The Global Wind Energy Council has recently identified the key commercial battlegrounds where wind power can make gains in the next four years. We present an exclusive look at their global findings, together with a special focus on offshore.
On the whole, the market diversification trend which has emerged over the past several years intensified over the last 12 months, and is expected to continue to do so over the next several years. New markets outside the OECD continue to appear, and some of them will begin to make a significant difference to overall market figures.
Inside the OECD, as wind power approaches double digit penetration levels in an increasing number of markets, and as demand growth either stalls or goes backwards, incumbents feel increasingly threatened. The fight for market share and policy support in these markets is becoming more and more intense. As a result, most of the growth in the coming years will be in markets outside the OECD.
The competition with incumbent fossil generation will continue until and unless there is a global price on carbon, a prospect which few look for any time soon. However, regional and national carbon markets are starting to show some promise, although it will take some time to see if they begin to have a systemic effect on the market.
The shine is starting to come off of the notion of the ‘Golden Age of Gas’, much touted in recent years, as the environmental and climate impacts of the fracking revolution in the US begin to emerge, and as artificially low prices begin to rise. That, combined with political unrest in the hydrocarbon-rich parts of the world, has given wind and other renewables a competitive boost in terms of price.
Today, in the absence of a concerted effort to combat climate change, it is wind’s cost competitiveness that is its greatest advantage in the market place. In Brazil, South Africa, Turkey, Mexico and elsewhere, wind is competing directly and successfully with heavily subsidized incumbents – so successfully in fact that in an auction last August in Brazil, wind power was excluded to ‘give the other energy sources a chance’.
Wind is coming in about 30% cheaper than the notorious giant World Bank financed coal-fired power plants in South Africa, and we have heard tell of PPAs being signed for wind power in the US as low as USD 20/MWh; which of course translates into about USD 43 with the PTC, but still extremely competitive.
National and regional policy are still the main drivers for wind energy deployment. The boom and bust cycle in the US is driven by on-again, off-again policy; China’s support for wind as a major pillar of its energy strategy supports the continued growth in that market; and in the EU, the debate over 2030 climate and energy policy dominates the perspective for wind going forward, both on and offshore. But it is safe to say that market growth over the next five years will be concentrated in Asia, Latin America, and Africa – that’s where the ‘easy’ growth from rapid increase in demand and strong economic growth will come from.
The 2013 market saw China back on top, installing about five times as much wind power as Germany in the number two spot. The 2012 market leader, the US, dropped back to sixth place, behind Canada (which had a record year), and just ahead of Brazil. Despite a lacklustre year, India moved into fourth place, right behind the UK, which had a good year both on and offshore.
When we did our projections for the 2013-2017 market one year ago, we underestimated the drop in the US market by about 3 GW; but because of the nature of the PTC re-authorisation and the strong pipeline of new projects, we look to make up that 3 GW in 2014. All in all, 2014 is set to be a record year, with annual market growth of about 34%, to bring the annual market to about 47 GW, with strong installations in North America and Asia, and the Brazilian market really beginning to come into its own. Brazil, Mexico and South Africa will figure increasingly strongly in the annual market figures in the years to come.
After 2014, we expect the market to return to a more ‘normal’ annual market growth of 6-10% out to 2018. Cumulative growth will rise to nearly 15% in 2014, but average 12-14% from 2015 to 2018. Total installations should nearly double from today’s numbers by the end of the period, going from just over 300 GW today to just about 600 GW by the end of 2018.
This puts us more or less on track although a bit behind the ‘moderate’ scenario in our last Global Wind Energy Outlook published in 2012. In order to put the industry back on the track of the strong growth numbers from the last decade, we will either need to see a global price on carbon or unexpectedly strong economic and demand growth, or both; and neither of them seem likely from the vantage point of March 2014, at least within the five year period out to 2018.
