity for those capable of reducing their costs and prices faster. Other factors contributing to the fall in prices include falling prices for raw materials and construction services. The sharp decrease in raw materials prices such as steel and copper will inevitably induce the decrease in equipment prices. For example, steel prices reached a record high in June-September 2008 and crashed to December 2007 levels in less than three months. Not only are the prices affected but also the delivery times as steel mills are starving for new orders and the lead times on new orders have reduced dramatically.

The decrease in raw materials and component costs coupled with the on-going government support extended to green energy industry is likely to sustain the demand for wind turbines but, Frost says, it is paramount for the industry to maximize the performance of the existing assets and address the remaining technical issues. In doing so, the wind industry is likely to emerge stronger and fitter when the crisis is over.

“The industry seems to be heading from the overheated undersupply state into a supply-demand equilibrium if not into a state of having spare production capacities and thus having to fight rigorously for the new orders still remaining in the market,” said Gouri Nambudripad, a research analyst. “We are going to see a slowing down of the double-digit growth rates that were witnessed in the past few years. Some market players are reducing their aggressive production and development targets and this is going to trickle down the supply chain.”