London, UK [Renewable Energy World Magazine] BTM’s International Wind Energy Development — World Market Update 2008, was published in March 2009. This detailed report summarizes the key movements and statistics from the wind industry over the last year, and also offers predictions for the likely performance of the industry in forthcoming years. What follows is a brief summary of some of BTM’s conclusions.
The growth of the wind industry does seem to have been something of an ‘irresistible force’ in recent years; this certainly continued in 2008. Over 28,000 MW of wind power were installed worldwide during the year, an annual growth rate of 42.4%, bringing the cumulative installed capacity to 122,158 MW, an increase of 30%. See Table 1, at the end of this article.
Following a small dip from 2003 to 2004, this is now the fourth consecutive year of rapid increase, and by some distance the highest ever annual installed capacity. More capacity was installed in the single year of 2008 than in the three years from 2003–2005 combined.
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The previous year’s BTM Report recorded that in 2007 electricity generation from wind power had finally reached 1% of the world’s total demand, up from one tenth of this figure a decade before. This year’s forecast is that wind will supply about 1.3% of global electricity demand. Naturally the actual amount varies hugely from country to country; for Europe as a whole, wind energy now comprises about 4% of electricity supply, for Germany this is about 8% and for Spain about 11% (and in some regions it is significantly higher than this, of course). Conversely, there are also many parts of the world with currently little or no wind power installed.
However, the credit crunch has presented something of an ‘immovable object’. Lehman Brothers had invested quite heavily in a range of wind projects and companies; their collapse in September 2008, the most eye-catching moment of the credit crunch so far, showed conclusively that wind energy was never going to be immune from the overall financial turbulence.
The effect of the crunch can be clearly seen in documents such as the UNEP ‘Global Trends in Sustainable Energy Investment 2009,’ prepared by New Energy Finance. Investment in sustainable energy in the second half of 2008 was 17% lower than in the first half of the year, and 23% lower than the equivalent period in 2007. Investment via the world’s stock markets was even more sharply hit, with 18 initial public offerings (IPOs) by clean energy firms in 2008, raising US$3.6 billion (€2.5 billion), compared with 48 IPOs raising $13.6 billion (€9.5 billion) in 2007.
These are very sobering decreases. How did these two contrasting currents interact in 2008 for the wind market? While the overall figures for the wind industry are still very encouraging, such as the headline figure for newly installed capacity, there have been some significant, if quite subtle, changes beneath the surface.
The Demand Side
Within the overall growth of 42% for the year, there was a significant difference across the regions. Following the extension of the Production Tax Credit in the US, numerous installations got underway. The total figure for the Americas of 9527 MW installed, represents 33.8% of the global installations for the year and puts it ahead of the figure of 9179 MW (32.6% of the total) achieved in Europe. South and East Asia saw very rapid growth, with 8201 MW installed (29.1% of the total), but with little activity elsewhere.
Within these figures, it is also worth noting that the US figure of 8358 MW installed is the largest ever total for a single country in one year. This also pushes the US up to the top of the ranking of countries by total cumulative installed capacity with 25,237 MW, overtaking Germany where 1665 MW of new capacity in 2008 took the total to 23,933 MW. This is the first time since 1996 that the US has had the largest total installed capacity.
Another notable figure was that for China. The installation of 6246 MW in 2007 represented an increase of 92% on the 3287 MW installed in 2006. It also more than doubled the cumulative installed capacity. This stood at 5875 MW at the end of 2007 and reached 12,121 MW at the end of 2008.
One other trend these figures indicate is slightly less concentration of wind generating capacity. While Europe has 54% of the total global installed capacity, this is falling as a percentage. Indeed, while the top 10 countries in the world now comprise some 86% of the global total, this is down by 2.8% on last year.
The other countries in the top 10 markets also show interesting variations, which are obviously masked in the overall figures by the exceptional growth in the USA and China.
Outside of Europe, on the one hand, India is now the third largest wind power market in the world, with 1810 MW installed capacity in 2008. While this is up by 12% on the figure for 2007 (1617 MW) it is almost identical to the 2006 figure of 1840 MW, showing an unusually stable pattern over the last three years.
By contrast, Australia reported a huge increase, with 615 MW installed in 2008, nearly three and a half times the installations in 2007, and representing a 63% increase in cumulative installed capacity from 972 MW to 1587 MW. The figure for installations is expected to drop back (possibly to 400 MW) in 2009, showing the volatility that can make the market for wind turbines so difficult to work in and plan for.
Within Europe, installations were down by over 40% in Spain (1739 MW installed in 2008 compared with 3100 MW in 2007) and they were almost flat in Germany with 1665 MW installed in 2008, compared with 1667 MW in 2007. While the two traditional powerhouses of the European market were not driving further market growth, there was progress in Italy, France, the UK and Portugal, all of which showed significant growth in installations in 2008 compared with 2007.
