Most of the European and American majors, such as General Electric, Vestas, Siemens, Gamesa and Nordex, set up in China as soon as the Chinese market rolled out. Although these players dominated this market as little as only 5 years ago, they have had to deal with the unstoppable rise of the Chinese wind energy industry.
The only possible counter-attack for the Europeans comes in the form of massive productivity gains which inevitably involve local investments, because imported wind turbines can no longer compete on price. The dimensions and weight of the various wind turbine elements make for exorbitant transport costs. The result is that transportation over very long distances is ruled out on economic grounds.
European wind turbines manufacturers are anxious about the current contraction of their established wind energy markets (Spain, Germany and Denmark) and some of them in the absence of lucrative growth prospects have already shelved investment plans or closed plants.
This does not hold true for all production segments, for while the European onshore wind power market appears to be running out of breath, the offshore wind farm market is in its infancy. Manufacturers such as Siemens, Vestas and Repower have established a very firm foothold in this market where Europe will concentrate most of its installation activities in the near and mid term future.
According to a recent market survey conducted by Emerging Energy Research, Europe should have a significant component of the world offshore wind farm capacity predicted to rise to 45,000 MW by 2020. In the shorter term, a BTM Consult survey, published in March 2010, forecast world installed capacity at 15,598 MW by 2014. Lastly an EWEA study points out that 3,000 MW of offshore wind capacity is under construction in Europe waters and that licenses have been granted for a further 19,000 MW.
Another wind energy market trend to bear in mind is the tumbling price of installing one MW of wind power capacity. The wind turbine price index published by financial analysts Bloomberg New Energy Finance indicates a 0.18 million euros per wind turbine megawatt price drop, from 1.22million euros at the beginning of 2009 to 1.04 million euros for units purchased in 2010 and commissioned at the beginning of 2011.
There are several reasons for this drop. The first is that equipment supply now outstrips demand, and there is no sign of the trend going into reverse. The second is the build up of the Chinese industry which is piling on the downward pressure on prices.
The third is that the wind power market is tending to fall into the hands of major investors (utilities, major energy suppliers, oil companies, etc.) who can negotiate to their advantage as they place bulk orders. According to the analysts, this mix of factors should lead to market concentration in fewer hands because the small players are bound to struggle to hold onto their market shares, especially as major wind turbines manufacturers who have economies of scale on their side clinch projects for several hundreds of MW.
The global leading manufacturer is probably Chinese
The main Chinese manufacturers have yet to publish their wind turbine megawatt delivery data for 2010. However, it is highly likely that the unremitting growth of their domestic market should take a Chinese player to the global leadership slot for the first time. Back in 2009, China had three manufacturers in the top ten ranks, namely Sinovel, Goldwind and Dongfang.
The Chinese industrialists work primarily in their domestic wind farm market which is the biggest and fastest-growing market in the world. But they are also becoming more and more attracted to the new international wind power markets (Asia, South America and Africa), as well as the North American market and in the offshore wind energy segment.
Last year Sinovel commissioned the Shanghai Donghai Bridge (100-MW) demonstration offshore wind farm and has also demonstrated its technical expertise by developing very high capacity wind turbines. It has just launched a 5-MW preproduction wind turbine (SL5000) and will also launch in June a 6-MW wind turbine.
These two units will be dedicated to offshore and onshore wind farm use. In February 2011, Sinovel announced it was beginning development of a 10-MW wind turbine, catching up manufacturers such as AMSC, Clipper Windpower and Gamesa who are also developing >10-MW offshore wind turbines.
Vestas, from exporting to globalisation
Vestas is exceptional in having a foothold on all five continents. According to the manufacturer’s 2010 annual report, it manufactured and delivered 4 057MW in 2010 (2 025 wind turbines) down from 6,131 MW in 2009 (3,320 wind turbines). The reason for this drop is a lighter order book in 2009 (3,072 MW). These results will probably rob Vestas of its top wind turbine manufacturing slot for 2010, as it is likely that one, if not two Chinese competitors will outperform the previous market leader.