Regional distribution
While global markets will continue to be dominated by Asia, Europe and North America, new markets start to make a real difference over the next five years. We can expect Brazil to move up to 3rd or 4th place in the annual market rankings over the next couple of years, and break into the top ten in terms of cumulative installations as early as the end of 2014. South Africa is finally taking off, and this will hopefully lead to a mini-boom in Southern and Eastern Africa over the next five years.
The real wild cards at this point in time are Saudi Arabia, with its ambitious goal of up to 50 GW of solar and wind by 2030; and Russia, where there are early signs that it might begin to exploit its enormous wind resources in the not too distant future.
Asia
Last year we were somewhat sceptical about the Chinese government’s ambitious target of 18 GW in new installations in 2013; in fact they installed just over 16 GW, rebounding from 2012’s slump to ‘only’ 12.9 GW. In the meantime, the government has set a new target of 200 GW of wind by 2020, which implies a market of at least 15.5 GW a year for the rest of the decade; and if the past is any indication, they are likely to exceed it.
Furthermore, the Chinese offshore segment is expected to get underway in earnest in 2014. In India, much will depend on the outcome of the national elections, which were held in May of 2014.
The paralysis that currently plagues New Delhi, resulting in the stop/start policy situation which has hampered market growth over the past two years, will hopefully come to an end. A new ‘National Wind Mission’ is a welcome step, but what is really needed is clear, stable national policy and government investment in infrastructure, including strengthening transmission, to continue to fuel India’s economic growth.
The post-Fukushima energy revolution continues to stall in Japan, at least as far as wind power is concerned, and we expect moderate markets of 2-300 MW per year over the coming period, until and unless the electricity market reform, which was almost passed last year, becomes a reality.
While heavily emphasizing offshore, this market will probably not rack up large numbers until at least the end of this decade. South Korea will move steadily forward with its offshore programme while the onshore industry struggles; and we are likely to see a steady stream of new projects in Mongolia, the Philippines, Pakistan and Thailand.
All in all, nearly 120 GW of new wind power will be installed in Asia over the five year period, and Asia will very likely pass Europe in terms of cumulative installed capacity when we do the totals at the end of 2014.
Europe
The European market shrunk by almost 6% in 2013, which was less than many expected; but somewhat worryingly, there was more concentration in the two leading markets (Germany and the UK) than has been the case for a number of years. Chopping and changing of policies by politicians continues to be the bane of many markets, and the economic collapse in Spain has hit Europe’s second largest market very hard. France, Italy and Bulgaria are just a few of the promising markets which have stalled in the last year.
The offshore segment increased its annual market by 50% to install over 1,500 MW, but given the debate in a number of key markets it’s not clear if and how Europe is going to meet its target of somewhere in the vicinity of 40 GW in the water by 2020. However, it is expected that Germany will finally pick up some of the slack in offshore and its onshore market is expected to remain strong, along with Poland, Sweden, Denmark, Portugal and some others; but it’s going to be a rocky few years until and unless the debate over 2030 policy is decided. Regardless, the strength of the existing 20/20/20 legislation will support the installation of about 68 GW over the period from 2014 to 2018.
North America
The US finished a disastrous 2013 with its strongest ever pipeline of projects – more than 12,000 MW under construction – and this bodes well for 2014 and 2015 installations. But what next? Will the PTC be extended again? Solid proposals for comprehensive energy tax reform are in the works, but do they have a chance of passing a fractious Congress? Anyone with answers to these questions should step to the head of the class.
Canada had a record year in 2013, and is likely to have another in 2014, and a strong 2015, but beyond that remains a question mark, and a question to be answered on a province-by-province basis.
Mexico’s energy market reform is actually a long term bright spot, as combined with a national renewable electricity target of 35% by 2024, it amounts to the government challenging the wind industry to install ~2,000 MW a year from now until 2024, which is the most likely means for achieving that target. Key implementing legislation following the constitutional amendment last December is expected in April 2014, and much will be clearer by when this is settled.
Needless to say, North America is the most difficult part of this forecast, as it is the most volatile of all markets. Nonetheless, we expect to see an additional 61 GW of new wind power installations coming on line in the region from 2014-18.
