TODAY’S STUDY: WIND IN THE WORLD, PART 1 (THE YEAR REVIEWED)

Global Wind Report; Annual Market Update 2012 (Part 1: The Year Reviewed)

April 2013 (Global Wind Energy Council)

The Global Status of Windpower in 2012

The 2012 global wind power market grew by more than 10% compared to 2011, and the nearly 45GW of new wind power brought on line represents investments of about € 56 billion.

The new global total at the end of 2012 was 282.5 GW, representing cumulative market growth of more than 19%, an excellent industry growth rate given the economic climate, even though it is lower than the annual average growth rate over the last 10 years of about 22%.

At the end of 2011, the expectations for wind power market growth were mixed, as continued economic slowdown in Europe and the political uncertainty in the US made it difficult to make projections for 2012. Nevertheless 2012 turned out to be a record year for wind power installations in the traditional markets of North America and Europe.

Conversely, China the largest market for wind since 2009, saw a slower market, which meant that the US regained the top spot in 2012. But installations in Asia still led global markets, with North America a close second, and Europe not far behind. A result of this was that in 2012 the majority of wind installations globally were inside the OECD for the first time since 2009. This outcome was largely a result of the exceptionally robust US market combined with a stronger than expected European market.

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By the end of last year the number of countries with more than 1,000MW installed capacity had risen to 24: including 16 in Europe; 4 in Asia-Pacific (China, India, Japan & Australia); 3 in North America (Canada, Mexico, US) & 1 in Latin America (Brazil).

Looking ahead, the picture is complex across various regions. Although the Production Tax Credit has been renewed for one more year (effectively almost 2 years) in the US, the broader market conditions and politics may impact the level of support available to renewables in the country in the short to medium term. Europe’s framework legislation and its 2020 targets ensure a degree of stability, but a recent wave of policy uncertainty combined with the on-going sovereign debt crises mean that the outlook for the 2013 market is uncertain.

Market consolidation and rationalisation in China, and a lapse in policy in India were the main reasons for the significant slowdown in Asia in 2012, but these conditions are expected to be short-lived, and Asian dominance of global wind markets is expected to continue. Canada, Brazil and Mexico are expected to have strong years in 2013, and a few hundred megawatts from sub-Saharan Africa will come online for the first time: in South Africa, Ethiopia and possibly Kenya; and global installations will be further augmented by new projects coming on line in Mongolia, Pakistan, the Philippines and Thailand.

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Asia: China and India continue to lead

For the fifth year in a row, Asia was the world’s largest regional market for wind energy, with capacity additions totaling just over 15GW.

In terms of annual installations China ceded its leadership position to the US this year, albeit with less than 200 megawatts difference between them. China added 12.96GW of new capacity in 2012, a significant drop when compared to the exceptional annual installation figures for the past three years.

In 2012, wind-generated electricity in China amounted to 100.4 billion kWh, accounting for 2% of the country’s total electricity output last year, up from 1.5% in 20113

. The Chinese market almost trebled its capacity from 25.8GW in 2009 to reach 75.3GW by the end of 2012, allowing China to continue maintaining its lead in terms of global cumulative installed wind power capacity. By the end of 2012, wind energy was the third largest source of electricity after thermal and hydropower in China, surpassing nuclear during the course of the year.

The astonishing growth of China’s wind sector since 2006 has managed to surprise even many optimists in the industry, but the Chinese wind power market is now beginning to enter a more steady development and refinement stage. The pace of growth in the Chinese wind energy market has for now outstripped the ability of the grid and system operators to manage it. Curtailment of electricity generation has become the new challenge for wind power.

According to a recent announcement, China’s National Energy Administration (NEA) expects installations of about 18GW of new wind power capacity in 2013. In the meantime, however, the NEA and State Grid are working to solve the transmission bottlenecks and other grid issues. The NEA is also actively encouraging wind farm development in lower wind zones that are closer to load centers.

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India today is a key market for the wind industry, presenting substantial opportunities for both international and domestic players. Although in 2011 the Indian wind sector experienced its strongest annual growth ever, with over 3 GW of new installations, 2012 was a slower year due to a lapse in policy. Nonetheless, India saw new wind energy installations reach 2,336 MW by the end of 2012, for a cumulative total of 18,421 MW. This pace of growth kept the Indian wind power market firmly in the top five rankings globally. As of January 2013, total wind installations had risen to 18,552 MW bringing total renewable energy installations in the country to 26,920MW4

. By the end of 2012, renewable energy accounted for over 12 % of total installed capacity, and about 6% of electricity generation, up from 2% in 1995. Wind power accounted for about 69% of total renewable energy capacity or about 8% of the total installed capacity5 in India. With the acute need for electrification and rising power consumption in the country, wind energy is going to provide an increasingly significant share of India’s electricity supply.