However, 2011 is looking rosier for Vestas, with firm orders for 8,673MW in 2010 (roughly 50% for Europe, 30% for America and 20% for Asia-Pacific). The company still expects market uncertainty and competition to be tighter in 2011 and should see its order book decrease by 7 000-8 000 MW. Its production forecast for the year stands at around 6 000 MW, which would take Vestas past the 50,000 MW barrier for installed wind turbines across the world.
Vestas sales are clearly on the up, having increased from 5 079 million to 6 920 million euros in 2010. Its earnings and gross profit margin are 1 175 million euros (836 million euros in 2009) and 17% (16.5% in 2009) respectively.
At the start of 2010, Vestas decided to keep its surplus manufacturing capacities in Europe banking on stronger demand in 2010. However market growth was weaker than expected, which led the manufacturer to adjust its European manufacturing capacities. The company is contemplating shutting down five plants – four in Denmark and one in Sweden – and cutting 3 000 jobs. It will divert its international expansion drive by investing 400 million euros in plants and capital goods in high-growth markets.
Turning to innovations, the Vestas capacity range was extended last year with the 3-MW V112 – a wind turbine designed for both onshore and offshore wind farm use. The Danish major is also working on a new generation of offshore wind turbines whose unit capacity would be 6 MW.
GE Wind Energy invests in European wind energy offshore
In 2010, GE Wind Energy announced a 340 million euro investment in four European countries (the United Kingdom, Sweden, Norway and Germany) to develop its European offshore business. It is planning to develop its next generation of wind turbines – a 4-MW unit (110 metre-long rotor) specially designed for the European market. The wind turbines will make use of the direct drive (gearless) technology inputs obtained through its acquisition of the Norwegian, Scanwind. This technology has been tested for five years on the Hundhammerfjellet test site in Norway.
Last June, GFE Wind announced that it would be installing five of these units on two demonstration sites. Four of them will be installed in 2012 on test in Rogaland County, off the southwest coast of Norway and another will be installed in Gothenburg harbour, Sweden.
A 7.5-MW Enercon turbine at Magdeburg
At the start of 2011 Enercon finalised the construction of its most powerful wind turbine, the E-126, in its 7.5-MW version. This wind turbine installed on a test site at Magdeburg will alone produce 14 million kWh annually – enough to supply electricity to 15 000 people. The installation of such high-capacity units is warranted by the reduction in the number of potential installation areas, which is a particularly poignant issue in Germany.
They may also find outlets in the windiest sites where obsolete wind turbines require replacement. The German manufacturer also presented its new 3-MW wind turbine range in 2010: the E82/3MW for highwind sites and the E101/3MW for low-wind sites that call for larger diameter wind turbine rotors. These units are scheduled to go into mass production in 2011. The German company which also has a good foothold in the Spanish market, has decided to open offices in Madrid, to improve the accessibility of its services to its Spanish customers who are very active in the Latin American markets. It is also banking on clarification of Spain’s policy, which should enable the Spanish market to pick up momentum again.
Siemens Wind Power crossing international boundaries
The German major, Siemens Wind Power, dominates the offshore segment and is heavily entrenched in the British market, the world’s main offshore wind farm market. The manufacturer claims that Siemens wind turbines provide 77% of the UK’s installed and development capacity.
Siemens is pursuing expansion of its international manufacturing network with the construction of new plants in China and the United States. Last December, it opened its first rotor manufacturing plant in China (Shanghai) and another nacelles unit in Hutchinson, Kansas. It has also selected Tillsonburg as the site for its Canadian rotor manufacturing plant and announced the construction of new manufacturing sites in the UK, India and China, as well as a wind turbine component manufacturing joint venture in Russia. Siemens Wind Power views internationalisation as one of its key strategy priorities and within two to three years’ time, Siemens will have 12 manufacturing units in 7 countries, to be as close as possible to its customers. It harbours the aim of entering the coveted top three wind turbine manufacturer circle.
Last December, the company announced sales of 2 900 MW during 2010 (in the twelve months from October 2009 to September 2010) and the creation of around 2 500 jobs around the world in 2011. At the end of 2010 its order book stood at over 10 billion euros. Many of these orders are for sites outside Europe. In December 2010, Siemens clinched its biggest-ever onshore wind turbine order. American utility, MidAmerican Energy, ordered 258 wind turbines rated at 2.3-MW for various sites in Iowa for a combined capacity of 593MW to supply electricity to 190 000 American homes.
