Winds of change blow across the global market

By Fiona Harvey, Environment Correspondent
Published: June 30 2008 03:00

Wind power is the most mature of mainstream renewable energy technologies and, if the world's electricity generation is to be made cleaner, it must play a large part.
The International Energy Agency estimates that, if global greenhouse gas emissions are to be halved by 2050, as scientists say is necessary, then wind must represent about 17 per cent of worldwide power generation by that date.
The costs of doing so would be offset by the savings in coal, oil and gas.
Last year, about 20GW of new wind-generation capacity was built around the world, according to the Global Wind Energy Council. "Globally, wind energy has become a mainstream energy source," said Steve Sawyer, secretary general of GWEC.
The US erected more wind turbines than any other country in 2007, with just over 5GW of capacity installed - a doubling of the rate of new installations over the previous year.
By the end of next year, the US is forecast to overtake Germany as the country with the most wind turbines installed. But it could go yet further, argues the American Wind Energy Association. A target of generating 20 per cent of US electricity from wind by 2030 is realistic, the organisation insists.
Randy Swisher, executive director of the AWEA, says this would be the equivalent of taking 140m cars off the road.
The main obstacles to achieving this goal are: transmission, or building the electricity networks necessary to carry the energy from wind farms to urban centres; siting, or finding areas with a good wind resource and gaining permission to build there; manufacturing, because turbine makers cannot keep pace with demand.
The outlook for wind also looks rosy in China and India, which are both adding turbines at a rapid rate, and countries such as Spain and France, where European Union targets to generate 20 per cent of energy from renewables by 2020 are focusing attention on wind.
An oil price of more than $130 a barrel is making wind competitive. Investors can also count on subsidies in most countries.
All these factors have led to a rush to invest in the rapidly growing sector. About €25bn was spent globally last year just on building turbines, according to GWEC.
Wind farm valuations have also soared. Airtricity sold its US wind assets to Eon for $1.4bn, a price that had many analylsts calling the top of the wind market, as the assets contained only 210MW of operating farms with another 880MW soon to be operational, and many more projects in the early stages of development.
Although the prospects for wind are generally bright, there are a few clouds gathering.
Shai Hill, division director of climate change at Macquarie Capital Securities, notes that constraints on the supply of turbines continue to be a problem.
He predicts that the price of turbines - which has risen by more than a third in the past two years to about £1.5m - will rise by 10 per cent this year and with a rise of the same amount expected next year.
This is even without taking into account rising steel prices - most turbine manufacturers build a clause into their supply contracts stipulating that steel price rises can be passed on to customers.
The supply of turbines is expected to increase as more manufacturing facilities open in China and India, but demand is such that waiting lists for turbines are likely to remain at about 18 months to two years.
Dean Cooper, analyst at Ambrian, says this imbalance of supply and demand puts at a disadvantage smaller wind-farm players, which find it hard to put pressure on suppliers.
Rising prices are being felt, particularly in offshore wind. The wind blows more reliably offshore and is often stronger, making turbines sited in the sea attractive - and they can also be hidden from view.
But siting turbines offshore is more difficult. It can cost up to a half more than building a wind farm onshore.
Shell sent shockwaves through the offshore market recently, when it pulled out of the London Array, a proposed development in the Thames estuary. Shell cited cost issues and said it could get a better return by investing in onshore wind assets in the US.
Mr Cooper says that Shell's decision raised doubts over the economics of offshore wind.
Yet Matthew Jackson, of management consultancy Arthur D Little, says the experience could work to the advantage of big companies. "Formerly, offshore wind farm owners were small and inexperienced, with little bargaining power against the wind manufacturers and little knowledge on which to base demands," he says.
"Today's customers not only have the scale and buying power to make stringent demands, but are also more than capable of walking away from the deal if perceived as uneconomic.
The balance of power is therefore set to shift in favour of the customer, and the financial return of projects will take centre stage."
Copyright The Financial Times Limited 2008