TODAY’S STUDY: WIND IN THE WORLD, PART 2 (2013 – 2017)

Global Wind Report; Annual Market Update 2012, Part 2 (2013-2017)

April 2013 (Global Wind Energy Council)

Market Forecast for 2013 - 2017

The wind industry continues to diversify geographically, with significant new activity in Latin America, Africa and Asia outside of China and India; but it is still the ups and downs of the major markets which are the main determinants of global market growth. Continued uncertainty over the short term development of the global economy with all its regional and national variations, and its effect on electricity demand growth are major variables to contend with when looking at the wind industry’s development over the next five years, and although we continue to watch closely the development of national and regional carbon markets, given the state of the global climate negotiations, climate policy and carbon markets are unlikely to have a significant effect on global development in the next five years.

As ever, policy at the national level is the most significant factor driving the market. The Production Tax Credit (PTC) in the United States was extended on 1 January 2013 for one year, with the critical proviso that it will cover projects which have broken ground during 2013, not only those which are connected to the grid. But what happens after 2014? While it seems clear that the current wave of policy uncertainty sweeping through many European markets is going to have an effect on 2013, and perhaps 2014, what next? What about the post 2020 target discussion in Europe? How long will China’s consolidation phase last before the market returns to significant growth? Will India’s ‘policy gap’ be rectified in a timely enough fashion to bolster the 2014 market?

These are some of the many questions that need to be considered when looking at the industry’s near term future. In addition, one has to expect the downward pressure on turbine prices because of sluggish markets and manufacturing overcapacity to continue. How long before we return to a reasonable balance between supply and demand, and at what cost to the manufacturing supply chain?

click to enlarge

The 2012 market saw the US return to the top of the league table. Installing an incredible 8.4 GW in the fourth quarter in anticipation of the expiration of the PTC, the US installed 13,124 MW, eking out China, which at 12,960 MW had its lowest level of installations since 2008. Combined with an exceptionally strong year in Europe, the market was much more reasonably balanced between the three major regions (Asia, North America and Europe) than at any point in the last several years, and while Asia was still the leading region, it did not enjoy the dominance that characterized the 2010 and 2011 markets.

Looking back at last year’s annual market update, we were pretty close with our 2012 forecast, missing our projection by just over 1 GW. But for 2013, we are now looking at a much more significant drop in the market than we foresaw a year ago, primarily as a result of a major drop in US installations, a slower than expected recovery of the Chinese and Indian markets, and a bit of a slowdown in Europe. We forecast that annual installations for 2013 will drop by more than 11% to just under 40GW; and then recover sharply in 2014 to slightly exceed the 2012 market and average just over 11% annual market growth from 2014-2017. The average annual market growth rate for the entire 2013-2017 period will be almost 7%, ending up with an annual market in 2017 of 61GW. In cumulative terms, this means an average growth rate over the period of about 13.7%, well below the decadal average, although the larger numbers involved mean that maintaining growth rates in excess of 20% is challenging without some sort of global policy imperative to drive the market. We project that by the end of 2017 we will see total cumulative installed capacity passing 500 GW to end up at about 536 GW. This puts us right on track with the Moderate Scenario from last year’s long term projections in the Global Wind Energy Outlook 2012, and leaves us to ponder what is required to get us back on the Advanced Scenario track.

click to enlarge

Regional distribution

While new markets in Africa, Latin America and non-China/India Asia are evolving rapidly, their numbers do not have a major impact on global picture over the next five years, with the exception of the burgeoning market in Brazil, which is expected to rack up some impressive numbers over the period.

South Africa could surprise us; Pakistan already has; and the new push for a renewable industry in Saudi Arabia could yield some substantial results towards the end of the period, but that is very much a wild card at this stage. But the new markets in East Africa, East and Southeast Asia and North Africa will only start to impact the picture substantially towards the end of the decade; and it’s not clear whether there are going to be other major markets in Latin America – from where we sit now, it looks more like a proliferation of smaller ones, at least for now.

Asia will certainly continue to be the world’s largest market, and the potential for growth in China remains astronomical. The Chinese government has called for an 18 GW market in 2013. From where we stand today that seems unlikely, although there will be significant recovery from the 2012. But the industry is still recovering from some of the excesses of its explosive growth phase over the last 8 years, and the time taken to sort out grid, quality control and health and safety issues will be time well spent.

India’s inexplicable policy gap, where both accelerated depreciation and the generation based incentive (GBI) were allowed to lapse at the end of the 2012 fiscal year at the end of last March seems likely to be partly restored, as the GBI is set to be reinstated during the fiscal year beginning on 1 April 2013. That will probably not be reflected much in installations during calendar year 2013, as installations tend to be back loaded into the fourth quarter in India as in so many other markets. Therefore we are expecting the Indian market to continue to lag in 2013, but to get back on track in 2014 and beyond.

click to enlarge

Japan’s efforts at this stage are focused on offshore, although METI has now outlined a process of electricity reform which will undo some of the knots which are tying up the expansion of the Japanese renewable industry which the public demands. But this process will take some years, and we expect a low level of installations over most of the period, although with some exciting developments offshore.

