Prospects and pundits

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It's the time of year for taking stock. End-year status reports have been flooding in for 2003, including industry association overviews of the current volume of wind power megawatts, annual reports from the publicly traded wind companies, and treatises from research institutes and market analysts on what to expect next. The details differ from report to report, but as the pile on the desk grew ever bigger last month there was no doubting the overall picture. Wind power is going places, and fast.

By this magazine's own count, close to 8200 MW of new wind plant went up last year, spread over 30 countries, to bring the global total to just over 39,400 MW (page 70) -- the equivalent of 24 conventional power stations of average size. It was a better-than-expected 2003 performance by the industry. Speculation just a few months ago that growth would slow as the huge German market passed its peak proved unfounded. Construction of wind plant was strong enough elsewhere to leave the compound annual growth rate (CAGR) for the past decade unchanged at an impressive 30%. Last year's growth was 26%, almost unchanged from 2002.

Wind power is fast becoming a text book example of how an industry should be growing when its future is founded on serious potential and sound business practice -- and not on a political bubble fed by romantic green sentiment as some of its detractors would have us believe. Plot wind power's annual growth over the past ten years against a classic exponential growth curve and the match is uncannily -- and healthily -- precise (graph).

For uneasy investors, that sort of good news is music to the ears. If there was a note of pessimism running through last month's stream of prospects from the pundits, it was one of investor doubt, particularly about the world's largest wind company, the newly merged Vestas/NEG Micon, and whether its bullish aspirations for revenues and profit (page 31) can be supported by the market. A string of positive facts indicating good market health will go a long way to boosting long term investor confidence. Without the faith of investors, the wind industry -- for the most part still severely under capitalised -- will struggle to enter the gigawatt league -- and that is where it is headed, particularly offshore. So what a relief that the reports flooding in last month were all providing evidence of steady market growth.

And what a shock the editor got when a Reuters news service headline suddenly rolled in proclaiming "Boom days over," followed by "Market for wind turbines blown into reverse," in Denmark's biggest national daily, and several more headlines of that ilk. Not a good start to the day, particularly for Vestas' share prices which reacted negatively within hours. Astonishingly, it turned out that the source of these headlines was a wind industry press release, which referred to an expected fall in growth for 2004 of 4% (complete with coloured graph with downward dip) and an average growth for the next five years of only 10.4%. For journalists grown used to a CAGR for wind of around 30%, this was worthy of headlines indeed.

Statistics, however, are not for the unwary. The otherwise highly positive press release accompanied a World Market Update for wind development, published by BTM Consult of Denmark. This year's edition of the annual report is not one of gloom and doom. It reports a CAGR for the past five years of 31.7% and agrees with this magazine that growth last year was 26%. But it also employs an unusual percentage statistic derived from measuring the annual increase in megawatts installed against the annual increase of the previous year. Based on this measure -- and presuming a speeding up of the German market decline, together with a dormant US market with no reinstatement of wind's tax credit, and restrained growth in emerging markets -- BTM fears that fewer megawatts will be installed this year than last.

Even if proved true, that single year blip would not hit the long term growth rate. Barring the misfortune of a self-fulfilling prophesy of doom triggered by shock-horror headlines, there is nothing on the horizon to blow the industry severely off course. Indeed, one school of thought believes we could see an installation rush in Germany this year as developers battle to get projects in under the old wind law before the new one is voted in. There is also serious reason to believe that emerging markets in Australia and Asia could furnish major orders, and that the PTC is more likely to be back on the US statute books than not. LM Glasfiber's Anders Christensen is not the only one to believe that development this year could exceed that in 2003 (page 32).

The very high growth rates seen in a young industry cannot be sustained indefinitely. The broad consensus is that today's 30% probably belongs to the past and a growth rate of 26% is what we are looking at now. That is equivalent to a doubling of wind capacity every three years, a rate that would return a cumulative wind generation total of 200 GW by the end of the decade. Perhaps 16-18% is more likely, which would result in global capacity hitting 120 GW in 2010. By any standards, that is a huge industry creating a vast amount of wealth. A prospect to warm the heart of any pundit.

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