Project Development, Wind Power

Wild east: Wind power’s new frontier?

Issue 4 and Volume 10.

Wind energy in Asia is big and growing quickly. Indeed, along with North America, it is estimated to be the fastest growing region for new wind installation in the coming decades. Keith Hays and David Attwood give their predictions for the future of the Asia-Pacific wind industry.

According to a recent study from Emerging Energy Research (EER) entitled Asia-Pacific Wind Power Markets and Strategies 2006-2015, Asia-Pacific is emerging as the new frontier of the global wind industry, with the region expected to add over 46,000 MW of wind power in the coming decade (see Figure 1). In fact, the region’s market leaders – China and India – are expected to add over 41,000 MW between them by 2015. Together they will represent over 80% of the Asian wind market during the period. Japan and Australia will each add between 150 MW and 450 MW per year, followed by less developed markets in South Korea, New Zealand, Taiwan, Pakistan and the Philippines.

Despite its tremendous wind potential, Australia lacks a national policy to develop wind power VESTAS

‘The Asia-Pacific wind power market finds itself at the threshold of a new phase of large-scale growth,’ says EER Research Director Keith Hays. Combined with North America, EER predicts the region will account for most of the global wind power industry’s growth through the next decade. ‘Asia-Pacific will see an exponential scaling up of its wind power sector over the next five years from the size of wind turbines installed to the dimensions of utility and independent power producer (IPP) portfolios,’ says Hays.

The region reached a turning point in 2002 as the wind power industry began its rapid transition from an experimental, village-based market with relatively flat growth to a far larger market with much greater ambition (see Figure 2). Yearly growth began doubling, and projects of 10 MW or larger have now become the norm. Policies supporting renewable energy projects have attracted larger-scale energy players to participate in wind, increasing the viability of utility-scale wind.

 
FIGURE 1. Asia-Pacific wind power market forecasts

The Asia-Pacific region has enormous potential as a wind energy market and is now laying the groundwork to realize this growth. It features the world’s two largest countries by population, both of which are seeing rapid expansion and whose governments have set ambitious renewables targets, driven by booming demand coupled with supply security concerns. These countries are maturing towards a market-based energy sector, and the same is true of the environment for wind power development.

The coming years will see the consolidation of the wind industry in Asia-Pacific, as political will for wind is tested with the teething problems of new support systems and the challenge of upgrading an ageing infrastructure. Countries promoting wind energy will have to show resolve in incentivizing wind to cover looming generation gaps and add it to their overall portfolio planning.

India – wind power leader

With over 6 GW, India has the fourth-largest installed base of wind power in the world, and it is likely to pass 10 GW by 2009. The size of the Indian market, in terms of power demand and wind resource, combined with relatively strong political will behind renewables, firmly place the country as Asia’s wind power leader.


FIGURE 2. Wind power market maturity in Asia-Pacific countries

In the last few years, India has embarked on a gradual transition from a highly fragmented, private, generation-led wind power market to a more centralized, utility-scale industry, driven by independent power producers (IPPs). The implementation of new regulatory incentives and government development programmes are paving the way for a new level of growth in India as the country pushes to improve its energy independence and environmental record. However, the market will continue to face obstacles from both the technical capacity of the grid and the financial solidity of state electricity boards as off-takers, which will hinder the country’s ability to tap its significant growth potential.

India’s market environment for wind power is shaped by booming demand for cost-effective energy generation, stimulated by renewable energy policies. However, it is held back by bureaucracy and a lack of infrastructure. As a result, India generally presents a large, attractive opportunity for wind power development, but it is often complicated by a lack of local infrastructure and local challenges such as enforcement of power procurement regulations and permitting bureaucracy.


India is the world’s fourth largest wind power market and is set to be one of the key driving forces behind the Asian wind market SUZLON

India benefits from the region’s most robust local manufacturing operations, with three players firmly entrenched as turnkey suppliers and multiple entrants sizing up the market. Turbine procurement for captive generation projects has led to unique sales and production approaches for vendors compared with other markets where utilities and IPPs dominate the generation segment. The market is becoming increasingly competitive as demand begins shifting towards larger-scale developments with more sophisticated customers, and players must shift their sales and product strategies accordingly.

