In 2007 wind-generated electricity accounted for over 1% of global electricity demand for the first time. With estimates showing it is likely to be worth $300 billion over the next five years, will this be the breakthrough to further rapid growth? Edward Milford reviews the latest BTM World Market Update.
Are you a ‘glass half full’ or a ‘glass half empty’ person? Reading the latest BTM World Market Update on International Wind Energy Development and the rapid progress the wind industry is making, the glass seems half full. The backdrop, though, is a steady stream of news on the energy and environment front which highlights the scale of the challenge faced by the renewable energy industry – and, despite the impressive achievements of the wind industry, the glass seems half empty.
One of the main headlines in the report illustrates this. In 2007 electricity from wind reached the important milestone of generating 1% of global electricity demand. International Energy Agency (IEA) figures show global electricity generation in 2007 at 19,189 TWh, the report’s calculations show generation from wind reached 194 TWh in 2007. On the one hand, this is a very impressive achievement; back in 1997, just 10 years ago, wind energy generation was only 15 TWh, barely 0.1% of the global total of 13,949 TWh. Growth by a factor of 10 in only a decade is surely a ‘glass half full’ achievement.
However, put another way, that 194 TWh of wind-generated electricity meets just 4% of the growth in electricity demand over the decade. If the world needs to aim for an 80% reduction in CO2 emissions by 2050, for one of the main technologies that can contribute to this achievement to have displaced only 4% of the growth in emissions over the decade just from electricity production (and none from heat or transport) might seem to be a ‘glass half empty’ moment.
So where has the wind industry got to? What is the overall state of the wind energy market? How much has it grown in recent years? What are the main trends, and what are the prospects for the coming years? All of these questions are dealt with in some detail in the authoritative annual wind energy World Market Update from BTM Consult ApS in Denmark. Their 13th edition, compiled up to March 2008, covers developments in the wind energy sector in 2007. The Global Wind Energy Council (GWEC) also compiles data, and issued its 2007 report recently. Unless otherwise stated, the figures used in this article have come from the BTM report.
Overall installations and geographical spread
With 19,791 MW of new installations, the total installed wind capacity grew to around 94,000 MW. New installations in 2007 are up 32% on 2006 and this is a third year of rapid growth following a 42% increase in 2005 and a 20% increase in 2006. Overall capacity is up 27%, again following an increase of 24% in 2005 and 25% in 2006. GWEC estimates the economic value of the global wind market in 2007 at about US $37 billion.
Collecting data for reports such as the BTM document, and importantly verifying it, is not an exact science and the data can vary between sources. GWEC, for instance, gives a figure for new capacity in 2007 of 20,076 MW. The main differences are in the figures for Spain, where the national association AEE (Asociación Empresarial Eólica) claims that 3522 MW of capacity was installed, rather than the 3100 MW figure used by BTM. In addition, provisional figures for China and India are used by GWEC.
One key area of variation is between the cumulative totals of turbines delivered to the market by the manufacturers, and those actually known to have been installed. There are always turbines in transit, and projects under construction and not yet commissioned. Note too that while figures for new installations are generally fairly reliable, accurate information on decommissioned turbines is harder to find, so cumulative installation figures will have slightly more uncertainty about them.
Geographically, there was strong growth in the US market, where the PTC (production tax credit), a key market driver, will stay in force until the end of 2008. The US installed 5244 MW in 2007, more than double the 2006 figure and increasing total capacity by 45%. This figure is the largest ever installed in one country in one year, beating the 3200 MW installed in Germany in 2002. With plenty of additional construction under way, 2008 should also be a good year for installations.
Elsewhere in the Americas, both Brazil and Canada saw significant activity on the development front. With 161 MW installed, Brazil delivered a 70% increase in total wind capacity. Meanwhile Canada, with 386 MW installed, recorded a 26% increase in its capacity. Only 23 MW was installed in the whole of the rest of the Americas, but the region nonetheless now represents nearly 30% of the world market.
The other area of very rapid growth was China; 3287 MW of wind was installed in the country in 2007, more than doubling the total installed capacity to 5875 MW. India also installed significant new capacity – 1617 MW, a 26% increase – as did Taiwan – 106 MW, a 90% increase. However, there was no activity anywhere else in Asia, but the explosive growth in China now means that South and East Asia accounts for just over 25% of the world market.
