Jul 02 | 2020
Positive Outlook for Offshore Installations
By Felix Schoeller
In 2019, the wind vertical achieved its second-best year ever for new wind capacity. Globally, about 60.4 gigawatts, or GW, of new wind energy was installed, of which 54.2 GW was onshore and 6.1 GW was offshore, according to the Global Wind Energy Council, or GWEC.
Among the new onshore capacity, the Asia-Pacific region continued to lead in terms of wind power development, accounting for 50.7 percent of new wind capacity. Europe was in second position with 25.5 percent, followed by North America with 16.1 percent, Latin America with 6.1 percent and Africa and Middle East at 1.6 percent.
Driving the Asia-Pacific performance, China took the lion’s share of new wind capacity with 23.76 GW. Trailing were India at 2.37 GW, Australia at 830 megawatts, or MW, Thailand at 320 MW, Japan at 270 MW and the rest of Asia at 520 MW.
At 6.1 GW of new offshore wind capacity, 2019 was the best year ever for the offshore wind vertical. China led here, too, with more than 2.39 GW of new offshore wind capacity, followed by the UK at 1.76 GW, Germany at 1.11 GW and the rest of the world at 870 MW.
According to the latest study by the GWEC, the outlook for the wind vertical remains positive over the next few years. GWEC expects the culminative annual growth rate, or CAGR, for the next five years to be 4 percent. This outlook mirrors Wood Mackenzie’s 2020 study on the global wind turbine supply chain. In that forecast, Wood Mackenzie expected the annual average wind turbine supply to hit US$60 billion between 2020 and 2028 – an increase of 8 percent compared with 2019.
Pressure on the Pipeline
But there are challenges to note, most prominently Covid-19 which is expected to lead to a dip in the forecast 76.1 GW of global wind installation. Wood Mackenzie expects Covid-19 to trim back new wind capacity by 6.5 percent for 2020. On the other hand, supportive policy moves are likely to shift the intended capacity of 2020 to 2021, which will bring benefits to stakeholders.
For the Asia-Pacific, China’s new wind installations are expected to remain high until 2022 as projects previously approved under the Feed-In-Tariff (FIT) scheme take shape. India, as the next biggest player in the region, is expected to install around 13.1 GW over the next three years. However, issues over land clearances and delays in planned grid augmentation means that installations will be on an incremental basis, with most expected in 2022.
In Australia, there is a substantial pipeline of projects poised for completion in 2020-2021. But in 2019, there was a 60 percent slump in Australia’s solar and wind investment. The impact of this investment slump is likely to be felt from 2022 if nothing is done to address that shortfall. While the recent spate of bushfires across the country heightened the need to combat climate change, that is still to be converted into political will to encourage an uptake in renewable investment again.
Going deeper into Southeast Asia, Vietnam is a market to watch. In the next five years, Vietnam is expected to install about 2.3 GW of wind capacity by end of 2024. This surge in new wind capacity is powered by the government’s FIT scheme, which expires in November 2021. In the absence of any forms of extension or a new FIT, future wind projects in Vietnam will face an uphill climb. This is a watershed moment for Vietnam’s renewable sector, with the Ministry of Industry and Trade proposing in April to extend the deadline for its wind FIT by two years. Any positive decision will offer Vietnam the prospect of a cheaper, cleaner and more secure energy future.
For the offshore wind vertical, the wind is expected to blow towards the Asia market in the years to come. According to a projection by Wood Mackenzie, new offshore wind capacity growth (from 2019 to 2028) for Asia will be about 59.6 GW, surpassing Europe’s new capacity of 51.3 GW. North America is also projected to add 13.2 GW of offshore wind capacity. China will lead the world in terms of new capacity at 39.94 GW, followed by the UK at 17.29 GW and the U.S. at 12.91 GW.
Within the Asia-Pacific region – aside from China – Taiwan, Japan, and South Korea will be significant markets for offshore wind in the next decade. In recent years, major OEMs have set up production facilities in Taiwan and China. These moves serve to expand production capacities as well as to capture the booming offshore wind market in Asia-Pacific region. This will, in turn, reduce the potential cargo movement from Europe to Asia.
