A year of planning reveals diverging trends

WORLDWIDE: At the end of 2011, with Europe on the brink of a serious period of recession, the region remained the world's leading wind market.

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And, according to the Windpower Intelligence database, which monitors wind projects being planned, Europe may continue to lead, with 216.8GW worth of wind project sites arranged and in the pipeline. This compares favourably to North America, where the same pipeline figure is 99GW.

Whether all these projects actually come to fruition in the near future is far from certain, so digging deeper into the database, we looked at further indicators of the progress of planned projects. One figure, the turbine purchase agreements (TPA) signed, show that North America is providing greatest commitment, with 108.5GW of capacity signed, compared to 42GW signed in Europe. This North American figure appears to be an anomaly, with more TPAs agreed than sites acquired. This may, however, simply highlight that the North American market commits to turbines models or manufacturers even before confirming the sites.

Asia Pacific offers the third largest pipeline, with 72.3GW worth of sites acquired and TPAs totalling 22GW.

The last 12 months

Pipeline projects are only ever indicative of long-term developments, and when the focus shifts to the more immediate issue of deals done in the past year, Europe falls away. The UK and Belgium are the only European country to feature in the top ten countries for sites announced in 2011 with sites acquired. The UK appears at fifth place with 880MW, behind the US, China, Australia and India. Belgium's 456MW announced sites earns it eighth place, and Germany scrapes 15th place with 125MW. The next European entries making it into the top 20 for sites acquired in 2011 come from the continent's emerging markets in the east: Serbia, Romania and Bulgaria. Sweden and Ireland scrape in at the end of that list.

China and the US dominate 2011's announcements, accounting for almost 13GW sites. They also lead the global TPAs, responsible for 65% of TPAs for projects yet to complete, as recorded by Windpower Intelligence.

But for total projects in the pipeline, the UK comes in second, behind the US. The UK's 64.4GW reflects the enormity of the country's third round of offshore wind development. Its scale is also revealed by two of the leading global developers with planned projects being joint ventures set up to pursue UK Round 3 opportunities. Forewind is a consortium featuring RWE, Scottish and Southern Electricity, Statoil and Statkraft, formed to develop the Dogger Bank offshore zone, while Smart Wind is a joint venture between Siemens Project Ventures and Mainstream Renewable Power that is developing the Hornsea offshore zone.

Yet neither Forewind nor Smart Wind are recorded as having any TPAs signed during 2011, indicating the long-term and uncertain nature of the UK's offshore wind programme. Whether the projects are developed to full potential depends on a number of factors, one being the true suitability of Round 3 sites for cost-effective build, currently being investigated.

Tough financial climate

Developers' success in attracting finance is another crucial factor in the rollout of the UK's Round 3 offshore programme. Indeed, finance in general is wind developers' biggest challenge worldwide, says Arnaud Bouille, renewable energy director at Ernst & Young: "The next few years are going to be very tough - long-term lending might be affected, availability of capital will fall, the cost of capital is already rising and that will, of course, affect the economic viability of projects.

"Some major cuts in renewable support across the world will encourage consolidation in the manufacturing sector," Bouille adds. "For small and medium developers, you will see bigger firms taking over their site opportunities."

Additionally, European banks, previously the primary global wind-energy financiers, are facing sovereign debt crises and impending banking rules that will require banks to hold a greater percentage of capital for every loan, meaning less money available to the market.

In Bouille's view, big players like utilities will still be able to secure financing by recycling capital through the sale of operational assets or by following the solution devised by Dong Energy for its 400MW Anholt offshore wind farm in Denmark, where it has shared the cost of construction with two state pension funds. But as the economic case for wind continues to deteriorate, small and medium developers in Europe are likely to find the market extremely challenging.

Ernst & Young's latest Renewable Energy Country Attractiveness Indices quarterly report claims there is nothing short of a revolution taking place as the focus of development shifts from the historically dominant markets of Europe and the US to emerging markets. This trend is reflected in Windpower Intelligence figures, with countries such as Egypt, Myanmar, Kazakstan and Pakistan featuring in the top ten for sites acquired in 2011, and India and Brazil in the global top 10 with turbine purchase agreements in the pipeline.

