Europe back as the main driving force

Political changes over the past year have led BTM Consult to revise its opinion of a stagnating market in Europe and improve its five-year forecast for global wind market growth. Once again its annual report sets the benchmark for the wind power industry

The wind industry will be supplying 33.5 GW of new generating capacity a year by 2011, more than double the 15 GW delivered last year. Europe will lead the way, installing 59 GW in total over the next five years, followed by North and South America with nearly 30 GW and Asia with nearly 28 GW. The OECD-Pacific countries, including Japan and Australia, will not manage more than 5525 MW between then, while only modest activity is expected in other emerging markets, with Latin America slated to install just 3600 MW between now and 2011 and the rest of the world 3270 MW. Wind power's share of world electricity generation will increase to 1.95% from 0.82% today, presuming that global power consumption grows at the 3.3% predicted by the International Energy Agency in its reference scenario.

These growth predictions come from Denmark's BTM Consult and once again form the backbone of its annual World Market Update of international wind energy development, now in its 12th edition. The firm is renown for making forecasts that the industry immediately exceeds, with 2006 no exception. BTM reports installation of 15,017 MW in 2006, 1750 MW more than it forecast a year ago. The figure is a 30% increase on the volume installed in 2005, itself a record year. Moreover, by the end of 2006 the industry still had nearly a gigawatt of shipped turbines to install.

By BTM's tally, global wind capacity reached almost 74.3 GW at the end of 2006, a 25% increase in just one year. On the strength of that, it is forecasting an average annual increase in the five years to 2011 of 17.4%, one per cent higher than the five year forecast it made at this time last year. "Global drivers are stronger than ever. Climate change and security of supply were top of the political agenda in 2006 and into 2007," says BTM. The forecast is nonetheless conservative compared with the 24.4% compound annual growth rate that BTM reports for the past five years, a rate it expects will drop only slightly, to 22.3%, by 2011.

Explaining further its increased optimism, BTM has changed its mind about its earlier expectation that the European market would stagnate at an annual installation of 6-8 GW for the next five years. This year's forecast is for Europe to nearly double its current annual installations of 7.6 GW to 15.6 GW a year by 2011 (figure 4). "This is justified by the strong European commitment to carbon dioxide reduction targets and desire to see more renewable energy," says the report. In particular, BTM has upgraded its expectations for Portugal, France and the UK. Offshore wind, however, is downgraded for the second year running. It will make up no more than 5% of the 129 GW to be installed globally to 2011.

North and South America will more than double their annual wind plant installations to 2011, from today's 3.5 GW to 8.5 GW as will South and East Asia, from 32 GW to 6.95 GW. By the end of the period, cumulative wind capacity will have reached 107.8 GW in Europe, 46.6 GW in North and South America, 36.8 GW in South and East Asia, 8.1 GW in OECD Pacific and 3.8 GW elsewhere for a grand world total of just over 203 GW, says BTM. The growth represents a total investment over the next five years of $186.4 billion, with sales of wind turbines making up $134 billion of that sum and balance-of-plant costs (foundations, grid connection, land leases, and so on) the remainder.

Market shifts

Wind power is spreading. Last year eight countries accounted for 80% of global installations compared with four at the start of the decade. Even so three countries, the US, Germany and India, accounted for 43% of the 2006 market, though this compares with 64% in 2005. Of the top ten national markets last year, the United States had the biggest appetite and represented 16% of the global market. Bringing up the rear was Italy at 2.8% (figure 2). Canada was a new entrant in the list, replacing Australia. All the top ten installed considerably more megawatts in 2006 than in 2005, barring Italy. As well as Canada, France also moved sharply up the rankings and it recorded the biggest growth rate over the past three years (table). But the most significant shifts noted by BTM were India, moving into third position ahead of Spain in 2006, and China entering the top five.

As the market changes shape so does the industry. "Significant changes have been seen in the wind energy industry over the last three to four years and it is still in a state of transformation." BTM highlights continued consolidation of both equipment suppliers and wind plant developers/owners. On the technology side, BTM notes the increase in unit size, both of wind turbines and wind stations. Sales of units with capacity ratings of 1.5-2.5 MW now make up 50% of the market. Two companies, Vestas and Siemens, have commercialised bigger units that are selling in large numbers, says BTM.

With bigger projects come big investors. In just one year their ownership of global wind capacity has leapt from about 30% to 40%, says BTM. "The movement has been away from the Danish and German model of private equity investment in mainly tax driven projects towards the involvement of utilities, independent power producers and, most recently, large energy companies. In the US there has also been a shift in the ownership structure from IPPs towards a more utility driven market." They are being pulled into wind by attractive economics and pushed by increasing pressure to include renewables in their generation portfolios, says BTM.

Supplier rankings

The individual performance of the top ten wind turbine manufacturers (figures 1&3), which met 94% of market demand last year, changed dramatically from 2005 to 2006. In 2005, GE Energy was the big winner, increasing its market share by nearly 7% while seven companies lost market share. In marked contrast, in 2006 GE was the only company in the top ten to lose market share, with its slice of the pie shrinking by 2% -- despite the wind boom in the United States and the company's undisputed dominance of its home market.

Adding most to its slice in 2006 was Gamesa, followed by Siemens and Suzlon. Indeed, Suzlon and Nordex are the only companies in the top ten to have increased their market shares in consecutive years. Vestas, the big loser in 2005 when it shed more than 5% of its market share, clawed its way back into positive figures in 2006, but by less than 1%. It remains the undisputed king. The more than 4 GW Vestas supplied last year was nearly twice that of its three nearest competitors, Gamesa, GE and Enercon.

Increases in turbine prices appear to be levelling off. At this time last year, BTM reported that prices had increased 30% since mid-2004. In this year's report, the price increase for 2006 is put at 5%. That news should please investors. As BTM points out, "To both utilities and IPPS it has come as some surprise that just as they take a major interest in wind power development then prices took an immediate jump upwards."

Trends identified

Based on experience gathered over more than three decades, the company stresses that in the energy business, policy is what matters when forecasting industry growth. "Political decisions over market incentives, grid connection priorities, planning procedures and environmental issues have been decisive in setting the pace of development at both national and regional level," states the report. It outlines and assesses the significance of a series of policy highlights over the past year. The list includes Russia's cutting of gas supplies to Europe, historically high oil prices of $70/barrel, President George Bush's inclusion of "security of supply" in his State of the Union speech, the release of Al Gore's documentary, "An Inconvenient Truth," the UK government's release of the Stern Report on climate change, and the decision by the EU to legally require that by 2020, 20% of its energy demand would be met from renewable sources of energy.

"It is obvious that wind power has become central to a turning point in the political attitude towards energy systems around the world. Over a 20-30 year horizon, investment in combating climate change is likely to be counted in trillions rather than billions of dollars," says BTM. Beyond 2011, however, the importance of policy will subside as energy economics tip the balance in favour of wind power. "The wind power industry will by then no longer be so much dependent on the local political situation for its main drivers, including environmental regulations. More traditional market drivers will influence competition and larger offshore projects will begin to materialise." The economics, BTM predicts, will be aided by binding commitments around the world to reducing global carbon emissions.

In that world, the annual demand for wind power will grow to 64 GW a year by the end of the 2012-2016 period, with Europe requiring 23 GW, Asia 19.7 GW, North and South America 17.8 MW and the rest of the world 3 GW.

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