Hyderabad, India — While 2011 figures have yet to come in, we know that the global small wind turbine market grew from 105.9 MW in 2006 to 275.8 MW in 2010. GlobalData’s recent report – Small Wind Turbines (less than 100kW) – Global Market Size, Analysis by Power Range, Regulations and Competitive Landscape to 2020 – predicts even higher growth in the coming years, spurred by increasing incentives announced by various governments and by growing end user awareness. End user price is the most crucial factor affecting the growth of the market in both developed and developing countries. Also important are rebate programmes, property tax exemptions, financial incentives, annualised net metering and permitting issues.
According to the World Wind Energy Association (WWEA), it is difficult to assess the total number or capacity of small wind turbines, but in China alone there are roughly 300,000 small wind turbines generating electricity. In the US, the small wind turbine market grew 53% in 2010 to reach US$139 million; installations totaled 25.6 MW, up from 20.9 MW in 2009, according to a report by the American Wind Energy Association (AWEA). RenewableUK identifies over twenty manufacturers of small wind turbines in the UK alone.
The payback period of a small wind turbine is a major aspect of owning a system. This period depends largely on wind resource quality, tower height, siting, prevailing energy costs and turbine performance. Against this backdrop, with increasing incentives by governments and increasing energy security concerns, the report predicts that the small wind market will grow significantly from 275.8 MW in 2010 to 3726.5 MW in 2020 at a CAGR of 29.7%.
Global power generation from small wind turbines increased from 119 GWh in 2006 to 310.3 GWh in 2010 at a CAGR of 27.1%, and is expected to increase from 310.3 GWh in 2010 to 4203.8 GWh by 2020 at a CAGR of 29.8%.
The report assesses the cost of building a wind turbine according to its type, size, design and location. Installation cost is affected by the costs of construction, transportation, location, maintenance and transformers.
Of the major cost components, up-front or capital cost constitutes the primary cost of the wind turbine. Other components of the up-front cost include, for example, the cost of electrical equipment, grid connection and foundations. Up-front and capital costs constitute about 75%-90% of the total wind farm development cost depending on the speed of the wind, the supply of wind turbines in the market, and the arrangement of the wind turbines in the farm.
Land cost or land rent is the second largest component of wind energy development, constituting about 4% of the total cost. Other identified costs relate to electric installations, consultancy, financial costs, non-electrical infrastructure and control systems. Further development is hampered by a lack of available small to medium sized turbines. The factors contributing to this limited availability are: a focus on the development of large turbine models which have a greater worldwide demand; a lack of hardware availability due to shortages of raw materials; and difficulty in obtaining certification for establishing new or additional manufacturing capacity.
Installation costs include transportation, construction and interconnection cost. Transportation costs differ with the size of the tower: the larger the tower, the greater the transportation cost will be. New tower technologies such as self-erecting designs are in development and have the potential to bring down transportation costs.
Turbine value is also affected by the cost, availability, and supply of spare parts. Some turbine components, such as gearboxes, require regular maintenance. The maintenance requirement and hence the cost of such components also depends on their design.Tough turbines are designed to operate in extreme weather conditions but they involve a tradeoff, such as lower efficiency and higher cost. Thus the cost of operating a wind turbine differs according to weather conditions or location.
Global Market Share
Many companies are currently manufacturing small wind turbines. Globally there are over 250 manufacturers of turbines with a rated capacity of less than 100 kW. In 2010, Southwest Windpower of the US sold up to 21.1% of the total number of small wind turbines sold worldwide. Northern Power Systems with 17.7% and Entegrity Wind Systems with 8.2% are followed by Southwest Windpower. Bergey Windpower stands at fourth with 3.9%. As the small wind turbine market is highly fragmented, other manufacturers’ total market share stands at 45.2%.
Proven Energy Ltd of the UK was in fifth place, with a global market share of 3.9%, throughout 2010. In late 2011, however, the company entered receivership after the discovery of a technical fault in its flagship turbine model, the Proven 35-2. According to the company, the main defect was in the manufacture of the rotor shaft, because of which blades could fly off under high wind speeds causing severe safety concerns. It is estimated that Proven Energy sold around 500 turbines of the Proven 35-2 model, which has an average supply and installation cost of approximately £60,000 (US$92,796). This technical snag and the subsequent call by the company to shut down systems led to both capital and revenue losses for end users (an average lost revenue of £8538 ($13,292) per day). The total estimated capital cost lost by end users (agricultural sites, commercial premises and small wind farms) on their investment is around £30 million ($46.7 million). Receivers KPMG sold Proven Energy’s business and assets to Kingspan Renewables Ltd in October 2011.
The Proven Energy crisis will be an eye-opener for other companies operating in the same market space, and there will be greater emphasis on quality from the consumer end and more government scrutiny involved in the certification of small wind turbines in the UK. On a macro level Proven Energy’s problems illustrate the dependence of FiT projects (usually agreements valid for over 20 years) on the long-term sustainability of their technology. This brings the longevity of turbine manufacturers to the foreground, and this requirement could become an entry barrier to new players.