The Offshore Market
Progress on offshore wind projects continues to be slow. Offshore capacity contributed 347 MW in 2008, just over 1% of the total installed. This was all in Europe, with two projects in the UK, one in the Netherlands and one in Belgium. The 30 MW Thornton Bank project off the Belgian coast is noteworthy, as this consisted of six, 5 MW REpower machines, among the largest turbines currently being sold for commercial wind farms. With plenty of demand for turbines for onshore projects, and only two companies, Siemens and Vestas, with significant offshore experience at present, it has continued to be something of a “sellers’ market”.
There are some more encouraging signs, however. First, three new suppliers, REpower, Multibrid and Bard Engineering are entering the market to supply turbines for offshore use. Second, there are quite a few new contracts being signed, and an additional three projects with over 900 MW already under construction.
Turbine Numbers and Size
As expected, a record number of wind turbines, 19,873 machines, were installed in 2008. This is a 36% increase on the 14,595 installed in 2007 and nearly three times the 6747 installed five years ago in 2004.
The average wind turbine size is now 953 kW, relatively unchanged on previous years. Some markets have seen significant growth in the average size of wind turbines, but others have been very stable. Notably, in the USA, the average size has hardly altered over each for the last three years, with the figure for 2007 of 1667 kW, being essentially unchanged at 1677 MW in 2008. The market leader in the US continues to be the 1.5 MW machine for GE, which is smaller than the 2–3 MW machines often found in Europe.
By comparison, the average turbine size installed in China last year was 1220 kW, up 13% from 1079 in 2007 and 31% from the figure of 931 kW in 2006. The UK has the largest average size of turbine, owing mainly to the larger size of turbines which are typically used offshore.
These figures are always rather difficult to state with certainty, as definitive information on decommissioned turbines is hard to come by. BTM calculate that 121 turbines were decommissioned during 2008.
Trends in Established Markets
Consolidation in the wind market continues, as does the increasing prevalence of larger players from the power generation sector. On the corporate side, the Finnish company WinWind sold a substantial share of its business to the Masdar initiative from Abu Dhabi, which also stepped in to bridge the gap in funding of the 1 GW offshore ‘London Array’ project planned for the Thames Estuary when Shell pulled out during 2008. More characteristically, the multi-national power engineering company Alstom acquired the Spanish manufacturer Ecotécnia.
On the customer side, utilities are playing a larger role than before, with companies such as Iberdrola from Spain, Enel from Italy and EDF from France being more active than before. The Swedish utility Vattenfall has been increasingly busy in the market too, and early in 2009 agreed to acquire the production and supply arms of the Dutch utility Nuon (Nuon’s grid company Alliander is excluded from the deal). Of the larger non-utilities, both IPP Acciona from Spain and Babcock and Brown were very active in 2008; however, the Babcock and Brown parent company has gone into administration and it is not clear what impact this will have on their wind operations in coming years.
Vestas and GE Wind continue to be the two largest global wind turbine manufacturers. In 2007 they shared 39.2% of the total market, and in 2008 this was a fraction lower at 38.4%. However, within this, GE was able to take advantage of the very strong US market (where it has a 55% share) and increase its share of the world market by two percentage points, while Vestas, by contrast, saw its share in the market drop by nearly three percentage points.
This statistic, however, illustrates GE’s spectacular growth in 2008 rather than a weak performance by Vestas. After all, Vestas’s 2008 output was 24% up on 2007, an increase most companies in most industries would settle for; however, GE increased its 2007 output by nearly 60% in 2008.
Numbers three and four of the top 10 suppliers are still Gamesa of Spain and Enercon from Germany. They both lost significant market share — between them they had over 29% of the market in 2007 and this fell to 22% of the market in 2008. They both have very strong positions in their domestic markets, and, as we have seen, the Spanish and German markets were outpaced by growth elsewhere. Nevertheless, Gamesa increased their output by 10% over the year, though Enercon’s increase was just 1.3%.
Numbers five and six in the manufacturing top 10 are Suzlon from India, followed by Siemens. The Chinese company Sinovel has overtaken its compatriot Goldwind (which lies ninth) to rise to number seven in the world with Acciona of Spain in between them, and Nordex from Germany making up the last of the top 10. Two other key points are worth noting on the supply side. First, the Chinese market is dominated by the Chinese manufacturers, with foreign-owned companies only taking 25% of the Chinese market. Chinese manufacturer Dongfang takes the number three spot in China, and is on the verge of breaking into the top 10 in the world. However, Chinese companies have not yet started to export utility scale turbines.
Secondly, the market share of the world’s top 10 wind turbine manufacturers has decreased quite sharply in recent years. In 2004, they shared 96.1% of the market, with other manufacturers left just 3.9%. By 2008, the top 10 had 84.2%, with other manufacturers having been able to grow their share of the market from 3.9% to 15.8%. This phenomenon is largely due to the emergence of the Chinese manufacturers which have largely added to, rather than substituted for, other capacity. There are now three manufacturers (Dongfang of China, REPower of Germany and Mitsubishi of Japan) which each have between 2.9% and 3.7% of the market, some 9.9% between them. There are thus 13 companies in total with more than a 2.5% share of the global market; the next largest (Ecotécnia of Spain and Clipper of the USA) have less than 1% each.
