London -- In its latest analysis, the BTM Report discloses that despite the economic downturn and concerns that the subsidy-backed wind industry may founder with the failure of any significant outcomes at Copenhagen, the sector has continued to confound expectations by posting yet another record result.
Strong growth, record installations
After several years with strong political backing, the mood both of politicians and the public towards renewable energy changed significantly in 2009. First, and most obviously, came the economic downturn; belts were tightened, and investment became harder to find. Later in the year, in the run up to the much anticipated Copenhagen summit, public scepticism about climate change grew in the wake of the ‘Climategate’ leaked emails, and lobbying by various interests to weaken any outcome from the summit.
Wind energy has sometimes appeared to be dependent on such political backing, and often seen as something of a luxury when it comes to finance. Would 2009 turn out to be a year when the growth of the industry slowed down?
The answer from the latest annual BTM report: ‘International Wind Energy Development – World Market Update 2009; Forecast 2010-2014’ is an emphatic ‘no’. This industry benchmark document – produced and published by BTM Consult ApS of Denmark – reports new capacity installed in 2009 grew strongly with record installations of 38 GW worldwide; underlying this were some significant changes to the shape of the global wind industry, particularly with the rapid rise of Chinese manufacturing. Elsewhere, despite the absence of a comprehensive climate deal at Copenhagen, prospects for the industry in several different parts of the world look good, and the BTM report forecasts strong growth for the industry in the next five years and beyond.
Wind capacity and output in 2009
In 2009, a total of 38,103 MW of new wind installations were recorded, with the total installed global wind power capacity now standing at 160 GW. This represents an increase in cumulative installations of 31%, and a 35% rise in the rate of annual installations. This was the fifth year in a row with record installations, albeit a slightly lower rate compared with the 42% achieved in 2008.
However, the global pattern has shifted significantly, with both the US and particularly China seeing very strong growth in 2009. Europe maintained a steadier rate, but with 28% of the market it now represents a lower share of the 2009 global installations than either South and East Asia, which had 39% of the overall market, and the Americas which had 30%. Nonetheless, the European cumulative total is still nearly 48% of global capacity.
The most striking figures are those from China. For the second year in a row it has witnessed an explosive growth rate, installing 13,750 MW and more than doubling the cumulative installed capacity in a single year, which has now reached 25,853 MW. This now makes it the country with the second largest installed wind capacity after the US and just ahead of Germany. Considering that almost all of this has been installed in just the last two years, this is an eye-watering figure. China’s initial target was to hit 10,000 MW of wind by 2010 – this was overtaken in 2008; it’s new target is for 15% of its electricity to come from renewable sources by 2020 and to have 100 GW of wind by this time.
It will be interesting to see if it achieves these targets. Given the current rate of installation, it might appear that 100 GW of wind by 2020 is unambitious. However, there are uncertainties to the current picture. The most significant, as anybody would expect, is whether the current electricity infrastructure can cope. It’s not known whether all of the capacity that has been built has yet generated any electricity as official sources have shown that around 30% of the cumulative capacity at the end of 2008 was still awaiting a grid connection. Second, the best wind resources tend to be some way from the main load centres on the East coast which will further stretch the demands on the transmission network.
The Americas were the regions with the second largest installations over the year. Most of these, not surprisingly, were in the US where 9922 MW was installed, nearly a 20% increase on the previous largest year of 2008. The Obama administration’s stimulus package, the ARRA (American Recovery and Reinvestment Act) introduced in February 2009 gives the option for a capital investment grant through a new Investment Tax Credit, and the existing PTC (Production Tax Credit) has been extended by three years.
While three states, Texas, Indiana and Iowa, account for 41% of installations (and Texas, with 9410 MW installed would rank fifth in the world if treated as an individual country) no fewer than 28 states had installations in 2009, with 13 states now past the 1 GW installed milestone. As the BTM report puts it, the political climate is positive if uncertain; the Clean Air Act is awaiting Senate approval, and the American Wind Energy Association is lobbying hard for a Federal Renewable Portfolio Standard with a mandatory rising percentage of renewable electricity. These could be very positive developments for the wind industry in the US.
Elsewhere in the Americas, the Canadian market also had record installations in 2009 with 950 MW, up 80% on the previous year, and with an additional 4000 MW planned. More encouragingly in many ways have been more significant developments in Brazil (248 MW), Mexico (121 MW) and Chile (94 MW). While Brazil has fallen well short of its original target of 3300 MW by 2005 (it currently stands at under a third of that) plans for an additional nearly 500 MW are in progress.
The European market saw a total of 10,738 MW installed, a 17% rise from the 9179 MW installed in 2008. However, the growth was much more evenly spread; the traditionally strongest markets of Spain (2331 MW) and Germany (1917 MW) both saw reasonable new capacity being installed. However, in addition France, Italy and the UK each installed over 1GW, and Portugal (645 MW), Sweden (512 MW) and Turkey (472 MW) also put in significant new capacity. Poland, Romania and Bulgaria also saw strong development, as did the Baltic states.
