S&P Global Ratings rated its first onshore wind project in 2003. Since then, the renewable energy sector has undergone tremendous expansion. In the past decade alone, its compound annual growth rate has totalled 20%, thanks largely to the rising awareness of how using fossil fuels for power generation contributes to climate change.
In Latin America in particular, where most renewable capacity comes from large hydro plants, onshore wind power sources are playing an increasingly important role. Oaxaca, a region in Mexico, for example, is considered one of the best regions worldwide for onshore wind farms. Its geological formation creates a corridor with consistently strong winds. So, the favourable wind resource, in combination with lower operation and maintenance cost, resulted in the upside of the credit outlook in the region.
A global outlook
Last year alone, onshore wind added approximately 53 gigawatts (GW) to the global capacity grid – bringing the total to around 540 GW. This is partly due to higher capacity factors and falling prices throughout the wind turbine supply chain, both of which are fostering onshore wind power’s rapid development.
However, the sector’s growth isn’t without serious challenges. Wind resource availability has often failed to live up to the initial estimations made in the planning and financing stages. With turbine costs falling and projects expanding to create greater efficiencies of scale, we see more competitors entering the market. In turn, this exerts downward pressure on power prices and thereby exacerbates the challenge of operating wind power projects at profitable levels. So, we expect that merchant exposure will become wind power’s greatest antagonist in the next decade.
Europe continues to lead the way for wind power globally. Renewables now represent about 20% of earnings before interest, taxes, depreciation, and amortization (EBITDA) for most rated European integrated utilities players. In addition, there are significant investments dedicated to green energies, which we estimate will reach €55 billion for the top European players over the period from 2017 to 2020. However, with increasing competition and less attractive remuneration schemes in Europe, renewable energy producers’ ability to expand in regions outside of Europe – notably into the U.S. and Latin America – will be key for maintaining a balance between growth and profitability.