Upsizing of Turbines
Over the years, the levelized cost of wind energy has been on a substantial downward trend partially due to increasing turbine ratings. As more countries move away from various government support on their wind sectors towards open market mechanisms, it is imperative that wind OEMs further drive down capital expenditure costs. The most direct and fastest method to achieve this is to increase wind turbine ratings.
A turbine trends projection prepared by Wood Mackenzie forecasts mainstream wind turbine ratings will still be 2.X to 3.X MW for 2019 to 2023. Then from 2024 to 2028, wind turbine ratings are expected to jump to 4.X MW and above.
In the North America market, after the Production Tax Credit is phased out, larger rated turbines will gain market share due to lower capital expenditure and unexplored medium wind speed sites. In Latin America, Brazil will transit directly from 2.X MW to 4.X/5.X MW turbines due to the cost and sites condition.
In Europe, as merchant wind power deals gain momentum, 4.X/5.X MW turbines will be deployed in most markets. In the Asia-Pacific, China and India are expected to transit from the ultra-low turbine ratings to the 3.X MW turbines. Australia is likely to be one of the key targets to launch next-generation platforms due to minimal tip height restrictions and acceptance of larger turbines. However, compared with the Americas and Europe, the main bulk of turbines in the Asia-Pacific will still be 4.X MW and below instead of the 5.X MW and above turbines.
Over the years, the mix of increased adoption of higher rating turbines and a greater number of projects in suboptimal wind sites have driven an increase in wind rotor diameters. Wood Mackenzie notes that the market share of rotor diameters that are below 100 meters has drastically reduced from 66.29 percent in 2014 to 14.72 percent in 2018. Only the larger multipurpose vessels will be able to handle wind blades and towers as that transition to larger size turbines becomes more prominent.
OEM Consolidation
This year has seen the wind vertical face a new set of challengers. Solar power is increasingly emerging as an alternative solution to wind energy in the decarbonization journey. Here, zero subsidy is the new norm and that results in internal rates of returns routinely running at mid-high single digits. With the low-hanging fruit picked in the last decade, the tools available to the wind sector to counteract this solar threat are diminishing.
Consolidation of OEMs in the wind sector has helped, and the final round of consolidation might well be upon us. In 2013, Vestas merged with Mitsubishi Heavy to form MHI Vestas. In 2017, Siemens acquired Gamesa. And in 2019, Senvion declared insolvency. Could Nordex and Enercon be the next merger?
According to Wood MacKenzie, the top five wind OEMs – other than the Chinese OEMs – are Vestas, GE, SGRE, Nordex and Enercon. With the North America market coming back down to earth in 2022, Nordex might find itself in a pinch as the North America market accounts for a significant portion of its sales. Enercon, on the other hand, is suffering from the collapse of the German onshore market.
To survive this decade, wind turbine OEMs need to constantly innovate and achieve massive cost reductions in strategic components. However, these two factors cannot be achieved without strong financial backing and a huge backlog of projects for scalability in cost. With this in mind, Wood Mackenzie projects that by 2028, the market share of the top three wind turbine OEMs (excluding China) will increase from the current share of 62 percent to 86 percent.
As a parting thought, there is one last trend to watch. Since the start of the U.S.-Sino trade war, several countries in Asia have benefited from the spat. As well as Vietnam, India has also emerged to play a more prominent role in the global wind supply chain. According to Wood MacKenzie, wind manufacturing capacity in China controlled by foreign firms is 24 percent as compared with India at 74 percent.
Given the rising tension between the U.S. and China, the shock to wind supply chains due to Covid-19, India’s favorable trade relationships with numerous key wind markets and lower manufacturing costs with skilled locals, India could expedite itself into a wind powerhouse.
Good news for those in the breakbulk industry that position themselves to serve this burgeoning sector.
Felix Schoeller is general manager at AAL Shipping.