On a regional level, Europe is still the largest market, accounting for 8285 MW of installation, nearly 42% of the global total. Germany and Spain continue to be the largest markets, accounting for over half of the capacity installed in Europe. However, there was also significant growth in France (888 MW installed in 2007), Italy (603 MW), Portugal (434 MW) and the UK (427 MW), though in the case of Portugal and the UK, this was lower than expected, and in both countries a decline on the 2006 installation figure.
Interestingly, too, some countries with relatively low installed capacity saw very high percentage increases – Turkey, for instance, nearly tripled its total installed capacity in 2007, going from 76 MW to 225 MW. The Czech Republic, with a 128% increase to 114 MW, and Poland, where capacity increased 84% to 313 MW, also saw rapid expansion. This suggests that these countries could become important players in the wind energy market in coming years. At the other end of the scale, Denmark installed only 8 MW, just 0.02% of its capacity, and Austria installed just 20 MW, a 2.1% increase.
While Europe increased its level of installations, it is nonetheless notable that the growth elsewhere in the world leaves Europe with a lower share of the global market than ever before. Overall year-on-year growth in Europe has also noticeably slowed; the 8285 MW of new capacity was only an 8% increase on the 2006 capacity.
There was some activity in Australia (176 MW installed, a 22% capacity increase), Japan (229 MW, 16%), New Zealand (151 MW, 89%), and in Egypt (80 MW, 35%), but no significant activity in any other countries or regions.
One area that has not made much progress is offshore wind development. In total, 200 MW was installed offshore in 2007, a 23% increase on capacity at the end of 2006 and bringing the total installed to 1077 MW. This was entirely made up of just two projects, the 110 MW Lillgrund in Sweden, and the 90 MW Burbo Bank in the UK. All of this installed capacity is in Europe, spread between just five countries: Denmark, the UK, Sweden, the Netherlands and Ireland. (BTM does not include in these figures prototype installations that largely serve an R&D purpose. There are several of these, mainly in very shallow water, or close to the coast in Germany and Denmark.)
One feature of the overall market, with a particular impact on the offshore sector, has been strong demand for wind turbines. As a result prices have increased and delivery times lengthened. Add in the extra complexity of supplying turbines for use offshore and it is easy to understand why many of the manufacturers are somewhat reluctant to tackle this area.
At the moment, only Siemens Wind – which supplied the turbines for both Lillgrund and Burbo Bank – and Vestas have significant practical experience with offshore installations. GE Wind has not done any projects since the Arklow Bank installation in Ireland in 2003. However, a number of other companies have announced plans to enter the offshore market. These include REpower, Nordex and Multibrid.
Turbine numbers and size
Keeping track of turbine numbers is problematic. Though the record of commissioned turbines is usually fairly straightforward, there is no such clear recording of decommissioned turbines. A number of projects are also being repowered, with smaller turbines being replaced by larger ones.
Not surprisingly, 2007 saw a record number of turbines installed as well as record capacity. A total of 14,595 machines brought the overall global total to 97,211. The increase in average size can be established from the figures; the overall average size for a wind turbine is now 967 kW; those going in to the ground during 2007 were closer to 1.5 MW on average.
However, while this is a larger average size than in 2006, the slightly smaller size turbines more typically used in China, usually closer to 1 MW, mean that the increase in average size was not as pronounced as in earlier years. The average size of turbines installed is significantly larger, for instance, in Germany (where there are fewer sites with good wind resources left undeveloped) and the UK (where the average is boosted by the larger, offshore wind turbines).
Overall, turbines of 1 MW and more now dominate, with their market share of 96% well up on the 87% of 2006. It is also interesting to note that as recently as 2003 they represented less than half the installed capacity. Turbines in the ‘multi-MW class’ greater than 2.5 MW are slowly increasing their market share, with 5.3% of the market by capacity in 2007, up from 4.3% in 2006 and 2.4% in 2005. There are now also three turbines at 3 MW or larger in commercial use (the Siemens 3.6 MW, the Vestas 3 MW and the WinWind 3 MW). In addition, there are several multi-MW turbines under testing as prototypes; these include the E-112 4.5 MW turbine from Enercon – which also has a 6 MW version with a 126 metre rotor diameter – and 5 MW machines from Prokon Nord (Multibrid concept), REPower’s M5 and one from Bard currently testing in Germany.
Supply side of the market
As would be expected in a maturing market, there are considerable changes in the wind energy industry, particularly when viewed over a period of several years rather than in any one year in particular. The size of wind farms continues to grow, as does the size of the wind turbines which populate them. And, while offshore installations are only a small fraction of the current total wind market – with a roughly 1% market share – this sector is likely to have more influence in the years to come.