Other significant markets had a mixed year. India, for instance, saw a decline in new capacity to 1172 MW (from 1819 MW in 2008) after four years of growth. Nonetheless, cumulative capacity is the fifth largest in the world at 10,827 MW. Recent changes in the support mechanisms, particularly the introduction of ‘Generation Based Incentives’ (GBIs) – a version of feed-in tariffs – is designed to attract more investment for the industry and lift annual installations towards 3-4 GW a year.
Australia, too, saw a decline in 2009 with just 300 MW installed, down from 615 MW in 2008. However, there is still plenty of capacity in the pipeline, and optimism that significant new development will start soon. By contrast, New Zealand had a good year of growth with 143 MW installed, adding nearly 50% to the total installed capacity and bringing it up to 467 MW.
North Africa also saw a reasonably strong level of installation, with Egypt leading the way with 168 MW (up from 73 MW in 2008) and bringing the total installed up to 552 MW. Furthermore, Tunisia more than doubled its installed wind with 97 MW, and while Morocco experienced a fall from 82 MW in 2008 to 47 MW in 2009 that was still a near 25% increase in installed capacity. However, activity levels remained low elsewhere in the world.
Turning specifically to offshore, progress in development is still modest. While the installed capacity of 689 MW in 2009 was double that of 2008, and cumulative installations passed the 2 GW mark, this still represents only about 1.25% of the total world capacity. With the exception of 63 MW in China all the commercial offshore wind is in Europe, with the UK and Denmark responsible for two thirds of it.
The offshore industry continues to experience supply constraints. There are relatively few manufacturers in the market, and there has been some upward pressure on turbine prices and longer delivery times which have slowed the pace of development. However, with many new projects planned, including some in China, elsewhere in Asia and North America offshore wind is expected to grow to about 15.5 GW by 2014, representing some 3% of total installed capacity expected by then, albeit making up 5% of new capacity installed in the next five years.
The supply side
There have been continuing significant shifts in the supply side of the industry, particularly in terms of market share. Most striking of these has been the rise of Chinese manufacturers. There are now three Chinese companies in the global top 10 – Sinovel, Goldwind and Dongfang. The two market leaders continue to be Vestas and GE Wind, with 12.5% and 12.4% of the global market respectively – 24.9% between them. Despite these companies both having grown their output significantly, the rapid rise of Chinese manufacturers has led to a significantly lower market share for them. In 2008, Vestas and GE Wind shared 38.4% of the market between them.
The three Chinese manufacturers listed have all shown spectacular growth, but all are almost entirely dependent on the booming domestic market in China. Sinovel supplied 3510 MW in 2010 raising its share of the global market from 5.0% to 9.2% and making it the third largest wind turbine manufacturer in the world . It is also worth noting this more than doubled its entire previous supply of turbines; it also exported 10 of its 1.5 MW turbines to India – and several of the other Chinese manufacturers also recorded small export orders as well.
The two other Chinese companies in the top 10 experienced very rapid growth too, with Goldwind installing 2727 MW in 2009, a 140% increase on 2008 that saw its market share rise to 7.2%. Dongfang entered the top 10 with installations of 2475 MW, or 6.5% of the global market, also seeing output more than doubling.
Above: BTM expects continued significant growth in the global wind market,
taking annual installations to 71 GW by 2014
Another continuing trend was the fall in market share of the top 10 global manufacturers. Back in 2006, the top 10 collectively claimed more than 95% of the market, but this has fallen steadily since then, and in 2009 they covered 81% of the market, with other, smaller manufacturers now taking 19%. There are various reasons for this; one significant one is that most manufacturers have only regional coverage, with Vestas as the only company that can really be called a global supplier. As new markets emerge, this can give opportunities for local companies to grow to occupy these markets – this can most clearly be seen in China, but also applies to some extent to companies such as Clipper in the US, standing just outside the top 10 manufacturers and whose output was essentially all used in the domestic US market.
There has been a small increase in the average size of turbines. It has climbed to just under 1.6 MW, with most of the increase again caused by factors in China. The most common machine on the market there is now the 1.5 MW class turbine. Averages have risen slightly in Europe and the US as well. Turbines in the 1.5 – 2.5 MW class now make up nearly 82% of the market.
Another notable trend mentioned in the report is the increased supply of direct drive wind turbines. Europe’s Enercon has now been joined by Goldwind in China, with Siemens following suit as well – see page 67. As a result, direct drive machines had a market capacity of 14% in 2009, up from 12% in 2008.
Prospects for the next five years
Many people had pinned a lot of hopes on the COP–15 climate negotiations in Copenhagen to produce a legally-binding agreement for countries to cut carbon emissions. One element of this was expected to be an internationally-agreed price for carbon dioxide, which would have provided an immediate boost to the prospects for wind power around the world.
