A wind rush is sweeping the world, with record installations planned for this year and next. This June, worldwide wind capacity reached 215 GW, a rise from 17.4 GW in just a decade.
“It’s come a long way in terms of installed capacity, geographic diversity, the maturity of the technology, and the size of the turbines. Growth has been dramatic, with scope for further growth on- and offshore,” says Brian Smith of the National Wind Technology Center at the National Renewable Energy Laboratory, and former chair of the International Energy Agency executive agency on wind.
Just this year alone, 43.9 GW are expected to be installed, according to the World Wind Energy Association.
This article is the first in a comprehensive investigative series on the wind industry compiled for Breaking Energy. For more coverage across the week, follow the Wind Rush tag on the site and join the discussion on our Groups tab, where editors will be addressing the major issues in this multi-billion dollar industry.
The boom comes as great relief for wind developers and manufacturers who continue to weather the European debt crisis, battles in the US Congress over the budget deficit, cheap electricity prices after shale gas discoveries and almost universal low rates of economic growth.
But amid the boom, there are worrying signs of a slowdown in the market on the horizon. Last year’s market growth of 3.2 GW was the lowest level of installations since 2004, with year on year growth reaching only 3% last year, compared with 35% in 2009.
And just as storm clouds of economic and regulatory uncertainty gather on both sides of the Atlantic, Chinese companies are also waging aggressive price wars that extend the shadow of Solyndra to the wind sector.
United States: Cliff Caution
US developers are celebrating a bumper crop of installations in 2011 so far. By the third quarter this year, 3,360 MW of wind projects had been installed in the US, an increase of 74% from the first three quarters of 2010. The total US installed wind capacity now stands at 43,461 MW, generating around 3.25% of its electricity. Read more: On A Roll, Wind Developments Continue Cropping Up.
“The wind industry is a tremendous American success story,” said Denise Bode, CEO of the American Wind Energy Association on the release of the results.
But that success story could end abruptly with a low and dark time to follow in the US industry. The Joint Select Committee on Deficit Reduction attempts to cut federal spending in an attempt to reduce the US budget deficit, currently running at $14.96 trillion.
Tax credits to renewable energy projects could be the casualties of federal spending cuts. As a consequence, developers are racing to get blades turning on their projects before the critical Production Tax Credit expires at the end of 2012.
Analysts at IHS Emerging Energy Research (IHS EER) have identified 9,159 MW of wind projects targeting 2012 activation. At least 1.9 GW of wind power purchase agreements have been signed since August 2011. Engineering, procurement and construction contractors are reporting surges in demand for their services, while GE, the largest manufacturer in the US, has already filled its order book for the year.
But the industry is accelerating towards a cliff, says Matt Kaplan, associate director at IHS EER for the US market.
“The North American wind market is approaching a cliff. 2012 is positioning to be the largest installation year on record for wind energy. But there’s a lot of uncertainty as to what happens after 2013 because the PTC is set to expire.”
Kaplan says it is difficult to predict how far the drop will be for the industry without the PTC, as wind installations would drop to an average 2.3GW a year from 2013, with demand driven mostly by state-based Renewable Portfolio Standards.
“If we witness a period of very low growth in the wind industry it’s not going to be possible for all of the manufacturers to be able to weather the current market uncertainty or a prolonged wind development without the PTC.”
But one bright spot emerged last week when Republican Dave Reichert and Democrat Earl Blumenauer introduced the bipartisan American Renewable Energy Production Tax Credit Extension Act. The act would extend the PTC by four years, the longest extension of the tax credit to date, which would provide the certainty the industry needs, particularly for wind developers who create demand through the manufacturing supply chain.
“On the developers side, we’re already seeing several developers say that without the PTC in place it’s going to be difficult for them to continue building wind projects altogether,” says Kaplan. “That might shift developers to look for opportunities outside, perhaps in Latin America or Canada.”
Europe: 2020 Targets Head Offshore
Meanwhile, despite angst in Europe over the debt crisis and warnings of a double-dip recession, the wind industry has been buffered to an extent by the EU’s binding targets to source 20% of electricity from renewables by 2020. The European Union’s 2009 Renewable Energy Directive has helped bring 84 GW online by February this year, producing around 5.3% of the EU’s electricity. Projections over the next decade are stable. Read more: European Wind Sector Set For Growth.