South Korea has a similar focus on offshore, and will no doubt build at least 1 GW offshore during the period. The government has set very ambitious 2020 and 2030 targets, but it remains to be seen how successful they can be with a focus on offshore while the onshore industry languishes in red tape and NIMBYism.

Mongolia, Thailand and the Philippines will all see new installations in 2013, and these markets will slowly build over the forecast period; but the real surprise in this region is Pakistan, with more than 40 projects totaling 2,700 MW under development. Watch this space.

At any rate, Asia will remain the largest market by far, installing about 112 GW over the five year period, ending up in at the end of 2017 with more than 200GW of total capacity. Europe had an exceptional year in 2012, exceeding all expectations by installing 12.74GW, bringing total capacity to nearly 110GW. In 2013 and 2014, however, the effects of the recent spate of policy disruptions in various markets will begin to take its toll, and it is expected that both years will see levels of installations below that of 2012. However, new markets in the east and strong development in a number of second tier markets will take up the slack created by weaknesses in some traditionally strong southern European markets, and the EU is expected to get back on track by 2015, and continue to grow towards achieving the 2020 targets laid out in European law for the remainder of the period.

click to enlarge

Offshore installations in Europe passed the 1 GW mark for the first time in 2012, accounting for about 10% of total installations in the EU in 2012, and this trend is expected to intensify during the next five years. Offshore installations should account for 3 GW or more per year by 2017. Overall installations over the next five years will be about 63 GW, bringing the cumulative total to more than 170 GW by the end of 2017.

In North America, the big question is, of course, what will happen to the US market. After record installations in 2012, the ‘13th hour’ reauthorization of the Production Tax Credit on 1 January 2013 means that while the prospects for 2014 are somewhat brighter, 2013 is going to see installations drop to probably less than one third of 2012 levels. After 2014 is anyone’s guess, but the increasing competitiveness of wind energy and the gradual recovery of the US economy mean that demand for clean, renewable power will no doubt start to grow again in earnest.

In Mexico, the industry had its best year ever in 2012, and everything is looking up for the establishment of a third significant market in North America of 1 to 1.5 GW per year. While some uncertainty remains in relation to the new government’s policies, early indications are quite positive, and we are expecting robust growth throughout the period.

Canada had another strong year in 2012, and we expect a market in the vicinity of 1.5 GW for 2013 and in that same range for the next few years, as Canada seems well on track towards the industry target of 12,000MW by 2016. Overall, we expect installations of just over 52 GW in North America over the coming five years, ending the period with a cumulative total of about 120GW.

click to enlarge

Wind energy in Latin America continues to be dominated by the dramatic growth of the Brazilian market, and we don’t expect that to change fundamentally over the next five years. Brazil installed more than 1 GW in 2012, and will probably install more than 2GW in each of the next two years, although chronic delays with grid infrastructure means that the pace might be slowed somewhat and backloaded towards the end of the period.

While installations will continue in smaller Central American and Caribbean markets as well as Chile, Peru, Venezuela, Uruguay and Argentina, we expect Brazil to account for the bulk of installations in the period out to 2017, which we expect to be about 13GW, bringing total installations in the region to about 16.5GW at the end of 2017.

2012 was another quiet year in Africa and the Middle East, with just over 100MW installed in the region. However, there is a lot of activity, especially in the burgeoning South Africa market, which will see hundreds of MW installed annually in 2013 and for the rest of the forecast period and beyond. New projects are under construction in Ethiopia, Kenya, Morocco and Jordan as well, and it is hoped that the situation in Egypt will stabilize so that the ambitious plans for 7,000MW of wind power by 2020 can be realized.

click to enlarge

Current plans call for the South African market to reach at least 400MW per year during the course of the forecast period, and that number could increase substantially, and the ambitious plans of the Saudi government may begin to bear fruit during the next five years. Overall, we expect more than 8GW of new capacity to be installed in the region during the next five years, bringing total capacity close to 10GW.

The main market in the Pacific region will continue to be Australia, and new carbon legislation combined with the Renewable Energy Target should see installations continue to grow beyond the 358 MW which were installed in 2012. The country has a healthy 19 GW pipeline, of which a quarter or more should become operational within the coming period.

The recent Pacific Energy Summit in Auckland, New Zealand bodes well for wind and solar in the Pacific Islands in the coming years, although the markets and hence the numbers are small. Host country New Zealand has one 60 MW project under construction at the moment, but flat demand means that it is unclear how much of the 1,500 MW or so of consented projects will in fact be built out over the next few five years. Overall installations during the next five years are expected to be just under 5 GW, bringing the region’s total installations to just over 8GW by the end of 2017.

Tweet