Latin America
In Brazil, the government has already contracted more than 10 GW for the period out to 2018, and is likely to add to that figure with upcoming auctions in June of this year as well as next. There may be some slippage as the infrastructure struggles to catch up, although a new system to auction transmission lines in anticipation of the expected award of new projects should take some of the pressure off as the market develops.
Chile is finally beginning some substantial wind installations but it is not expected that the market will ever be very large, and the same is true in Uruguay, although the government of this small country has very ambitious plans in terms of its overall portfolio. Central America and Caribbean markets will add some substantial capacity over the period, but they will not be large numbers. There is, unfortunately, still a political cloud over Argentina due to the government’s policies, and we don’t expect much activity in that market until the government changes or there is a clear change of policy.
There are early rumblings of development in Venezuela and Colombia, the other large economies in the region, but it’s too early to say much.
Overall, we rather conservatively project that just over 14 GW will be installed over the period to 2018, although if all goes according to plan, then Brazil alone could achieve that number. However, dependence on one large market where the economy has shown some recent signs of shakiness has led us to look forward with a bit of caution.
Despite the fact that not much happened in Africa and the Middle East in 2013, we are bullish on this region. South Africa has achieved lift-off after an extremely long countdown, and we expect installations of 500-1000 MW in 2014, and a similar amount annually going forward, especially given the extremely competitive prices achieved in the latest bidding round. It could in fact become the hub for a major industry in a part of world which has 6 of the world’s 10 fastest growing economies.
Ethiopia installed another 90 MW in 2013, in line with its government’s very ambitious plans for build-out of up to 7 GW by 2030. There is a new tender process in Morocco, and Jordan’s first large-scale commercial wind farm reached financial close last year. Projects are underway in Kenya, Tanzania, Senegal and elsewhere.
This, combined with the ongoing effort to tie-together regional energy markets in eastern and southern Africa means that there is a reasonably likelihood that the region’s substantial wind resources will begin to be tapped in earnest over the next five years. The Egyptian market will come back to life sooner or later, and Saudi Arabia’s ambitious RE programme is just getting underway; all this leads us to believe that about 13 GW will be installed in the region from 2014 to 2018.
Pacific
In the Pacific region, Australia has been the main market for some years now, and wind power supplies more than 25% of South Australia’s electricity requirement. The 2013 market was a healthy 623 MW. However, the fickle winds of political change put this burgeoning industry under threat. The new government led by Tony Abbott has placed the national Renewable Energy Target under review, and the other signals given off by the government are worrying to say the least.
New Zealand has a long pipeline of projects, but not much demand growth; and the islands are small markets which will see some new projects, but in absolute terms are quite small. On the whole, we expect about 5 GW to be added over the period to 2018, but much of that depends on the outcome of the current political debate in Australia.
In conclusion, the market looks set for a period of steady but unspectacular growth led by Asia, Latin America (powered by Brazil), and Africa (powered by South Africa). Europe will be steady – if unexciting, North America will be volatile – as usual; and the Pacific region’s fate will be dominated by Australian politics.
Offshore focus: state of play
In the twenty-three years since the Vindeby offshore wind farm was built in shallow waters off the coast of Denmark, turbine size has increased from 450 kW to 7-8 megawatts, costs have gone down by about 30% per decade, and projects have moved to water depths of over 40 meters and up to 100 km from shore.
Today, more than 90% of installations are in European waters: in the North Sea, Baltic Sea and in the Atlantic Ocean. However, offshore development in China is starting to take off, followed by Japan, South Korea, Taiwan and the US.
EU offshore
1,567 megawatts of new offshore wind capacity came online in Europe in 2013, a 34% increase over the 2012 market. The total now stands at 6,562 MW, and offshore wind power installations represented over 14% of the annual EU wind energy market in 2013, up from 10% in 2012.