“Although set to fall short of last year’s record growth by about 200 MW, wind energy in Europe continues to install at healthy levels and is expected to add close to 10.4 GW of new onshore and offshore wind capacity in 2011,” said Magnus Dale, European wind analyst for IHS Emerging Energy Research.
“We expect the sector to deliver another 89 GW by 2020, increasingly from offshore wind and repowering of older onshore installations. To players looking to capture part of this market, key challenges include increased financial uncertainty as well as revised legislative and political frameworks as governments across the region struggle to define how to reach ambitious renewables targets for 2020,” Dale said.
By contrast to the boom and bust in the US, Europe’s 2020 targets have been vital in developing a mature wind industry where developers and manufacturers can survive economic storms.
“The European wind industry hasn’t always looked the way it looks today,” says Dale. “Obviously, political support has been key to build out the wind capacity that you see today.”
Although Spain and Germany account for 57% of the installed capacity combined, France, Germany and particularly the UK are all driving the market for offshore wind.
In July, France announced 3 GW of offshore wind tenders, an addition to its existing commitments of 3 GW, with an overall target for on- and offshore of 25 GW by 2020, according to Ernst & Young’s renewables attractiveness indices 2011.
EDF Energies Nouvelles and Areva Wind, spinoff from France’s nuclear generation giants, are leading consortia that include Alstom, which already has supply agreements for its gigantic 6 MW turbines for the UK offshore market.
As at the end of June 2011, Germany’s offshore wind installed capacity was a mere 198 MW, even though it leads Europe with a total capacity of 27,214 MW in 2010. But in response to the Fukushima disaster, Germany’s plan to decommission its nuclear plants by 2022 has invigorated offshore wind opportunities.
Germany’s environment ministry and KfW Development Bank have launched a €5 billion program to provide financial incentives to offshore wind projects. Ernst & Young notes that a consortium of 16 commercial banks and the European Investment Bank have agreed to provide €1 billion in financing to build a 400 MW wind farm in the North Sea, scheduled for completion in 2013.
The UK has 4 GW of onshore wind installed capacity in operation with another 11 GW in the pipeline. The UK has approximately 1.3 GW of offshore wind capacity and 6 GW in the pipeline, with an overall target of 18 GW.
The goal for 2020 is for onshore wind installed capacity to reach up to 13 GW, despite the discovery through a freedom of information request that nearly half of all onshore wind farms are rejected at the planning stage.
China: Enter The Dragon
China added 19.1 GW last year, and 8 GW in the first 6 months of this year, putting it well on track to meet the country’s target of 100 GW by 2020. Despite a 48% global market share of turbine supply, even China has not been immune to market pressures, mostly of its own making, as supply has outstripped demand.
China’s assembly capacity surged by 50% to 30 GW between 2009 and 2010, while grid-connected installations increased by only 18.5%, according to an IHS advisory note shared with Breaking Energy.
Caitlin Pollock, China wind analyst at IHS Emerging Energy Research, said: “The Chinese government has done a good job of building up the wind industry. But the market has grown more rapidly than they anticipated.”
The Chinese government has done a good job of building up the wind industry. But the market has grown more rapidly than they anticipated.”
Oversupply in China’s domestic market caused average Chinese turbine prices to drop 17% between June 2010 and June 2011, to roughly RMB3.77 million ($590,000) per megawatt, she says.
As wind capacity has outstripped grid capacity, transmission companies have begun to invest heavily in grid infrastructure. China Southern Power announced that it plans to invest roughly $61 billion and State Grid Corporation, the largest utility in the world, aims to improve grid by investing approximately $371 billion between 2011 and 2015.
“The Chinese market likely won’t experience the growth levels that we’ve seen in recent years,” Andy Wickless, associate director of energy at analysts Navigant, said. “Lack of transmission infrastructure is a real issue. Historically transmission build-out has not kept pace with wind farm installations.”
Regulatory changes in permitting and technology standards in China have also cooled the market somewhat, says Pollock, with leading Chinese wind turbine suppliers suffering a sharp decline in revenue and profit during the first half of 2011.
“In the first half of this year we’ve seen several very stringent regulations come into place which are trying to rapidly consolidate the industry on the supply side,” she says. “The Chinese government is tightening the reins and we’re going to see a lot of change over the next year or so in that realm.”
Editorial Note: At the time of going to press, IHS Emerging Energy Research was still settling its most recent figures. The original text has been altered to reflect these latest figures.