However, the key driver in the market has been strong demand. Prices have edged up, and many manufacturers are working to capacity. According to GWEC, for example, in the USA developers report that turbines are sold out for the year. Rapidly increasing oil prices, which are often closely followed by natural gas, serve both to increase turbine manufacturers’ own costs, and to boost demand so turbine prices are likely to continue to rise for some time. Component supply has also been a key issue for manufacturers in 2007.
Once again, there has been some shuffling in the top 10 manufacturers. Noticeable in 2007 is the inclusion of two Chinese manufacturers, Goldwind and Sinovel in the top 10, and a fairly sharp decline in Vestas’ market share. The Danish company increased its output but was expanding at significantly less than the market rate and so saw its overall share slip from 28.2% to 22.8%. The major turbine manufacturers by installation from 2005–2007 are summarized in Table 1 (above).
However, Vestas is the only manufacturer with a global presence – represented in almost all of the markets with a significant size (taken as over 50 MW a year). There is still evidence of good support for locally-based companies, with GE Wind having the number one spot in its home US market, and likewise Gamesa in Spain, Suzlon in India and Goldwind in China.
Interestingly, no Chinese manufacturers are yet exporting turbines. Longer term, manufacturing capacity in China is expected to reach 10–12 GW by 2010, according to GWEC, and with forecasts for domestic installations of around 6.5–7 GW in 2010, export is likely to become quite significant. The share of the Chinese market supplied by foreign manufacturers has fallen from 79% in 2004 to 42% in 2008, with domestic suppliers now meeting 56% of the demand and the small balance being met by joint ventures.
Prospects for the wind industry
There are numerous factors that influence the overall prospects for the wind industry, though in the end it is the economics that will be the deciding factor. The most important issues identified by BTM are:
- national energy plans and government support for renewable energy
- growth in the market, and the present dynamics of the industry
- assessment of wind resources and how they can be used
- technological development
- assessment of previous patterns of market development in similar markets
- information about specific large projects
- increased engagement of utilities and large energy companies.
Most of these factors are favourable for the industry at the moment. There is strong political support for wind energy, both as a carbon reduction measure, and for energy security. The market has seen very high levels of growth in the past three years and that is likely to continue. Furthermore, the increased engagement of larger companies brings with it more expertise to deal with the financial, engineering and supply chain problems that have been associated with rapid growth in the past.
Both BTM and GWEC have produced forecasts of growth in the wind industry between 2007 and 2012. BTM sees new installation rising from the 2007 figure of 19.7 GW to 50.7 GW by 2012, with a cumulative installed capacity of 287 GW. This represents an average growth rate for new installations of 20.7% per year, and an average growth rate for cumulative installations of 25.1% per year. Assuming this generated 605 TWh of electricity, this would amount to some 2.7% of world electricity generation using the IEA forecast of 22,571 TWh as the likely total demand in 2012.
GWEC’s forecast is slightly more modest, assuming that the final installed capacity in 2012 will reach 240 GW. This represents an average growth rate for new installations of 12.4% per year, and of installed capacity of 20.6% annually. Given that the market has been increasing by an average of 24.7% a year on GWEC’s figures over the past five years, this seems somewhat pessimistic. The industry trade body expects supply chain difficulties to limit growth, particularly over the next two years, though it does forecast more rapid growth after 2010, once the supply chain has adjusted to meet demand. This is, however, an almost 10% upward adjustment of its earlier forecast made in 2006 of 221 GW. It sees stronger than expected growth in the US and China, and the increase in Chinese-manufactured wind turbines taking some of the strain out of the current supply situation.
One key factor in both of these forecasts is the growth in the US. Any forecast for the US market will depend significantly on whether the production tax credit (PTC) gets renewed. At the moment, it is due to expire at the end of 2008, and past experience shows that non-renewal can slam the brakes on wind development. There is strong political support for an extension to the PTC, and Presidential candidates from both main political parties have made strong statements in favour of more renewable energy. Both the BTM and the GWEC forecasts reflect the US industry’s own view that the current PTC is likely to be renewed, though as of June 2008 this had still not happened.
The situation in China looks rather more clear-cut. The government has set out specific targets in a ‘Medium and Long-Term Development Plan for Renewable Energy’ in August 2007 requiring a 10% contribution to energy from renewable sources by 2010, and 15% by 2020 and combined this with a mandated market share. To meet these targets the government will invest about €200 billion, and the country will need to depend heavily on the wind industry. The BTM forecast for China is to reach 42.3 GW by 2012 which would be well ahead of the government’s own forecast. The industry already comfortably beat the government’s earlier target of 5 GW installed by 2010. However, overall demand for power in China may well exceed 1000 GW by 2020.