Siemens is working in partnership with electricity company Dong Energy on technology developments, primarily on the prototype of a 6-MW offshore wind turbine and its direct drive technology.
Gamesa carves out its position in the British offshore wind farm
The Spanish industrialist is one of the first to have become involved in the development of the international wind power market and is already on the ground in 20 countries across four continents.
It has manufacturing facilities in Europe, the United States, China and India, employs almost 6 300 people and can produce 4 400 MW of capacity per annum.
Last year the company estimated its sales volume in the range of 2 400 to 2500 MW in 2010 and expects this figure to rise to the 2 800 to 3 100 MW range in 2011. It is also interested in the offshore segment and is currently developing two 5 and 6-7MW-capacity models.
The 5-MW wind turbines will be ready for preproduction in 2013 and the 6-7 MW versions in 2014. These wind turbines will be up and running in time for the third British Crown Estate offshore project tendering stage. Gamesa is banking on developing this business from the UK by setting up its offshore division in London.
It has earmarked 150 million euros’ worth of investment, including an R&D centre, a rotor manufacturing plant and logistics and maintenance port services. The company is constructing its fifth manufacturing plant in China, with a capacity of 500MW, to produce the G8X 2MW type wind turbine, thus raising the group’s Chinese manufacturing capacity to 1,500 MW.
Controlled development for the European market
In 2010, the European wind energy market entered a new development phase as its focus will increasingly turn to the offshore wind farm market in the countries of Northern Europe, and to new emerging markets. The mature markets will continue to wield influence but their growth will flatten out.
The National Renewable Energy Action Plans (NREAP), implemented under the terms of the Renewable Energies Directive, have set out a development roadmap for each renewable sector. EU Member State governments are now bound to adapt their legislation to incorporate the Directive’s objectives.
The outline of the sector’s development is thus fairly clear up to the 2020 dateline even if for economic reasons the roadmaps are not fully adhered to in the first years. Most of the national experts we surveyed reckon that their national target will be achieved, which means that our forecast resembles the NREAP forecast. These action plans can only be good news for the wind power sector because they safeguard the production capacity increases for the next decade.
The flipside of the coin is that some of the Member States are inclined to control the development of their sector, if not rein it in if they feel the market is overheating. In actual fact, the wind power industry can rapidly respond to high rises in demand and thus will enable the national targets to be achieved well before the 2020 deadline. This unbridled growth poses the problem of manufacturing industry support costs.
The example of Spain illustrates this eloquently as the country had to instigate emergency measures to check its runaway domestic market in its stride before the implementation of a new legal framework scheduled for 2013. Other countries such as Italy and Belgium are planning to overhaul their incentive systems as part of the transposition of the Renewable Energies Directive into national legislation.
France has repeatedly changed its legal framework to control the pace of its installations. The EU Member States also want to be certain that their investments serve their national interests in terms of new factories and job creations.
Considerable investments in grid infrastructures are called for in response to the development of production capacities, which will entail the creation of offshore infrastructures in the North and Baltic Seas, the strengthening of existing power lines and enhanced major transnational power grid interconnections in Europe.
Energy infrastructures – priorities for 2020 and beyond
Last November the European Commission published a communication entitled “Energy infrastructure priorities for 2020 and beyond” which aims to create a real European electricity market, increase security of supply, lower prices and increase the grids’ capacities to incorporate renewable electricity.
This smart grid would optimise the balance between consumption and decentralised and intermittent electricity production inflows. Its purpose would be to link the major offshore wind farms in the North and Baltic Seas with the concentrated solar power plants in North Africa or Spain, routed via the major hydropower dams in Scandinavia and the Alps.
The stumbling blocks strewn along this path are legion –funding, the legal framework, technical innovation and most of all public acceptance of high voltage power lines – and the venture is colossal. According to this blueprint, the liquidation of the investments required for the energy infrastructures (electricity and gas distribution, energy storage, smart grids) could create another 775 000 jobs over the 2011-2020 period and add 19 billion euros to the EU’s GDP in 2020. Europe was built in 1952 on the European Coal and Steel Community. The setting-up of this major grid in the 2010s could be tantamount to a new founding act of European construction.