In practice, the outcome was a three page paper of which countries simply agreed to ‘take note’. While the political understanding of the importance of climate change continues to develop, there is very little action to back this up.
However, many countries have also agreed target emission reductions from fossil fuels used in electricity generation. Detailed work by the report’s authors shows that wind power will need to cover much of the promised reductions, particularly where there is a commitment to make these by 2020 - as the only mature technology capable of being rolled out fast enough to achieve this.
While the COP-15 did not lead to a step-change in the way that wind power projects are financed and developed, the shifts in the shape of the market, and the likely national trends analysed by the report, suggest that the wind industry can continue to grow at a rapid rate over the coming decade.
The growth in 2009 was achieved against a background of a global economic downturn. One very significant impact of this was a shortage of capital available to project developers. This has helped mark a change that BTM describe as being ‘from one of urgent enthusiasm to one of caution’ and they identify a number of trends caused by the financial crisis.
With smaller amounts and more expensive capital, and a fall in the price of fossil fuels, wind has often been seen as a less attractive investment than previously. This has slowed significantly the flow of asset-based finance and, as noted last year, some formerly-active independent power producers have been forced out of the market. However, this has opened up the market to utilities and others with stronger balance sheets.
While institutional investors looking for long-term investments have been attracted to wind, they have become more rigorous in their evaluation of projects. There has been a ‘flight to quality’ and soundly-structured projects have been able to move forward, though often as consortium deals - with a number of financial parties joining in to provide a shared-risk.
It is against this background that the report prepared its detailed forecasts for the next five years to 2014, and in outline for the following five years to 2019. Clearly, the political uncertainties in such forecasts are getting larger – the financial crisis on the one hand has provided something of a significant brake on development, while an agreed climate deal in the period would provide a significant acceleration. To arrive at their predictions, BTM consider each of the main regions, and countries within those regions, separately. They assess the likely policy and political support for renewables in general, and wind in particular, and also the potential available.
Continuing significant growth is expected, with overall annual installations forecast to rise from 38 GW per year to more than 71 GW by 2014. Much of this is likely to be in China, which will overtake both Europe and the US to become the top area for new installations. Offshore will grow, but perhaps more slowly than anticipated as the market waits for the larger 4–6 MW turbines to be proven. This should result in a healthy average growth rate for new installations of 13.5% per year, with the average growth rate for cumulative installations rising at 22.8% per year.
By any calculations, this makes wind power a significant business. While turbine prices have fluctuated a certain amount in recent years, rising in some years of high demand, but then falling back a bit with more capacity on a slightly weaker market, an average figure for the turnkey price for a MW installed onshore is about US$1.7 million and around $4 million for offshore. Allowing for a slight decrease in prices per year this suggests that total sales will rise from $75 billion in 2010 to $124 billion by 2014, and a cumulative total of more than $ 500 billion. Allowing for three quarters of the costs of an onshore project to be for the turbine, and a bit under half of an offshore one, this suggests a total global wind turbine market of $367 billion over the next five years.*
Looking further ahead, the report anticipates that the wind power industry will be better placed to benefit from economies of scale, and will no longer be so dependent on political drivers. Instead, it should largely be able to stand on its merits against other power generation technologies, particularly if there is an established, stable post-Kyoto framework.
Clearly any forecast this far out becomes a lot more speculative, but, pinning their colours to the mast, BTM suggest that by 2019 the global world market might reach 126 GW per year and total capacity of over 950 GW.
What would this mean for the contribution of wind power to global electricity generation? This clearly depends on two key factors – the growth in electricity demand during that time, and the likely energy generated by this installed wind capacity.
Last year’s BTM report headlined the fact that wind energy passed the landmark of generating 1% of the world’s electricity, and the growth in 2009 means that wind power generated 1.6% of the world’s electricity last year. BTM’s forecasts suggest that this will rise to something over 4% by 2014, and 8.4% by 2019. Beyond this date it should be able to contribute at an even faster rate and, if coupled with measures that act to curb the growth in electricity demand, wind power really could be a very significant contributor to a reduction of carbon dioxide output in the decades to come.
Back in 2000, wind power generated just 0.25% of the world’s electricity. That year’s BTM Report made the astonishing forecast that by 2010 wind could provide as much as 1.78% of the world’s electricity consumption. Many critics at the time thought this hopelessly over-optimistic. While the actual figure of 1.6% is 10% lower than this, it is strikingly accurate for a prediction made a decade ago. Assuming this year’s report is as accurate, wind power really should have a good chance of hitting the milestone of 10% of the world’s electricity by 2020.
*Readers should note, of course, the important disclaimer that this is a simple summary of a much fuller report which itself is based on numerous estimates and ‘best guesses’.
Figures and rankings within the BTM Report and reproduced above can only be taken as illustrative of a likely economic value and no more than that.
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