After a good year in 2006 in which around 1800 MW was added, India will retain its position as Asia’s leading wind power market in terms of total megawatts installed until 2015, when it will be overtaken by China. EER forecasts that this growth will continue at around 1500 MW to 1800 MW yearly, rising to 2300 MW until 2012, with the market surpassing the 10 GW installed mark by 2009.

China – emerging regional leader

China is rapidly evolving as Asia’s second major wind power centre, more than doubling installed capacity annually over the past four years in terms of new build. Led by reaffirmed goals for renewable energy and a centralized government push for a local industrial base, the country is beginning to scale up the industry from relatively dispersed projects to large-scale tendered concession wind farms owned by state generators. This scaling up is accompanied by the entrance of several foreign players, mainly turbine suppliers, competing for positioning in this growing local market with future export potential.

The bottom line for China’s wind market is that with explosive growth expected, a slew of new players are likely to crop up on the project value chain as developers, with frantic activity to create partnerships that capture this growth. While large utilities seek scale and vertical integration to create synergy and capture more project value, small to medium-sized firms will focus on niches and specialize on one or more segments in development, such as resource assessment, EPC contracting, O&M services and offshore siting. China’s development segment will become host to a wealth of international and local developers, all with their eyes on their 30 GW goal by 2020.

 
FIGURE 3. Top 20 Asia-Pacific wind players (megawatts owned), November 2006

China’s wind power generation market is led by the country’s five largest power generation companies (Hua Neng, Da Tang, Hua Dian, Guo Dian and China Power Investment Corporation). These firms are building large phased projects and portfolios of assets beyond their home provinces. Led by Long Yuan, they represent the major movers of China’s wind power market and are carrying out long-term build-out plans to solidify wind’s place in the generation mix (see Figure 3).

China finds itself in the midst of a major expansion period in which it aims to maintain the doubling in growth it has seen annually over the past three years. It will manage this growth by maximizing the competitive advantages of native industrial players, while phasing in competition from foreign players. In order to meet the demands of its targets, China will need a yearly installation rate of 2000 MW by 2010 at the latest.

Australia – developing market facing uncertainty

Australia, the Asia-Pacific region’s fourth-largest wind power market, is one of the most mature in terms of project development, with large-scale projects carried out within a European-like development environment. Despite this positioning, Australia faces a high degree of regulatory uncertainty, with low targets for wind power in a country abundant in coal.

As a result, the Australian wind power market finds itself in a tenuous position in which some individual states are stepping up to support wind while national prospects lag. Provided policy improves, Australia boasts substantial wind resources, complemented by a relatively transparent permitting process and well financed, experienced developers. Competition among developers, now focused on smaller state markets, concerns locking up one of the few power purchase agreements (PPAs) available under the current renewables targets, and turbine manufacturers compete to supply these sporadic projects.

As a country rich in coal resource, Australia’s market environment for wind development has been largely regulatory-driven. With a transparent planning system, a generally strong grid and a public supportive of wind facilitating a rapid build-out, wind targets will be met ahead of schedule. However, following the federal government’s refusal to extend support, development has slowed, with over 5 GW of project pipeline on hold as energy players await state-based incentives.


In addition to its rapidly expanding capacity, India is emerging as an important wind turbine manufacturing centre SUZLON

Although over 3000 MW of wind projects are approved in Australia, construction is dependent on state level incentives, due to weak political will from the federal government and the market’s reaching mandatory renewable energy targets (MRETs) with no renewal in sight. With the end of the MRET, future build-out is likely in Victoria and South Australia only.

Japan – regional pioneer slowing

Japan has seen its wind power base steadily grow to reach third largest in Asia-Pacific with over 1 GW installed through April 2006. However, momentum is faltering due to a combination of utility intransigence and challenging siting conditions. The market slid from its number two position in the region after 2004. Without increased political will to force through the acceptance of wind power by utility off-takers, the country will fall significantly short of its 2010 goal of 3000 MW.


