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Economics from the Windicator

The unprecedented rise in fossil fuel prices since the turn of the year means simple energy economics, as well as the need to supplement dwindling fuel reserves, is becoming a powerful wind market driver, alongside the imperative to mitigate climate change. While fuel price hikes are the main determinant for the rising cost of fossil fuel generation, wind power is particularly hit by the higher price of raw materials, which account for nearly three quarters of the cost of a turbine. With a 40% hike in the price of steel since autumn 2007, wind turbine prices are likely to continue going up. The wind industry, however, has established a good track record for innovation and productivity, qualities likely to counteract these pressures. Moreover, raw material price rises are also driving up the cost of coal, gas and nuclear power stations; recently quoted prices for their installed cost have risen too.

All the wind turbine suppliers are increasing their output to cope with huge order backlogs. Combined, Vestas, Repower, Nordex and Suzlon reported orders worth about $16 billion in their most recent annual results. Taking market share into account and assuming other manufacturers have pro rata orders, the total order backlog is likely to be over double that figure.

Offshore, rising cost is one reason for the slower market growth than predicted. An analysis from Cambridge Economic Research Associates suggests that installed costs of wind turbines offshore are likely to rise from EUR 2300/kW to EUR 2800/kW. Once the offshore industry takes off, however, prices are likely to fall.

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