Image Credit: AAL
In 2019, the wind vertical achieved its second-best year ever for new wind capacity. Globally, about 60.4 gigawatts, or GW, of new wind energy was installed, of which 54.2 GW was onshore and 6.1 GW was offshore, according to the Global Wind Energy Council, or GWEC.Among the new onshore capacity, the Asia-Pacific region continued to lead in terms of wind power development, accounting for 50.7 percent of new wind capacity. Europe was in second position with 25.5 percent, followed by North America with 16.1 percent, Latin America with 6.1 percent and Africa and Middle East at 1.6 percent.
Driving the Asia-Pacific performance, China took the lion’s share of new wind capacity with 23.76 GW. Trailing were India at 2.37 GW, Australia at 830 megawatts, or MW, Thailand at 320 MW, Japan at 270 MW and the rest of Asia at 520 MW.
At 6.1 GW of new offshore wind capacity, 2019 was the best year ever for the offshore wind vertical. China led here, too, with more than 2.39 GW of new offshore wind capacity, followed by the UK at 1.76 GW, Germany at 1.11 GW and the rest of the world at 870 MW.
According to the latest study by the GWEC, the outlook for the wind vertical remains positive over the next few years. GWEC expects the culminative annual growth rate, or CAGR, for the next five years to be 4 percent. This outlook mirrors Wood Mackenzie’s 2020 study on the global wind turbine supply chain. In that forecast, Wood Mackenzie expected the annual average wind turbine supply to hit US$60 billion between 2020 and 2028 – an increase of 8 percent compared with 2019.
Pressure on the Pipeline
But there are challenges to note, most prominently Covid-19 which is expected to lead to a dip in the forecast 76.1 GW of global wind installation. Wood Mackenzie expects Covid-19 to trim back new wind capacity by 6.5 percent for 2020. On the other hand, supportive policy moves are likely to shift the intended capacity of 2020 to 2021, which will bring benefits to stakeholders.
For the Asia-Pacific, China’s new wind installations are expected to remain high until 2022 as projects previously approved under the Feed-In-Tariff (FIT) scheme take shape. India, as the next biggest player in the region, is expected to install around 13.1 GW over the next three years. However, issues over land clearances and delays in planned grid augmentation means that installations will be on an incremental basis, with most expected in 2022.
In Australia, there is a substantial pipeline of projects poised for completion in 2020-2021. But in 2019, there was a 60 percent slump in Australia’s solar and wind investment. The impact of this investment slump is likely to be felt from 2022 if nothing is done to address that shortfall. While the recent spate of bushfires across the country heightened the need to combat climate change, that is still to be converted into political will to encourage an uptake in renewable investment again.
Going deeper into Southeast Asia, Vietnam is a market to watch. In the next five years, Vietnam is expected to install about 2.3 GW of wind capacity by end of 2024. This surge in new wind capacity is powered by the government’s FIT scheme, which expires in November 2021. In the absence of any forms of extension or a new FIT, future wind projects in Vietnam will face an uphill climb. This is a watershed moment for Vietnam’s renewable sector, with the Ministry of Industry and Trade proposing in April to extend the deadline for its wind FIT by two years. Any positive decision will offer Vietnam the prospect of a cheaper, cleaner and more secure energy future.
For the offshore wind vertical, the wind is expected to blow towards the Asia market in the years to come. According to a projection by Wood Mackenzie, new offshore wind capacity growth (from 2019 to 2028) for Asia will be about 59.6 GW, surpassing Europe’s new capacity of 51.3 GW. North America is also projected to add 13.2 GW of offshore wind capacity. China will lead the world in terms of new capacity at 39.94 GW, followed by the UK at 17.29 GW and the U.S. at 12.91 GW.
Within the Asia-Pacific region – aside from China – Taiwan, Japan, and South Korea will be significant markets for offshore wind in the next decade. In recent years, major OEMs have set up production facilities in Taiwan and China. These moves serve to expand production capacities as well as to capture the booming offshore wind market in Asia-Pacific region. This will, in turn, reduce the potential cargo movement from Europe to Asia.