China will be the most important wind market in the region, and one of the most important in the world NORDEX

Japan’s heavily consolidated development market is dominated by a few large industrial and power companies with vertically integrated wind arms, which have steadily gained experience at all stages of development. Foreign turbine suppliers had initial success as entrants to a unique market by using Japanese industrial groups as sales agents. However, they will see their position eroded as new local producers start to compete in this sector.

South Korea – challenged local market aiming for scale

The South Korean wind market is in the initial phases of wind power development, with modest growth prospects considering site characteristics and available territory. The country has seen limited development characterized by multiple micro projects and two large CDM-driven developments. However, the market is set to change after the South Korean government set ambitious goals for renewable generation, backing it with a generous feed-in tariff and R&D support. South Korea is unlikely to meet the country’s political goal of 2250 MW by 2011, due to the small size of sites, resistance from local ‘NIMBY’ groups and pressure on the grid. As a result, the government is assisting research into offshore sites that are expected to provide growth post-2012.

New Zealand – resource driven merchant-market

New Zealand is extremely rich in wind resources, with high speed sites available across the country. The government has not introduced any support for wind generation that is expected to compete with the hydro and thermal generation that makes up the majority of the country’s installed base. The country is expecting to see demand for power steadily increase, and with the increasing cost of other forms of generation, much of this will be met by wind development. The existing electricity market structure is highly vertically integrated. The retail and generation markets are divided between five companies that are able to hedge the price risk. These companies are building significant wind portfolios and pipelines. As a result of this internally sourced competition, independent developers have found it difficult to obtain PPA or development agreements on acceptable terms.

Smaller markets seeing a mix of rising and flattening growth

Beyond Asia-Pacific’s top six countries, other markets are piloting wind power or developing regulatory policies to diversify their generation base towards renewable technologies that include wind power. These markets are still relatively non-existent, with sparse amounts of new build and thin project pipelines. At the same time, improvements in regulatory policy and further support from state energy firms could potentially drive greater development activity.

Pakistan, the Philippines and Taiwan top this list of countries with diverse market environments that contain the potential for relatively sporadic project activity on a small scale. While Taiwan leads this group with large installations planned in its limited territory, Pakistan and the Philippines also boast individual project opportunities. If developers and governments can bring together the right elements to facilitate a profitable business model, these countries will raise their profile as significant regional demand centres.

Outlook

The Asia-Pacific wind power market finds itself at the threshold of a new phase of large-scale growth that, combined with North America, will account for the bulk of the global industry’s momentum through the next decade. The region will face substantial challenges based on the developing nation status of several of its markets, with infrastructural and liberalization constraints hampering growth. At the same time, new levels of political commitment, fueled by soaring energy demand, promise to drive the market forward, and the last three years of over 50% yearly growth have illustrated that the region is steadily working towards its wind energy targets, totaling nearly 80 GW among nine countries through 2020.


FIGURE 4. Wind power capacity added, onshore and offshore to 2015

Overall, Asia-Pacific’s growth will see a solid increase until 2010 (see Figure 4) as the market crosses the 30 GW point, including an increase in the number of players throughout the value chain, both local and foreign. Beyond 2010, the market will likely see increased consolidation as firms contend with pan-Asian competition and look to achieve economies of scale both domestically for utility-scale portfolios and internationally to tap diverse opportunities throughout the region.

‘The coming years will see the solidification of the wind industry in Asia-Pacific,’ says Hays, ‘as political will for wind is tested with the teething problems of new support systems and the challenge of upgrading aging infrastructure. Countries promoting wind energy will have to show resolve in incentivizing wind build out as part of their greater efforts to cover looming generation gaps, and add this new technology into their overall portfolio planning.’

Keith Hays is Research Director at Emerging Energy Research
e-mail: [email protected]

David Attwood is an Analyst at Emerging Energy Research


Asia-Pacific Wind Power Markets and Strategies 2006-2015 provides over 200 pages of market intelligence and competitive analysis of wind markets in Australia, China, India, Japan, New Zealand, Pakistan, the Philippines, South Korea and Taiwan. Key elements of the study include: country-by-country market forecasts and market environment rankings; key utility, developer IPP and turbine supplier competitive analysis; and top wind energy player profiles. For more information on EER’s new study, released in December 2006, see our website at www.emerging-energy.com.