Key Global Market Drivers
Financial incentives and government policies are the main drivers for wind uptake. Governments have introduced or are in the process of formulating policies to promote renewable energy development, which is the main force behind the explosive growth of the wind power market worldwide. There are three main markets for small wind technology.
In the US, the wind market is primarily driven by federal tax credits and state-level RPS, the key regional market on the continent. PTCs have traditionally played a vital role in boosting US wind power capacity, making the country the largest wind power market in the world. The extension of PTCs for three years and the introduction of federal ITCs in 2009 are expected to fuel the growth of wind installations in the US. High up-front cost has been the major concern among small wind power users. Financial incentives reducing installation and operation costs are the key to stimulating interest among buyers. The introduction of ITCs is expected to give a huge boost to the small wind industry, while policies targeted at reducing investment costs will be effective in increasing mid-sized wind installations.
Following the EU’s Renewable Energy Directive (RED), which set a binding 20% renewable energy target by 2020, renewables should provide 35% of Europe’s power by that year. Wind power is expected to benefit the most from the RED as Europe has the resources and technical expertise in this area to take advantage of the legislation. Other country-specific measures for promoting wind power have also played important roles in the development of the industry in Europe. For instance, financial support under the Renewables Obligation (RO) is a driver in the UK’s wind power market.
In the Asia Pacific region, government support is also driving wind energy growth. China’s installed capacity has doubled every year since 2006, due primarily to supportive government policies. In 2006 the government introduced the Renewable Energy Law which has driven the Chinese market to date. This law, along with other policy measures such as the Medium and Long-Term Development Plan for Renewable Energy introduced in 2007, is driving the market even further. Additionally, many states in India also have FiT schemes and RPS in place, and many states are adopting these policies to drive wind energy growth.
Lack of sufficient grid infrastructure, administrative hurdles and supply chain bottlenecks can hamper the growth of the wind market. In terms of the grid, upgrading old electricity infrastructure and the construction of new infrastructure to meet future transmission and distribution demands will be a major challenge for wind power development. The development of a new grid infrastructure requires massive investment and time, which could decrease wind power growth in the medium term. And wind farms are usually developed in far flung areas that are sparsely populated and do not have adequate transmission lines to connect their capacity to the grid; this has led to idle capacity in many countries such as the US and China.
Complicated zoning requirements, the lack of tax credits globally, unsatisfactory product performance, supply chain issues and the lack of net metering policies in many countries for small- to medium-sized wind will be the key challenges restricting growth in the future. Poor permitting practices and unnecessarily restrictive regulations are the major market barriers discouraging customer interest and investment. Streamlining the permitting process will be crucial in ensuring that the growth of wind installations is not hampered due to administrative issues.
In addition, the rapid growth of the wind energy sector worldwide has put unprecedented pressure on manufacturers of turbine components such as towers, rotor blades, gearboxes, bearings and generators. For some years the industry has been struggling to keep up with this ever-increasing demand. There is currently a lead time of up to two years for developers of wind farms to wait for the required equipment.
Major Market Trends
The small wind market is relatively less mature than large wind, with the US being the only country with a considerable presence in the small wind sector. With a significant number of small wind turbine manufacturers worldwide, the intensity of competition currently remains at a medium level. This presents an opportunity for new players to capture the market, thus competition is expected to intensify in future. Small wind turbines are mainly purchased by homeowners and small businesses. Price sensitivity for this segment remains considerably high, as the cost of installing a small wind turbine is directly comparable to costs associated with fossil fuels and other forms of renewable energy. High up-front costs have been a major barrier restricting small wind uptake.
As the small wind industry grows, companies are becoming more conscious about building a good brand name. In the last few years GlobalData has found many instances of manufacturers making false claims about turbine performance and quality standards. This has led to an increase in end user preference for maintenance and warranty periods. With certification agencies establishing performance standards and certifying turbines, it is expected that maintenance requirements will decrease.
The impressive future growth rates projected for the 50-100 kW turbine market will put a huge strain on the supply chain, and leading companies will need to invest more in their manufacturing facilities to meet rising demand. The policy attractiveness for small wind systems is rated as low, as government support is present in just a few countries such as the US and the UK. With a shifting of interest and policy support towards large capacity wind turbines, policy attractiveness for turbines rated at less than 100 kW will be low in future. Capital investment costs remain relatively high compared to volumes due to the sophisticated technology required for small wind turbine production. Furthermore, investment potential in the sector is seen as medium due to rising demand for large turbines. As a result, small wind will witness decreasing interest among the private equity community, and this will result in low investments in small wind turbine companies.
Raghunandan Kothamasu is an analyst with the alternative energy team at GlobalData.