While the rest of Asia did not make much progress in 2012, there are some favourable signs on the horizon. The Japanese market saw new installations of 88 MW in 2012 to reach a cumulative capacity of 2,614 MW. This represents around 0.5% of the total power supply in Japan. After the Fukushima accident in March 2011, Japan is slowly moving towards a transformation of its energy system to allow for a more diverse energy mix including more wind power and other renewables. However, removing existing barriers will still take a long time.

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Offshore wind development is a promising prospect for the future.

The Government of South Korea has made “green growth” one of its national development priorities. Although wind power is still a relatively young energy generation technology in South Korea, there were 76 MW of new onshore installations in 2012, which brought the total installed capacity to 483MW. A Renewable Portfolio Standard was introduced in 2012, which is likely to expedite the development of new wind projects in the future, and the government expects this to yield more than 15GW of new wind power by 2022.

Finally, 2012 saw pakistan commission its first large-scale commercial wind farm of 50MW in the province of Sindh. The total installed capacity reached 56 MW by the end of 2012.

While this is a small development, it is the harbinger of major developments to come. Almost 150 MW of new capacity is under construction currently and projects totaling 700 MW are likely to achieve financial closure by the end of 2013. The first commercial wind farm of 50MW will be commissioned this summer in Mongolia. As for the rest of Asia, we expect new projects to come on line in Thailand and the Philippines in 2013.

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North America: Record US installations

Uncertain federal policies in the US have caused a ‘boombust’ cycle in wind energy development for over a decade. Nonetheless the US wind energy industry had its strongest year ever in 2012, making it the market leader in terms of new wind installations globally. The US connected over 13.1GW of new wind power capacity from 190 projects, which leveraged $25 billion (€ 19 billion) in private investment. The country now is home to 60GW of total wind power capacity, up from 46.9GW in 2011.

In 2012, wind energy was the largest source of new US electricity generation, providing some 42% of all new capacity. In fact, 2012 was a robust year for all renewables, as together they provided over 55% of all new generating capacity in the country.

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An unprecedented 8.4GW of wind power was installed in the fourth quarter alone, making it the strongest quarter in the country’s long wind power history. This was due in large part to impending expiration of the federal Production Tax Credit (PTC). It was slated to end on December 31, 2012, but was extended by Congress on January 1, 2013, as part of the ‘fiscal cliff package,’ or the American Taxpayer Relief Act of 2012. The ‘13th hour’ extension of the tax credit means that although the US market will slow substantially in 2013, it is unlikely to be as much of a slowdown as was expected, and the nature of the extension bodes well for the 2014 market.

In terms of new capacity added in 2012, Texas again led the Top-5 rankings with 1,826 MW, followed by California (1,656 MW), Kansas (1,440 MW), Oklahoma (1,127 MW) and Illinois (823 MW). As of February 2013, 29 of the 50 states have Renewable Portfolio Standards, and seven states have renewable energy goals.

A total of 66 utilities bought or owned wind power in 2012, a significant increase from 42 in 2011. New wind power purchasers last year included at least 18 industrial buyers, 11 schools and universities, and 8 towns or cities, showing a significant trend toward non-traditional power purchasers.

Canada saw 935 MW of new wind capacity come online, making it the ninth largest market in 2012. Compared to 1,267 MW in 2011, Canada’s wind power market saw a slight slowdown in 2012, but it was still the second best year ever. Ontario leads in wind energy installed capacity with more than 2,000 MW now supplying over 3% of the province’s electricity demand. The Canadian industry expects to see a record year in 2013 for new installations with the addition of almost 1,500 MW of new capacity that will drive over $3 billion (€ 2.3 billion) in new investments. Ontario and Quebec are expected to lead in new wind energy installations.

New contracts were also awarded in 2012 for projects in Saskatchewan, Nova Scotia and Prince Edward Island. Mexico more than doubled its installed capacity in 2012, installing 801 MW for a total of 1,370 MW joining the list of countries (now 24) with more than 1,000 MW of wind power capacity.

