Opinion: Nearly 1TW accomplished, but what will drive demand for an additional 2TW over the next decade?

Global wind installed capacity will surpass 1TW during this year and more than 1.9TW of new capacity will be installed in the next decade, but what will the main drivers of this progress be?

Policy shifts, globalisation and increased demand will all drive wind installation growth over the next decade, argues Shashi Barla

The wind industry has come a long way in the past four decades; regional policies in the biggest markets have driven historical wind growth; cost, technology and value drive future demand.  

Developers will collectively invest over $2 trillion in the next decade in both onshore and offshore sectors translating into 1.4TW capacity for onshore and 0.5TW for offshore. 

Top five factors driving demand

  • The fundamental five drivers for growth in this decade are: 
  • The US market’s ten-year policy stability. 
  • China’s aggressive march towards decarbonisation
  • Globalization of offshore wind 
  • EU’s focus on net zero goals 
  • Emerging demand for green hydrogen

Inflation Reduction Act policy stability 

By 2033, the cumulative capacity in the US market will reach 370GW. The US market remains the second biggest globally, after China. 

Wind power production and manufacturing-related tax credits will boost wind demand. 

Currently, the industry is grossly underestimating the growth potential in the US and the ripple effect these tax credits would unfold. 

When the last production tax credit (PTC) extension was announced in 2016, many in the industry believed that wind capacity from 2017 to 2020 would be in the range of 30GW cumulative. However, the actual installation turned out to be 40GW, and an additional 14GW stemming from project spillovers and Covid delays in 2021. 

Similarly, this time around, though the industry is positive; even bullish estimates today would become conservative projections five years from now.  

Most of the near-term wind project development is centred around three ISOs (Independent System Operators), Ercot (Electric Reliability Council of Texas), PJM (Pennsylvania-New Jersey-Maryland) and Miso (Midcontinent Independent System Operator). Grids and transmission infrastructure, besides many others, will become a showstopper if timely investment actions are not taken. 

The US will remain the largest market for the top four Western turbine OEMs (Vestas, SGRE, GE and Nordex) this decade. 

As a result, these OEMs will capitalise on market developments. Advanced manufacturing production tax credit) in the US will rekindle suppliers’ interest in supply chain investments by reopening mothballed facilities.  

Offshore demand will prompt new investments into building the supply chain from scratch. 

Turbine capital components like blades, towers and nacelles will be key for localisation, while foundations, cables and vessels among the balance of the plant components will become low-hanging fruits. 

China to become a 100GW annual market 

China has surpassed 400GW of cumulative installed capacity at the beginning of 2023. By the end of 2033, China will inch towards a whopping 1.4TW of cumulative capacity. 

China’s market witnessed a brief decline in demand due to the feed-in tariff (FIT) phase-out for both onshore and offshore segments by the end of 2020 and 2021, respectively. 

However, developers are racing to build projects and meet the 2030 targets. 

In 2022 alone, more than 100GW of projects were tendered, compared to 54GW in 2021. Of the 100GW tendered, onshore capacity was 80GW, and the remaining 20GW was tendered for offshore projects. 

Due to the onshore FIT phase-out in China, by the end of 2020, the market recorded unprecedented activity levels of 67GW. 

The market declined by more than 50% in the past two years as the market and the players stabilised. However, onshore wind capacity in public tenders has increased significantly in the past two years, from 33GW in 2020, 51GW in 2021 and 80GW in 2022. 

The turbine average selling price, including the tower, plummeted by more than 50% from CNY 4,000/kW at the beginning of 2020 to 1,900/kW at the beginning of 2023; these declines contributed to the increase in demand. 

A large part of the capacity awarded in 2021 and 2022 will be installed during 2023. However, we anticipate that Chinese developers will continue to reward higher volumes in the next two years to complete the capacity during its 14th five-year plan, ending in 2025. 

Three norths (northern, north-west and north-east) provinces drive the near-term demand. Provinces like Inner Mongolia, Gansu, Jilin and Xinjiang will remerge as supply chain hubs in the domestic Chinese market. 

Most turbine OEMs and component suppliers are building up new manufacturing facilities for the 6-12MW onshore wind turbine technologies. 

Coastal provinces in China are expected to install 200GW of offshore wind capacity in the next decade. Supply chain manufacturing will be centred around the top ten cities in five provinces: Guangdong (three), Shandong (three), Jiangsu (two), and one each in Fujian and Guangxi. These facilities host turbine technologies ranging from 8-16MW in the near term, evolving up to 25MW before the end of this decade. 

However, I think that the technology evolution in China must slow down and focus on sustainability and value creation rather than the largest and longest turbine specifications. 

Post-2025, there could be a temporary slowdown in the market. Nonetheless, China’s dual carbon goals by 2030 will enable the country to install record capacity globally during the forecast period.  

Despite a significant increase in domestic demand, Chinese wind turbine OEMs are scouting for international expansion to improve profit margins. In the past 15 years, over 30 wind turbine OEMs exported turbines to 49 individual markets covering 12GW of installed capacity. 

Goldwind and Envision covered 70% of this capacity. In 2022 alone, both these firms secured 10GW of export orders. 