BTM also forecasts significant growth in Europe between 2007 and 2012, with offshore installations being a significant factor in the European market, but of limited application elsewhere. Spain and Germany will continue to be large markets (with repowering being common in Germany), though more rapid growth is expected in the UK (much of it offshore), France, Portugal and Italy. BTM expects Europe to remain the largest market, ahead of the Americas, and then Asia. GWEC, though, expects Asia to be the largest market, followed by the Americas and with Europe dropping to third.
BTM also provides a detailed assessment of the likely growth in offshore wind developments. It believes that such installations will rise from the current 1.1 GW installed to 8.1 GW by 2012. Almost all of this (7.4 GW) is likely to be in Europe, and offshore’s share of global capacity will be about 4% by 2012. Nearly half of this is likely to be in the UK. This is a slight downgrading of last year’s forecast, tempered by longer than expected permitting processes, and continuing issues getting access to suitable turbines – offshore projects often use the larger turbines, some models of which are not yet in serial production.
Looking beyond 2012 is a far more speculative business. Overall, BTM anticipates that the market demand will reach 104 GW per year by 2017. This would give an installed capacity of about 691 GW by 2017, roughly seven times the capacity in 2007. This could generate some 1573 TWh, or about 5.93% of the IEA’s estimate of 26,549 TWh of global electricity demand.
The main factors expected to influence the continuing growth of the wind sector are:
- continuing competitiveness of wind with fossil fuels
- increasing energy demand in Asia and South America
- deregulated markets will remove excess conventional power capacity and new capacity is likely to be more expensive than wind
- the economies of the Transition states (Russia and Central Asia) will start to grow
- many countries may find that they are well off their international CO2 reduction commitments, and need to install some new renewable capacity very quickly
- security of supply questions will continue to support wind power
- oil prices will continue to remain high, as will demand for fossil fuels.
The cost of wind turbines, and the price of the electricity they generate, will of course be the key driver in the way that markets develop. This is, to quite a significant extent, dependent on the policy framework and tax and regulatory issues that governments put in place. Nonetheless, it is still the vital ingredient for achieving the project finance that will enable wind to continue its current impressive levels of growth.
Earlier forecasts had assumed a level of price reduction associated with economies of scale. However, this has not happened, and in fact further price rises are likely to be seen. First, there is something of a ‘sellers’ market’, with rapidly growing demand chasing a not quite so rapidly growing number of turbines as manufacturing capacity lags. Perhaps not surprisingly, turbine manufacturers have been able to keep prices firm to ensure that they get healthy margins from their businesses. In addition, as with other manufacturing industries, the wind industry is also facing rising costs of raw materials, transport fuels and energy.
As a result, BTM anticipates that the turnkey price for onshore wind is likely to be of the order of US$2119 per kW, and offshore at $3654 per kW. Using these figures, total sales are likely to be some $56 billion in 2008, and this is likely to rise to $111 billion by 2012. This gives an overall value to the global wind turbine market at around $300 billion over the next five years. GWEC’s more conservative figure is similar, but slightly lower at $277 billion.
It is, of course, important to remember that an average price is an artificial one – there is no such thing as an average project, and there will be very significant variations from project to project. The purpose of the average is simply to illustrate the significant economic value of the wind business as a whole.
Economic projections are difficult at the best of times, when economies are relatively stable and a reference ‘business as usual’ case can be used. However, there are numerous signals that the world faces very turbulent economic conditions for a while – a credit crunch may make some project finance difficult, and the shortage of raw materials could lead to supply chain difficulties.
However, the rapidly escalating price of oil is focusing a lot of attention on the price of energy, and the hedge of electricity supply without a fuel cost is likely to become increasingly attractive to many companies and utilities. At some stage, rising fuel costs could lead to demand for wind energy becoming almost infinite.
While wind energy can still seem a small industry compared with conventional power generation, the achievement of 1% of world electricity generation is potentially significant. In individual markets such as Denmark, Germany and Spain reaching 1% has been a breakthrough figure, establishing a critical mass and being followed by further rapid growth in each market.
If the same pattern is seen with world wind energy demand, and the industry continues to establish itself as a significant player in the energy sector and pushes on rapidly to 3% of world electricity demand and beyond, then the glass should be seen as half full.
Edward Milford is former publisher of Renewable Energy World magazine