However, a closer look reveals a slow-down during the year; two-thirds of the new capacity came online in the first six months. With 12 projects currently under construction, down from 14 this time last year, market and regulatory stability is critical to bringing forward the 22,000 MW of consented projects across Europe.
According to the European Wind Energy Association (EWEA), wavering political support for offshore wind energy – especially in key markets like the UK and Germany – has led to delays to planned projects and fewer new projects being launched. This means installations are likely to plateau until 2015, followed by a decline from 2016.
Market outlook until 2015
Once completed, the 12 offshore projects under construction will increase installed capacity by a further 3 GW, bringing cumulative capacity in Europe to 9.4 GW by 2015.
German ambition
In 2013, 48 offshore wind turbines totalling 240 MW came online bringing the total number of offshore turbines in the German zone in the North and Baltic Seas up to 116, and total offshore capacity up to 520 MW. A further 2,432 MW are
under construction and scheduled to become operational in 2014 or 2015.
The average offshore wind turbine installed in Germany in 2013 had a capacity of 5 MW, a rotor diameter of 126 meters and a hub height of 90 meters.
A review of the Renewable Energy Sources Act (EEG) will take place in August 2014 and may have an impact on the future of the German offshore wind sector. Maintaining the existing framework conditions until the end of 2019, which were agreed in the Coalition agreement of December 2013, has strengthened planning security for investors and for the industry. However, this has now been challenged by the recent announcement of a reduction of support for 2018 and 2019.
According to the German government’s energy strategy, offshore wind power will become the second most important renewable energy source in Germany. However, due to the risks involved, financing difficulties and grid connection delays, deployment is lagging behind projections. Therefore, offshore wind receives an additional ‘starter bonus’ of EUR 3.5 cent / kWh (USD 4.9 cent) included in the initial tariff for offshore wind power which is set at 15 cent/kWh (USD 21 cent) and paid for at least twelve years depending on distance to shore and water depth.
Moreover, a so-called “optional compression model” was introduced for projects which come online before the end of 2017. This gives developers the option of an initial tariff of EUR 19 cent/kWh (USD 26.5 cent) for 8 years, instead of EUR 15 cent/kWh for 12 years. The annual degression rate for new offshore wind turbines increases from 5% to 7% from 2018 onwards.
Germany expects to add about 1,500 MW of offshore wind energy in 2014, and another 1,000 MW in 2015. The German government has set a target of 6,500 MW of offshore wind by 2020 and 15,000 MW by 2030.
US still has much to do
The two most advanced projects in the US are the 468 MW Cape Wind Project developed by Energy Management Inc (EMI), and Deepwater Wind’s 30 MW Block Island project, both of which had made sufficient investment to qualify for the latest version of the PTC, which expired at the end of 2013. The Cape Wind project, located in Nantucket Sound south of Cape Cod, MA, has been pursued by EMI for 12 years. Despite various legal and political difficulties over the past decade, Cape Wind is moving ahead and has secured a PPA for 77.5% of its output and a wide array of investors both domestic and international have come up with the $2.6 billion (EUR 1.9 bn) needed for what will be the largest US offshore wind farm. The investors include Siemens, which will supply the turbines.
The $250 million (EUR 182 mn) Block Island project, located in state waters off Rhode Island, has secured a PPA with utility National Grid for 20 years for 100% of its output. Deepwater Wind aims to begin construction of foundations in autumn 2015, with cabling and erection of its Alstom turbines in the first half of 2016. Deepwater Wind has also secured permission for an additional 1 GW in federal waters off Massachusetts and Rhode Island.
There is a long list of other projects in the pipeline, mainly located off the northeast coast and in the Great Lakes. The US Department of Interior’s Bureau of Ocean Energy Management (BOEM) has in recent years streamlined the permitting process for offshore projects. In 2013, BOEM started leasing tracts for offshore wind development in federal waters off the coasts of Massachusetts, Rhode Island and Virginia, with more leases expected in the not too distant future.
PES would like to thank the GWEC, for the full report, visit: www.gwec.net
