Wind turbine industry steps up to global demand

The wind turbine industry finds itself in a crucial transition period as it races to catch up with soaring demand, according to the latest research.

“To remain competitive, players across the supply chain - from bearings to blade suppliers - must rapidly scale up to meet this growing demand”
-Keith Hays, EER

Booming global demand for wind power, which surged to nearly 20GW in annual installations during 2007, is on track to more than double within a decade led by rapid growth in the US and China. Emerging Energy Research, a leading research and advisory firm analyzing clean and renewable energy markets, expects global installed wind base to grow more than fivefold from its 2007 total of 94GW to more than 576GW by 2020.

As a result of this booming demand, competition for wind turbine orders has moved from project-driven, national agreements to multi-year frame agreements spanning several regions. These orders increasingly focus on supply of multi-megawatt turbines as the global wind market has made a steady shift toward 1.5MW and larger turbines, encouraging a number of new suppliers to enter, according to EER’s just-released market study, Global Wind Turbine Markets and Strategies 2008-2020.

“In this high growth environment, competitive positioning among wind turbine suppliers is increasingly dependent on supply chain management,” according to Spain-based EER Research Director Keith Hays. “At the same time, to remain competitive, players across the supply chain – from bearings to blade suppliers – must rapidly scale up to meet this growing demand.”

EER anticipates the current seller’s market for wind turbines will continue in the short term while the industry builds out for a new phase of stable, global growth, stimulating the market to surpass US$55 billion by 2015. According to EER’s forecasts, global wind demand will continue to boom, going from nearly 20,000MW in 2007, to just under 50,000MW in annual installations by 2020 and requiring massive investments in turbine supply.

Larger projects, turbine size reflect wind’s move into mainstream
The global wind turbine market has seen rapid shifts in scale and product sophistication on the back of booming global demand for wind power, according to EER. This has meant an increase in turbine size and project size as mature markets look to tap lower wind speed sites, while developing markets scale up their total installed wind plant for a greater contribution to the generation mix.

The global turbine market will see increasing turbine size in mature markets that require larger rotors, balanced against steady demand in developing countries for smaller, older product models that are well-received based on cost and proven performance, according to EER. With an increase in average turbine size from just under 1MW to nearly 1.5MW in the past six years, EER anticipates global demand for multi-megawatt machines will continue to rise.

EER expects larger projects, particularly over 50MW, will increase their share in the future. Projects 100MW and larger will nearly double their contribution to global MW added through 2020 from 24% to over 40%, according to EER.

Smaller suppliers challenge leading wind turbine vendors market share
North American and European markets will begin to see increased competition with several players increasing US manufacturing capacity and vying for orders in this booming market, according to EER.

The turbine market has seen increased fragmentation as the top six players have surrendered around 10% of the market to smaller players. “The bottom line is that while entrenched market leaders Vestas, GE, Gamesa, Enercon, Suzlon and Siemens have sought to build on relative strong positions in their home regions, several mid-sized and smaller players have sought to exploit this new level of demand in driving the industry to a new scale,” says Hays. “The beneficiaries have been turbine suppliers strongly established in high-growth markets, including Acciona Windpower and Goldwind, as well as mid-sized European players expanding globally, such as REpower, Nordex and Alstom-Ecotecnia.”

Increasing global competition between top suppliers and smaller expanding players will intensify post-2010, according to EER. As multiple experienced players challenge the dominance of GE and Vestas, price competition will heat up. With increasing demand for turbines, customers that can provide high volume, long-term, firm orders that offer strategic market share positions to turbine suppliers are likely to figure more prominently in suppliers’ order books, according to Hays. This trend will mark more sophisticated strategic account management targeting multinational utilities and IPPs, according to Hays.

Manufacturing reflects globalization of the wind industry
The wind turbine industry continues to globalize. Europe’s manufacturing pioneers have begun to penetrate North America and Asia. A growing presence of Asian manufacturers in Europe and North America will become more pronounced in the years ahead. Additionally, wind turbine sales and supply chain strategies will take on a more international dimension as shipment volumes increase, according to EER.

With the globalization of the wind industry, supply chain management has become a key competitive driver. “The relationships between OEMs and their component suppliers have become increasingly crucial, and have come under increasing stress in the past three years as soaring demand has required faster ramp-up times, larger investments, and greater agility to capture value in a rapidly growing sector,” says Hays. Manufacturers have sought to strike the most sustainable, competitive balance between vertical integration of component supply, versus full component outsourcing to fit their turbine designs.

Component suppliers will continue to play a critical role in scaling the wind industry as they take their businesses globally in step with the turbine suppliers they provide. Due to the diverse issues facing each component supplier, when deciding whether to increase production capacity or not, the wind industry has struggled to move as a unified whole, able to meet booming demand. Greater collaboration across the supply chain, spurred on by shortages but also turbine performance, is already leading to better coordination that will improve the industry’s ability to deliver, according to Hays.

The surge in global megawatt-capacity added observed over the past three years has served to stabilize demand for long-term, higher volume investments in adding new capacity. EER expects this surge to produce sustained growth through 2015 that will surpass US$55 billion installed annually as the wind industry moves into a new phase of more secure growth in the mainstream power mix.

New EWEA report predicts bright future
In its latest report entitled Pure Power: Wind Energy Scenarios up to 2030, the European Wind Energy Association (EWEA) outlines the road towards large-scale wind energy. Presenting three development scenarios for 2010, 2020 and 2030, the report examines in detail the probable impact on electricity, greenhouse gas emissions and the EU economy. It confirms the positive prospects of a technology that last year became the leader in terms of net power capacity additions in the EU. Wind power’s share of new generating capacity is forecasted to be 34% in the period 2005-2020 and 46% in the decade leading up to 2030. Wind power’s share of new capacity in Europe in the 25-year period 2005-2030 is 39%.

Wind power has experienced dramatic growth over the past few years. It currently meets 3.7% of the EU electricity demand and has ranked second in terms of net power capacity additions over the last eight years. This strong development can be maintained, and further reinforced in the coming years, as long as the clear commitment from the European Union and its member states continues. Swift adoption of the new EU Renewables Energy Directive by the European Parliament and the Council is the key to the sector’s strong future development.

Pure Power shows that the European Commission’s goal of increasing wind power’s share up to 12-14% by 2020 is within reach. “On average, wind power capacity needs to increase by 9.5GW per year over the next 13 years to reach 180GW and meet 12-14% of EU power demand in 2020. This is certainly achievable considering that the EU wind energy capacity increased by 8.5GW last year,” commented Christian Kjaer, EWEA’s Chief Executive.

The wind industry target of 180GW by 2020 is equivalent to supplying the electricity needs of 107 million average EU households. Such penetration level would avoid the emission of 328Mt of CO2 – the equivalent to taking 165 million cars off the road –contribute 44 percent of the EU greenhouse gases reduction target and avoid yearly fuel costs of €20.5 billion and CO2 costs of €8.2 billion. It would also create hundreds of thousands jobs.

“In the current context of soaring energy demand, supply constraints, environmental degradation and climate concerns, wind power stands at the forefront in offering immediate and concrete solutions to the benefit of all European citizens,” concluded Kjaer.