Worldwide, the wind energy sector is expected to undergo reasonably rapid changes in market conditions in the five-year period between 2012 and 2016.
Global Wind Energy Council Secretary-General Steve Sawyer says that a number of critical issues will crop up in key markets across the globe during this time. Mr Sawyer nominates one of these issues as being the difficulty of predicting outcomes for the United States (US), a large wind market but also the largest variable within the international industry.
“The US had a record year in 2012, but the re-authorisation of the primary federal support program for wind was delayed, resulting in a dearth of orders at the beginning of 2013,” Mr Sawyer explains. “[Success in this market] is a question of how quickly and how much the US market is going to recover in 2013.”
Mr Sawyer notes that policy is notoriously fickle in the US, and tied to a short-term, highly-politicised Federal House of Representatives. “US Federal Budget discussions don’t affect wind energy as immediately as they do the solar industry, but until they are resolved and the US figures out a way to make economic plans that last longer than a year or two, that’s always going to be the big variable.”Article continues below…
The Global Wind Energy Council is predicting continued dominance of Asian markets over the next five years – particularly China, but also India and emerging markets in Pakistan, Sri Lanka, the Philippines, Thailand, Vietnam and Mongolia.
There is also the potential for significant growth in Latin America – particularly in Brazil – and also in Mexico, as part of the North American economic bloc.
“Brazil is leading the way, but Mexico is catching up,” Mr Sawyer says. “Of course in Africa, there are, for the first time, significant additions happening in sub-Saharan Africa – in Ethiopia, last year, the first commercial project became available and there will be others in Ethiopia over the next two years, and the South African industry is finally getting going – they have hundreds of megawatts (MW) under construction now and another 600 MW heading to financial close in May 2013.”
Global data demonstrates that Europe had a record wind energy year in 2012, but “the economic malaise and the wave of policy uncertainty in some of the southern European markets is going to mean that it’s unlikely to be repeated in 2013”, according to Mr Sawyer.
“Until there’s either a breakthrough in climate negotiations or a dramatic uptake in the Organisation for Economic Co-operation and Development (OECD) economies, I think that most of the market growth is going to be outside of the OECD.
“China will return to be a growth market in 2013 and again in 2014, on an even greater scale. They’re in the process of sorting out some of the structural issues that they ran up against because of dramatic growth since 2006.”
Mr Sawyer says that the global industry will have in the vicinity of 500 gigawatts (GW) of total installed capacity by the end of 2016, and will be on track for somewhere between 800–1,000 GW total installed capacity by 2020.
Noting that the Clean Development Mechanism has “pretty much played itself out” in terms of the first commitment of the Kyoto Protocol being over, and the world entering a limbo phase in terms of global carbon markets, Mr Sawyer says that carbon pricing mechanisms aren’t functioning as much of a driver for wind investment at the moment.
“The gap between supply and demand is still pretty large; at the beginning of 2012, there was some 85 GW of total manufacturing capacity globally, and a market of about 45 GW this year – we’ve lost some of that manufacturing capacity,” he notes. “A lot of the smaller manufacturers in China have disappeared. That process is going to continue, exerting downward pressure on turbine prices globally.
“It will vary substantially from place to place, but the general trend will be the need to compete more and more on a direct basis with incumbent conventional energy sources – at least for new-build. In most markets, we’re in a pretty good position to do that now, but most of the incumbents have been enjoying heavy subsidies for decades, so it’s a bit of a tough sell.”
However, Mr Sawyer highlights that the price of fossil fuels will do nothing but go up in the medium to longer term, while the price of wind will just go down. He notes “We’re at that critical cusp in a lot of markets at the moment where margins are very tight, and turbine manufacturers in particular are struggling – especially stand-alone, wind-only manufacturers; one has to believe the old maxim that ‘whatever doesn’t kill you makes you stronger’.
“This gives an advantage to the larger conglomerates for whom wind is only part of their business, such as Siemens, GE, Alstom, ACCIONA and more that are invested in wind now and doing reasonably well, but can carry a down year or two on their balance sheets without any great disruptions, which is much more difficult for stand-alone turbine manufacturers.”
Mr Sawyer says it’s possible that more stand-alone turbine manufacturers may be purchased by larger conglomerates that don’t already have a wind production component to their business.
“Vestas has had widely-publicised negotiations with Mitsubishi which has not yielded a concrete agreement yet, as far as we know, and there are other such discussions going on and it certainly seems like a likely outcome in a number of cases,” he explains. “Precisely how that will play out is a deeply-held secret until the deal is done.”
Approximately 120 countries around the world now have some form of long-term target for renewables, many of them ensconced in legislation; discussions in Europe will open up in 2013 about what to do after 2020, in terms of laying a pathway to 2030.
“The Australian Renewable Energy Target (RET) is one that has been an important signal to investors and an important support to the industry, and it’s very gratifying to know that it has been upheld,” says Mr Sawyer, “but the RET and the carbon pricing legislation are thrown into question by what might happen at the September federal election in Australia.”
In terms of the opportunities available to Australian companies with the resources and sense of adventure required to turn their attention to overseas markets, Mr Sawyer points to the companies already operating in international wind projects in South America as an example.
“I think there are lots of opportunities in Brazil – although that market is getting a tad crowded at the moment – along with right up and down Latin America,” he says. “South Africa and Eastern Africa are the brand new markets offering new opportunities, and Pakistan is emerging as a substantial new market – the country needs energy and has very good wind resources. There’s a pipeline of up to 900 MW of wind there now, and more is in the offing.
“Sri Lanka has significant potential, and there’s a good pipeline emerging in Thailand. Wind resources there are not great, but they need the power, they don’t have fossil fuels and they have an interest in diversifying their energy supply and utilising Indigenous resources.”
With so many variables in play for wind energy across the globe, ‘interest’ certainly looks to be the key concept for wind sector companies. If they are interested in pursuing the emerging markets Mr Sawyer outlines, they stand to gain from the new opportunities arising in those markets between now and 2016.