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Europe: Stronger than expected market

During 2012, 12,744 MW of wind power was installed across Europe, with European Union countries accounting for 11,895 MW of the total. However, the 2012 figures reflect orders made before the wave of political uncertainty that has swept across Europe since 2011, which is having a negative impact on the wind energy sector.

Wind energy represented 26% of all new EU power capacity installed last year, and investments of between €12.8 billion and € 17.2 billion. Wind is now meeting 7% of Europe’s electricity demand, up from 6.3% at the end of 2011 and 4.8% in 2009.

Last year, wind energy installations were led by Germany (21% of all new wind power capacity), the UK (16%), Italy (11%), Romania (8%) and Poland (8%). In terms of total installed capacity, Germany leads again (30% of total wind power capacity), followed by Spain (22%), the UK (8%), Italy (8%) and France (7%).

Currently, the wind industry is being hit by the economic crisis and austerity measures being implemented across Europe. The year ahead will be tough, but the long-term prospects for the wind industry are bright, with European Commission and GWEC scenarios showing wind energy as the leading power generation technology by 2050.

However, the most important long-term signal that the EU can give to investors now is the formalization of 2030 Renewable Energy Targets. Overall, the EU is almost 2 GW (1.7%) under its National Renewable Energy Action Plan forecasts for 2012. 18 Member States are falling behind, including the Czech Republic, France, Hungary, Greece, Portugal and Slovakia.

The German wind energy market continued its steady growth in 2012. The German wind industry expects to be able to provide a stable outlook for 2013 as well. However, the latest plans for reforming the feed-in tariffs for renewable energy proposed by Environment Minister Peter Altmaier could negatively impact investor confidence in future wind projects in Germany.

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The other concern of the wind industry was the lack of clarity on interconnection rules for offshore projects. German offshore wind projects saw 16 new wind turbines with a capacity of 80MW connect to the grid in 2012, bringing the total number of wind turbines in the German part of the North and Baltic Seas to 68 with a combined capacity of 280 MW. Last year, approximately 109 foundation structures were installed in the sea while 6 large offshore wind farms are currently under construction. In the coming months the market should be able to better determine whether the difficulties surrounding grid connection for offshore wind farms have been satisfactorily resolved through the latest clarification of liability issues.

The United Kingdom has the best wind resources in Europe, and installed 1,897MW in 2012 – 16% of all new wind capacity in Europe, 1,043MW onshore and 854MW offshore. This puts the UK 2nd in terms of new deployment last year and the UK’s wind energy output increased by 33% in 2012 compared to the previous year. Overall wind power generated 5.5% of the UK’s electricity needs in 2012, up from 4% in 20117

In a recent move, the UK government tabled an amendment to the Energy Bill, which would require the Government to set a decarbonisation target for the power sector in April 2014. If the amendment were to be introduced, it would limit the maximum amount of carbon emitted from 2030 onwards. The currently recommended limit is of 50 grams / kWh or 90% lower than current levels.

RenewableUK, the UK’s renewable energy trade association stated that this would secure more than 76,000 jobs in the wind industry by 2021, and have a transformative impact on the UK manufacturing sector. Another regional development that will have long-term positive outcomes for the wind industry was the signing of the MOU between the Irish and UK governments in January 2013.

The MOU will initiate detailed analysis of how Irish renewable energy resources, onshore and offshore, might be developed to the mutual benefit of Ireland and the UK. Based on this analysis, the parties will develop an inter-governmental agreement for signing by 2014.

Italy now has a total installed capacity of 8,144MW, up from 6,737 MW in 2011; and is the seventh largest wind market globally. The financial crisis and backtracking on renewable energy support legislation in Spain meant that installations dropped to 1,112 MW, with no prospects of recovery in the near future. France’s wind capacity is growing steadily and has now reached 7,564MW. The French government has called for 25 GW by 2020, but at this stage it looks like it will be hard pressed to deliver on this target.

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Latin America: led by the Brazilian boom

Wind power is now finally reaching critical mass in a number of Latin American markets, and the region has begun developing a substantial wind power industry to complement its rich hydro and biomass (and potentially solar) resources. In the medium to long-term, the demand for energy security and diversity of supply is expected to foster the growth of wind power in Latin America.

