Project Development, Utility Scale, Wind Power

European Wind Energy Market Overview

Trends in the European wind power market show significant shifts in wind plant ownership and wind turbine supply, according to a new study by Emerging Energy Research, a research and advisory company based in Barcelona, Spain, and Cambridge, Massachusetts.

The firm predicts the European wind power markets will grow at a measured pace over the next six years. Spain will remain as Europe’s main growth engine over the next five years according to the new EER study, while significant new growth is expected from other Southern European markets (Italy, Portugal, France), select Northern European markets (UK, Sweden) and emerging Eastern Europe. Overall wind power capacity in Europe is expected to more than double, from 40,605 MW in 2005 to 83,061 MW by 2011. Pan-European Competition Intensifies to Build Project Portfolios Expansion of Europe’s wind power base will increasingly be led by IPPs and utilities, as these firms build up their in-house development capabilities and leverage their balance sheets to facilitate project acquisition. The last four years indicate a clear shift in ownership from German private investors, which held over 50% of MW installed in 2002, to utilities and IPPs, which controlled 57% of the market in 2005, according to EER. Consolidation of wind plant ownership largely reflects the shift in market growth from Germany to other European markets where institutional investors and utilities own the lion’s share of MW installed. According to EER Research Director Keith Hays, “Looking forward, the bulk of wind power assets are likely to end up in the hands of firms whose core business is electricity generation, namely IPPs or utilities.” Europe’s wind power ownership rankings reflect the rise of new players and the emergence of a more diversified field of competitors in 2005 driven by major M&A activity. While Spanish firms continue to dominate due to large project size in a concentrated market, new finance players emerged and several utilities reshuffled their portfolios. “2005 was a big year for institutional investors, which began looking to assemble significant project portfolios,” says Hays. “These firms are buying equity in wind developers, as well as providing funding for project pipelines and individual project.” Companies such as Novera Macquarie, Viridis, GE Commercial Finance, and Trinergy all landed significant deals that they intend to build on over the coming years. Top 20 European Wind Players, MW Owned The pool of large-scale wind IPPs continues to narrow in Europe as consolidation continues to set in among this group of companies, according to the study. Large IPPs are looking both to fortify their domestic presences and to diversify markets with international acquisitions. Among top IPPs, Acciona Energia is closing in on the leaders with the acquisition of CESA in January 2006, moving the firm from around 1,230 MW at year-end 2005 to nearly 1,800 MW. Babcock & Brown grew significantly with acquisitions of Portuguese developer Enersis and a number of turnkey wind projects from Gamesa Energia. Meanwhile, utility pipelines indicate that wind portfolio rankings in Europe will change significantly over the next few years, according to EER’s new study. Several firms with current portfolios under 300 MW, including RWE, EDF, and ScottishPower, are set to add well over 1,000 MW, mainly from UK offshore. Other firms banking on major additions via offshore include DONG-Elsam-Energi E2, Statkraft, Essent, and Vattenfall. “As wind energy evolves as a mainstream generation asset, Europe’s wind project development market is seeing rapid change,” states Hays. “Developers now face cutthroat competition to obtain project permits or outbid competitors for acquisitions. Wind developer business models must quickly adapt to increasing market saturation, stronger competition, and repositioning on the value chain.” Over the next two to three years, it is likely that smaller 100 MW to 200 MW asset owners in Europe will be acquired by expanding utilities such as Iberdrola, while large IPPs like Acciona Energia and Babcock & Brown are likely to pursue similar deals as opportunities arise. With little greenfield potential remaining in Western Europe, these firms will also push east and deal with smaller develop-and-sell players when possible to add capacity. Component Shortages Reshape Supply Competition While intensifying competition and gigawatt size pipelines suggest an unstoppable boom, soaring global demand is putting a strain on European wind turbine supply. A seller’s market for turbines has emerged in Europe, constraining growth in some cases, according to EER’s study. Europe saw a rapid increase in average turbine size in 2005, as 60% of turbines shipped were in the multi-MW class. It is clear from both component supplier capacity statements and turbine buyer anecdotes that Europe faces significant supply chain bottlenecks for its increasingly voracious multi-MW demand, as it must compete globally with North American and Asian markets. Illustrating the increasing strategic value of in-house suppliers for certain components, turbine suppliers or their parent companies have made several acquisitions of Hansen Transmissions by Suzlon, Flender/Winergy by Siemens, and Weier by Vestas. “Until component supply becomes more aligned with market demand, European suppliers will continually reevaluate their supply chain positions and further acquisitions cannot be ruled out,” says Hays. “Finding the optimum degree of vertical integration versus outsourcing is a consistent challenge for turbine suppliers as they face shifting centers of demand.” The most salient trend in terms of market share shifts is the fragmentation of Europe’s turbine supply market in 2005 despite a previous trend toward consolidation in 2003 and 2004. The top four suppliers (Vestas, Enercon, GE, and Gamesa) lost a combined 9% market share between 2004 and 2005 to five smaller, second and third tier suppliers. This trend reflects the challenges manufacturers face in competing outside their home markets, while smaller, nimbler players with competitive pricing and appropriately sized machines are able to thrive on component shortages and incipient demand from less mature markets. Note: Not included: Acciona Energia acquired CESA for 577 MW in January 2006; Nuon sold off DESA in Spain (232 MW); 1Q06 figures not available for all companies. Diverse Market Growth in Europe Reflects Global Demand for Wind Power In the global context, Europe will remain the major regional market for the near term, installing at least a third of global capacity through 2011 at over 6 GW yearly. Growth is shifting away from Germany and Spain, according to EER’s study. In other West European markets the UK will add 4,700 MW of new wind power capacity in the next six years. In this same period, Italy is expected to add 3,900 MW, and France and Portugal, 3000 MW. Eastern Europe, boasted by Hungary, Poland, and the Czech Republic, is expected to grow its wind power capacity ten fold by 2011.