When energy executives begin to examine the wind industry, the first thing they are often struck by is its raw size.
The wind energy business is no longer a fringe activity for environmentalists. It has become a multi-billion dollar behemoth, providing huge amounts of electricity to some of the world’s largest economies. In the heart of the traditional oil patch in Texas, wind power has become a major player.
But much of the recent rush in wind has been led by public policy and only occasionally pushed along by unfiltered economics. The future is in renewable energy, policy makers believed, and they pushed tax credits and industrial policy and energy market structures to embrace wind, among other renewable energy sources.
For many reasons, recession and natural gas among them, the wind industry’s support among policy makers has faded somewhat in recent years. The industry is preparing to learn to live with less, but has a volatile short-term future to navigate.
The paragraphs below form an introduction to the Breaking Energy white paper Wind Rush, which can be downloaded with this post. Wind Rush originated as a series of articles on Breaking Energy that investigated the state of the business shortly after the first set of politically-backed renewable energy companies began running into financial trouble, trouble that would eventually bring down the ill-fated solar manufacturer Solyndra.
The articles have been collected, edited, updated and expanded to reflect the state of the industry in this crucial election year.
Read more about the wind industry on Breaking Energy here, download the White Paper above, and discuss wind energy with colleagues and competitors on Breaking Energy here.
Wind Rush 2012: The Updated Introduction
The global wind industry is in for a bumpy ride in 2012. Europe’s mature market reached cumulative installations of 93,957 MW. But amid the ongoing debt crisis, governments in the 27 member states are taking very different approaches to their wind industries.
Spain and Germany account for around 57% of wind capacity in Europe. But the new Spanish government elected in November last year has cut subsidies to new renewable projects in an attempt to curb the country’s $31 billion debt crisis.
Meanwhile, as Europe prepares for a common energy market from 2014, Britain continues to lead the push to develop offshore wind, with a target to increase offshore installed capacity from 4 GW to 18 GW.
Globally, European manufacturers are struggling against strong headwinds of a sluggish economy and market uncertainty in the US.
In January, Vestas, the world’s leading turbine manufacturer, announced it would make 2,335 workers redundant as part of a €150m restructuring program. If the Production Tax Credit expires at the end of this year, a further 1,600 jobs could be lost in the US, where the company has made substantial investments over the past several years.
Vestas says it will make a decision on its US presence based on the outcome of the PTC at the end of the year, but added that jobs at its Colorado facilities were particularly at risk.
The PTC has been critical in bringing US installed capacity to 46,998 MW, says North America wind energy analyst Matthew DaPrato at IHS Emerging Energy Research. Prospects of PTC expiration in the US is driving an enormous flurry of activity saw 3,500 MW of new projects breaking ground in the last quarter of 2011 and the year ended with 8,320 MW under construction.
“We’re looking at about 12GW of capacity in the US over the next year,” says DaPrato. “That contrasts with about 9.7GW in 2009, which was the previous US record.”
If the PTC expires, IHS EER data forecasts that next year’s build will plummet to 1.5 GW in 2013. But even that low figure assumes that the PTC is renewed just after the time of expiration on 31 December 2011, says DaPrato, and the longer Congress waits to extend the credit in 2013, that build rate will continue to drop.
“We’re looking at a record high in 2012 and a very steep and abrupt drop off going into 2013. 1.5GW would be the lowest build going back to 2004 when the PTC last expired – build dropped from 1700 MW in 2003 to just over 350 MW.”
But the US has built significant supply chain and manufacturing capacity in the US, with GE and many European companies like Siemens, Vestas, Gamesa and Nordex making substantial investments.
“After this robust 2012, there’s going to be a lot of overcapacity going into 2013,” says DaPrato.
Over the last six years, US domestic production of wind turbine components has grown 12-fold, according to the American Wind Energy Association. The AWEA predicts that PTC expiration would threaten 37,000 jobs in the US wind industry.
A recent attempt to extend the PTC through a payroll tax extension failed in Congress. But attempts are expected to continue throughout the year, including a bipartisan bill to extend the PTC for four years. The presidential election is likely to decrease the chances of passing legislation before the end of 2012.
“That’s the way it’s operated historically – the PTC has lapsed and been reinstated. Everyone is in election and campaign mode positioning for the November elections. It’s going to be tough to get it passed despite efforts on both sides for it. But it’s going to come down to the wire.”
Despite the threat of PTC expiration, market potential in the US is still seen as enormous, with 42 GW installed, less than half the capacity of Europe.
China is currently facing oversupply in its domestic market. Caitlin Pollock, Senior Analyst, Asia Wind Energy IHS Emerging Energy Research, says that while China added roughly 16 GW of new grid-connected wind capacity in 2011, up by 26% in 2010, preliminary estimates suggest that China delivered 18 GW of wind power equipment in 2011, a slight downturn from 2010 levels of just less than 19GW.
“We could say 18 GW was produced but there are a lot of excess stockpiles in factories,” she says. “The China Electricity Council reported that 16GW was fully connected to the grid last year. But that does not necessarily mean that 16GW is utilised all the time.”
Theoretical assembly capacity is much larger, at an estimated 40GW, she says.
China’s manufacturing is forecast to slow over the next couple of years as stricter regulations on technology and a tighter monetary policy kicks in, says Pollock.
“There is a long chain of financial constraints on Chinese companies that has not been present before – but this is very much on a relative scale compared to other countries. But we’re seeing a tightening of regulatory and monetary policy which has not been present before.”
Price wars that have seen costs decrease by 10% a year will eventually force companies into consolidation as the government tightens the reins on regulation. Some 10 companies may emerge from a field of around 100 currently, she says.
“Prices have not necessarily been reflecting actual prices but it’s been reflecting price wars and somewhat promotional prices in order to sustain order intake and defend market share.”
Chinese manufacturers have started to look to other markets. Last year, Goldwind and Sinovel signed deals in debt-stricken countries in Europe.
More recently, Chinese developers have made small inroads into the US market. In January, Goldwind acquired two 10 MW wind projects in Montana known as Musselshell. The acquisition follows on from Goldwind’s purchase of the 106.5 MW Shady Oaks project in Illinois. Goldwind will have installed 157 MW of turbines by the end of 2012 in the US, accounting for nearly 80% of the US capacity supplied by Chinese original equipment manufactuers (OEM), according to an IHS EER note.
Although this figure may seem small, it is a significant statement of intent by Chinese companies who already manufacture at a sufficiently high quality to compete with GE and European companies in the US market.
“The US is the most attractive market to a lot of Chinese companies,” says Pollock. “Goldwind has made strong strides in entering the market. They view mature western markets such as the US and Europe as extremely attractive because the profit differential is relatively significant in term of the price they would get for a turbine in China versus other markets.
With the expiration of the PTC a lot of them might have missed a window of opportunity to enter the market.” – Pollock
Australia has also recently appeared on the horizon as an emerging market after the introduction of the country’s A$23 per metric tonne carbon tax. Australia’s dependence on coal makes it power and industrial sectors the world’s most emissions-intensive developed economy but sources less than 10% of electricity generation from renewables, says and IHS research note.
Australia’s Clean Energy Act favors wind investments and the installed wind base exceed solar by the end of 2011 (2.5 GW vs less than 500 MW), it says.
“But globally, China should remain the world’s largest wind market in the near-to-medium term, with annual additions totaling 16−20 GW through 2020,” says Pollock.