Impacts of the Credit Crunch
One immediate impact of the financial crisis has been to accelerate the existing trend towards greater prominence in the market for large utilities, IPPs (independent power producers) and oil companies. Previously, much of the investment had come from the Danish and German model of private equity investment, usually tax-driven. In terms of cumulative capacity, the total market share of the top 15 operators has increased from 23% in 2003 to 36% in 2008. European utilities have been particularly active, with many using the wind industry as a springboard for activity outside of their domestic base.
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There are two main reasons for this utility activity, which continued in 2008. The first is the declining importance of subsidies for renewables, and increasing political pressure on utilities to include renewables in their generation portfolios. For instance, 28 states in the USA now operate RPSs (Renewable Portfolio Standards) which mandate their utilities to generate a rising percentage of their power from renewable sources.
The other main reason is that the increasing capital requirements, particularly of larger projects and offshore developments, have enabled cash-rich utilities to benefit, and to take advantage of their undoubted financial muscle. As an example, when turbine supply has been tight, turbine manufacturers have understandably favoured the safer, larger utility backed projects.
A consequence of this trend is that many utilities have set up separate renewables business units or subsidiaries. These are often also prepared to do the project work themselves, whereas historically utilities have tended to look to acquire completed assets developed by smaller, specialized project developers. For the manufacturers, they have the benefit of a clearer picture of the market, though a possible downside of more professional buyers willing and used to driving a harder bargain.
The financial crisis has had a number of other impacts on the sector as well. First, wind has undoubtedly been seen as a relatively safe haven for investment money, compared with many other sectors. However, financiers have become a lot more careful and rigorous in their assessment of projects, paying particular attention to the gap between output predictions and electricity actually generated.
On this, it is worth noting that if the crisis had hit a few years earlier, it could have had a much more severe impact on the wind sector. In recent years, many in the financial sector had finally come to understand the risks and revenue streams associated with the wind industry, which gives them a lot more confidence to stand by good-looking investments even in a harsher climate. This might not have been the case three or five years ago.
Another impact has been to slow down asset-based finance. A number of institutional investors and smaller IPPs have left the market. In the US and elsewhere, for instance, a number of developers have been forced to sell wind assets to raise cash in order to strengthen their balance sheets. This has allowed the larger, cash-rich companies to make significant acquisitions, and 2008 was a record year for mergers and acquisitions in the wind sector, of which 70% of the transactions happened in the last six months of the year.
A related development has been the emergence of an active resale market for turbines, particularly in the USA, as developers which ordered them under large framework deals have found themselves unable to use them. Turbine supply has started to ease for the first time in four years and this is likely to put some price pressure on leading turbine suppliers in 2009, and likely to lead to slightly lower growth rates than before.
Finally, the tighter availability of credit has also meant that higher equity input is often required for projects, and the trend has therefore been towards larger syndication groups with several partners working together to spread the risk. This has been particularly true for offshore projects. It has also meant finance companies that might just have looked at larger projects are now also considering smaller ones.
One of the traditional features of the BTM report is their considered forecast for the next five years. This year’s forecasts must have been particularly difficult as they have had to judge the impact of both the ‘irresistible force’ of the drivers behind the industry and the ‘immovable object’ of the financial problems.
Driving the wind industry forward is political action in response to climate change. The outcome of the COP-15 meeting in Copenhagen in December this year will be crucial and could result in a significant stimulus for the industry. Similarly, the adoption by the EU of the Renewables Directive — requiring 20% of total EU energy supply to come from renewables by 2020 — imposes on member states a need to formulate NREAPs (National Renewable Energy Action Plans) to outline how they plan to do this, and then to implement them. Wind is one of the proven ways to achieve significant percentages of renewable energy, and countries that are a long way short of their potential can be expected to plan for major expansion of their wind capacity.
Of course there are other factors that influence the economics of wind energy. One important one is the overall energy context. In 2008 the price of a barrel of oil nearly touched $150 (€105). It fell back to finish the year under $50 (€35) and dropped to just over $30 (€21) at the end of the year, before rising again to its current range of between $60 and $70 (€42–€49). However, in their World Energy Outlook, the normally conservative International Energy Agency forecast that the price of oil could increase to $200 (€140) per barrel by 2020.
The credit crunch has been a factor, however, in balancing supply and demand, and taking some heat out of price rises. During several years of high demand, manufacturing prices over 2005–2007 rose by nearly 40%, partly due to rising material prices, but also as manufacturers took advantage of demand to ensure their profitability. More recently, however, turbine prices appear to have stabilized and prices in 2008 were largely unchanged from 2007, and likely to remain so in 2009.
Taking all these and numerous other factors into account, BTM estimate that the industry can expect an average annual growth rate between now and 2013 of 15.7% per annum, giving an annual average growth of cumulative installations of 22.9%. This will grow the 28 GW of capacity installed in 2008 to more than 58 GW by 2013. It will roughly double the cumulative total of installations from over 122 GW at the end of 2008 to 233 GW at the end of 2011, and roughly triple it to 343 GW at the end of 2013.
It looks as if in this case the irresistible force is going to shift the immovable object.
WINDFORCE 12 PREDICTIONS