This signifies the aggressive and successful expansion plans of leading Chinese OEMs. However, we do not anticipate any major breakthrough for Chinese OEMs in the conventional offshore wind markets due to geopolitics and limited technology track record. 

Globalisation of offshore wind 

Offshore wind is on the cusp of globalisation and will emerge as a central pillar to accelerate the global energy transition. 

Annual offshore demand is to grow six-fold by the end of this decade and cumulative offshore wind capacity will reach 580GW by 2033 from the current 60GW mark. 

Conventional markets are accelerating their offshore wind targets while new markets are opening up. The US and the UK will remain the two biggest markets globally, excluding China, accounting for more than one-third of the global demand. 

By the end of the next ten-year period, more than 29 countries will install offshore wind capacity, compared to 19 countries by the end of 2022. 

In 2022, global offshore wind installations declined on an annual basis. Developers commissioned 7.5GW of offshore wind capacity across key markets. 

Lower Chinese offshore activity due to the FIT phase-out led to a significant decline.  However, some near-term and mid-term challenges must be addressed to realise this potential. The auction prices must rise due to commodity and cost inflation. 

Supply chain capacity across the turbine, the balance of the plant components, and vessels must be increased significantly, while port infrastructure across key markets must be developed. 

Siemens Gamesa, Vestas and GE will dominate this turbine supply space. However, in China, ten OEMs are currently active and selling turbines in China. Regional market affiliations would enable these companies to secure turbine sales. 

EU’s relentless focus on net zero goals

Europe has currently installed 255GW of cumulative capacity. Major economies accelerate wind deployment; RepowerEU, the Net Zero Industry Act, and The Green Deal Industrial Plan catalyse this growth. Onshore wind totalled 225GW by the end of 2022; the top 15 countries alone need an additional 130GW by 2030 to reach the targets. 

Offshore capacity will climb from 30GW by the end of 2022 to 220GW by 2033. Nearly 20 markets will contribute to this growth, The top four markets: the United Kingdom, Germany, The Netherlands and Denmark, will contribute more than two -thirds of this capacity. 

For onshore, Germany’s BNetzA is planning 12.3GW of wind auctions in 2023, twice the amount auctioned in 2022 (5.3GW). 

The latest auction in Q1-2023 is almost fully subscribed, as the ceiling price was increased to €73.4/MWhr compared to the average of €60/MW in the past two years. 

BNetzA anticipates 10GW of annual wind installations from 2024 to 2028 to meet the 2030 target. However, permitting challenges will slow down the roll-out, but the annual installations are expected to double towards the end of this decade. 

Higher costs and permitting bottlenecks must be addressed for onshore wind to gain momentum. 

Spain surpassed 30GW of cumulative wind installed capacity early this year, becoming the fifth country globally to reach that capacity milestone. Wind power accounted for around 23% of all the electricity consumed in Spain in the past year. By 2030, the country plans 50GW of onshore Wind, including 15GW of repowering and 9.5GW of onshore wind dedicated to green hydrogen. 

These targets imply an additional 13GW of wind deployment compared to the previous target. 

France is targeting carbon neutrality by 2050. However, the slower permitting process will prove challenging in the near term. Cumulative onshore capacity in France surpassed 20GW in 2022, becoming the third country in Europe to reach the 20GW mark after Germany and Spain. 

The project permitting challenges in the region derailed the growth; the supply chain capacity has migrated to the best-cost countries. The offshore demand will create new manufacturing jobs, but without clear policy measures, the onshore supply chain will face an uphill battle. These issues must be fixed to get Europe back on track. 

Emerging demand for green hydrogen 

Currently, more than 500GW of green hydrogen projects have been announced in more than 70 countries around the world. However, only a third of them will reach fruition in the next ten years. Markets like Australia, China, the United States, Chile and Canada will likely account for more than 65% of the global demand. We have also seen increased traction among the Middle East and African markets lately. 

Many governments worldwide have developed their own hydrogen strategies in the past three years. A stable regulatory policy will drive investments in this sector. 

Wind players are also active in this segment. Siemens Gamesa is integrating an electrolysis system into its latest generation offshore wind turbine SG 14-222 DD. 

Nordex is partnering with the anchor shareholder Acciona Energia to develop green hydrogen projects and manufacture electrolysers. Earlier this month, Envision secured 1.67GW wind turbine contract to support NEOM Green Hydrogen Company for a green hydrogen project in Saudi Arabia. 

The industry is awaiting developments to unfold in green hydrogen space; this will trigger additional demand for the wind industry. 

Wind supply-chain resilience 

Macro and microeconomic challenges adversely affected the turbine OEM’s margins. To combat these challenges, companies raised turbine prices by 30-40% in the past eight quarters. The top four Western turbine OEMs (Vestas, Siemens Gamesa, GE and Nordex) reported a combined loss of nearly €5.5 billion in 2022. 

The commercial turbine supply agreements are taking much longer vs business-as-usual, resulting in lower order intake activity in the markets. Western turbine OEMs’ onshore orders declined by nearly 40% in the past four years, while export orders for their Chinese peers quadrupled. Companies must streamline their operations and focus on three key levers – standardisation, industrialisation and modularisation – to turn their financial number back to black. 

Shashi Barla is head of renewables research at the Brinckmann Group