Upsizing of Turbines
Over the years, the levelized cost of wind energy has been on a substantial downward trend partially due to increasing turbine ratings. As more countries move away from various government support on their wind sectors towards open market mechanisms, it is imperative that wind OEMs further drive down capital expenditure costs. The most direct and fastest method to achieve this is to increase wind turbine ratings.
A turbine trends projection prepared by Wood Mackenzie forecasts mainstream wind turbine ratings will still be 2.X to 3.X MW for 2019 to 2023. Then from 2024 to 2028, wind turbine ratings are expected to jump to 4.X MW and above.
In the North America market, after the Production Tax Credit is phased out, larger rated turbines will gain market share due to lower capital expenditure and unexplored medium wind speed sites. In Latin America, Brazil will transit directly from 2.X MW to 4.X/5.X MW turbines due to the cost and sites condition.
In Europe, as merchant wind power deals gain momentum, 4.X/5.X MW turbines will be deployed in most markets. In the Asia-Pacific, China and India are expected to transit from the ultra-low turbine ratings to the 3.X MW turbines. Australia is likely to be one of the key targets to launch next-generation platforms due to minimal tip height restrictions and acceptance of larger turbines. However, compared with the Americas and Europe, the main bulk of turbines in the Asia-Pacific will still be 4.X MW and below instead of the 5.X MW and above turbines.
Over the years, the mix of increased adoption of higher rating turbines and a greater number of projects in suboptimal wind sites have driven an increase in wind rotor diameters. Wood Mackenzie notes that the market share of rotor diameters that are below 100 meters has drastically reduced from 66.29 percent in 2014 to 14.72 percent in 2018. Only the larger multipurpose vessels will be able to handle wind blades and towers as that transition to larger size turbines becomes more prominent.
OEM Consolidation
This year has seen the wind vertical face a new set of challengers. Solar power is increasingly emerging as an alternative solution to wind energy in the decarbonization journey. Here, zero subsidy is the new norm and that results in internal rates of returns routinely running at mid-high single digits. With the low-hanging fruit picked in the last decade, the tools available to the wind sector to counteract this solar threat are diminishing.
Consolidation of OEMs in the wind sector has helped, and the final round of consolidation might well be upon us. In 2013, Vestas merged with Mitsubishi Heavy to form MHI Vestas. In 2017, Siemens acquired Gamesa. And in 2019, Senvion declared insolvency. Could Nordex and Enercon be the next merger?
According to Wood MacKenzie, the top five wind OEMs – other than the Chinese OEMs – are Vestas, GE, SGRE, Nordex and Enercon. With the North America market coming back down to earth in 2022, Nordex might find itself in a pinch as the North America market accounts for a significant portion of its sales. Enercon, on the other hand, is suffering from the collapse of the German onshore market.
To survive this decade, wind turbine OEMs need to constantly innovate and achieve massive cost reductions in strategic components. However, these two factors cannot be achieved without strong financial backing and a huge backlog of projects for scalability in cost. With this in mind, Wood Mackenzie projects that by 2028, the market share of the top three wind turbine OEMs (excluding China) will increase from the current share of 62 percent to 86 percent.
As a parting thought, there is one last trend to watch. Since the start of the U.S.-Sino trade war, several countries in Asia have benefited from the spat. As well as Vietnam, India has also emerged to play a more prominent role in the global wind supply chain. According to Wood MacKenzie, wind manufacturing capacity in China controlled by foreign firms is 24 percent as compared with India at 74 percent.
Given the rising tension between the U.S. and China, the shock to wind supply chains due to Covid-19, India’s favorable trade relationships with numerous key wind markets and lower manufacturing costs with skilled locals, India could expedite itself into a wind powerhouse.
Good news for those in the breakbulk industry that position themselves to serve this burgeoning sector.
Felix Schoeller is general manager at AAL Shipping.
Image Credit: AAL