For the first time the Latin American market installed over 1 GW of new capacity. Last year six markets in the region installed 1,225 MW of new wind capacity for a total installed capacity of just over 3.5GW.

Brazil led Latin America with 1,077 MW of new capacity, pulling the country into the small club of wind energy markets with annual installations of over 1 GW globally. Brazil has a strong pipeline of almost 7GW to be completed by 2016.

Brazil is one of the most promising onshore markets for wind energy, for at least the next five years. The country’s support framework and the sector’s experience have been adapted to meet local conditions. This puts Brazil in an excellent position to be the regional leader in wind energy generation and development. However, achieving sustained development requires a new regulatory framework, which would provide certainty in terms of development volumes in the medium and long term, legal security in the processing of projects, and a support system, which would further enhance competitiveness. Current government projections foresee 16,000MW of wind power installed in the country by the end of 2021.

Argentina added 54MW of new capacity last year to bring its total installed capacity up to 167MW. Argentina is a promising market, which has massive wind resources. A number of wind power projects are under development, and they are needed to help alleviate chronic electricity shortages in the country. Some analysts claim that the winds in Argentina are sufficient to supply Latin America’s entire electrical demand seven times over.

2012 marked the commissioning of Venezuela’s first commercial wind farm of 30 MW. Uruguay added to its total tally with the commission of 9 MW of new capacity, bringing its total installed capacity up to 52MW.

In Central America and the Caribbean, Nicaragua and Costa Rica added new capacity. nicaragua installed 40MW, bringing its total tally up to 102MW, and 15MW was installed in Costa Rica, which brought its total tally up to 147MW.

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Pacific: Australia continues to lead

The region saw its total installed capacity cross the 3GW mark last year. The Australian market added 358 MW in 2012 (up from 234MW in 2011), bringing the total installed capacity up to 2,584MW. New Zealand currently has one 60MW project under construction, but flat power demand means that there is no market for the 1500 MW or so of new wind projects which have been consented.

According to recent research conducted by Australia’s Clean Energy Council, wind farms have reportedly generated more than A$ 4 billion in investment in Australia since their Introduction.

. The Australian Government’s Renewable Energy Target Scheme is designed to deliver 20% of Australia’s electricity supply from renewable sources by 2020. The Large-scale Renewable Energy Target and the Small-scale Renewable Energy Scheme provide incentives designed to bridge the gap between the price of black electricity and renewable energy, and are expected to yield more than 45,000GWh in 2020. Australia last year started charging its biggest polluters a price of A$23 (€18.2) a metric ton for their carbon emissions to discourage the use of fossil fuels and fight climate change. In August 2012, the Australian government and the European Commission reached an agreement to link their carbon trading platforms in a shared marketplace.

However, the most interesting piece of news in 2012 was that wind is now cheaper than fossil fuels in producing electricity in Australia. According to a recent Bloomberg New Energy Finance report12, a new wind farm in Australia can supply electricity at a cost of A$80 (€ 64) per MWh, compared with A$143 (€ 114) a MWh from a new coal-fired power plant or A$116 (€ 92) from a new station powered by natural gas when the cost of carbon emissions is included.

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Africa and the Middle East

Africa and the Middle East are beginning to exploit their enormous wind power potential, although growth in 2012 was still small in absolute terms, with just over 100 MW installed across the region. However, several countries have announced long-term plans for installing large quantities of commercial scale wind power; this includes South Africa, Ethiopia, Morocco, Kenya and Saudi Arabia, among others. Africa’s wind resource is best around the coasts and in the eastern highlands, but until last year it was in North and East Africa that wind power has been developed at scale. This, too, is where current national policies are set to grow the sector further. At the end of 2012, over 98% of the region’s total wind installations of just over 1,135 MW were to be found across six countries - Egypt (550 MW), Morocco (291 MW), Tunisia (104 MW), Ethiopia (52 MW), Iran (91 MW) and Cape Verde (24MW). 2012: an exceptional year under stressful conditions

In an increasingly tight market, with tremendous downward pressure on prices through oversupply in the turbine market; fierce competition with ‘cheap’ gas; and a wave of downward revisions to support mechanisms in an austerity driven economic landscape; the industry continues to be challenged to compete on a price basis directly with heavily subsidized fossil fuel and nuclear energy plants. Having said that, all the fundamental drivers for wind power development still hold, and there is a need around the world for new power generation, which is clean, affordable, indigenous, reliable and quick to install.

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