"From a turbine manufacturer's point of view, what is interesting is that once upon a time strong demand from Germany, the US and Spain ...

would drive high volume," says Bouille. "Those markets have reduced, either because, as is the case in Germany, many sites have now been exploited, or where policy has killed the market. Manufacturers are now looking at a larger number of smaller markets. It is very fragmented. There are some interesting developments for manufacturers, and challenges for how they adapt their operations."

Activity in south-east Europe

Romania is a notable example where international developers have seized opportunities. Spanish energy group Iberdrola's local subsidiary Eolica Dobrogea dominates the market in terms of sites acquired, while Czech utility CEZ Group is an active developer there.

Growth has been strong in recent years - from only 12MW installed capacity at the end of 2009, Romania boasted 464MW at the end of 2010, and a further 34% increase to 623MW by the end of September 2011.

CEZ has completed 338MW of its Fantanele-Cogealac project, which at 600MW will be the largest onshore wind farm in Europe once complete at the end of 2012. In March, Iberdrola started work on its 1.5GW project, which could become the largest onshore wind power installation in the world when complete in 2017.

Much of Romania's future wind growth depends on legislation - the fact that the country's TPAs in the pipeline at the end of 2011 totalled just 705MW perhaps reflects the fact that support mechanisms to encourage anticipated high levels of development have yet to be rubber-stamped. A revised renewable energy law was ratified by the European Commission in July 2011 and by the Romanian government in October 2011, with final approval anticipated by year end. "In Romania, there are some interesting developments," says Bouille. "There has been talk of a pro-wind policy for quite some time."

As developers and manufacturers look to new markets, there is both carrot and stick at play. The carrot, or opportunity, is the phenomenal growth potential within emerging economies and those with under-developed wind resources. The stick, or threat, is the global wind industry's over-reliance on two markets, the US and Europe, which both threaten to decline.

Problems in traditional strongholds

It is this over-reliance on two markets that is the biggest risk for the overall health of the global wind market, says Steve Sawyer, secretary general of the Global Wind Energy Council (GWEC). "If Europe goes back into recession it's going to be tough," he says. "The US is not going to be easy either if the production tax credit isn't renewed. These are the wind sector's biggest markets and they have a global impact. The general shakiness of the global economy and the potential end of the production tax credit in the US are the two biggest threats to developers in the coming year."

The fact that uncertainty about the future of the US support mechanism of production tax credits could have a significant impact on the global industry shows just how much the US still dominates. Windpower Intelligence figures show that the US accounted for 27% of all wind sites acquired in the year to November 2011 and Sawyer says that GWEC's figures show that the US would have around 8GW total installed capacity by the end of 2011, roughly 20% of total installed global wind capacity.

There is better news in Canada, sixth place in Windpower Intelligence data for sites acquired in 2011, with 1.2GW-worth snapped up. And 2011 is a record year for installations, by Canadian Wind Energy Association estimates, saying over 1.3GW will have come online.

Chile and South Africa waiting in the wings

South of the US, Brazil and Mexico dominate, but Chile has the potential to join them as a major regional wind energy player, says Sawyer. Windpower Intelligence figures back up this, showing Chile second only to Brazil in Latin America for project pipelines.

Like Romania, Chile is just starting to exploit its wind resources. "The difficulty is that Chile's electricity system is extremely complicated," warns Sawyer. "It is difficult to break into the market, but an electricity market review is going on and, hopefully, Chile's huge potential resources will be exploited." International developers considering Chile include Mainstream Renewable Power. It is one of several emerging markets where the developer hopes to establish a strong onshore presence, another being South Africa.

The level of interest shown by international developers such as Mainstream in South Africa will increase if favourable legislation is successfully introduced, explains Sawyer: "South Africa is an exciting market," he says. "The announcement of its first renewables RFP is expected shortly and there is huge potential."

But it is very early days, with only 803MW of sites actually in South Africa's pipeline of officially announced schemes and just 135MW of TPAs signed. This is less than half the number of TPAs signed by regional leader Kenya.

With markets such as Europe apparently on the wane, it is new frontiers like South Africa and Chile where developers' future fortunes are likely to be made.

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