Navigant Research Blog

Wind Energy Surpasses Coal Generation in Europe

— February 15, 2017

TurbineEurope is widely considered to be the birthplace of the modern wind energy industry and its corporate and technology home base. Installation rates announced by WindEurope for 2016 show continued and stable momentum, with 12.5 GW installed across 28 EU member states (10,923 MW onshore and 1,567 MW offshore). This was 3% less than the new installations in 2015, which is less a downturn than a reflection that 2015 was a record installation year as German projects raced to get installed before wind incentives became less generous. Activity in 2016 otherwise shows stable installation rates expected for the continent.

Growing Role of Wind and Renewables

Total wind capacity in Europe now stands at 153.7 GW, and wind energy covered 10.4% of Europe’s electricity needs in 2016. Germany installed the most new wind power capacity last year with 44% of the EU total. Five member states—France, the Netherlands, Finland, Ireland, and Lithuania—had record years. France’s record was due to previously stalled wind incentives back in place for 2016 commissioning; Ireland saw a rush to connect projects before incentives are rolled back; and the Netherlands, Finland, and Lithuania all hit records with modest capacity additions outweighing previous small installation rates.

Renewables altogether accounted for 86% of new EU power plant installations in 2016, representing 21.1 GW of a 24.5 GW total. Investment in new onshore and offshore wind farms reached a record €27.5 billion (~$29.2 billion). Offshore wind investments rose 39% year over year to €18.2 billion (~$19.3 billion), while onshore investments were down 29% at €9.3 billion (~$9.9 billion).

Offshore wind represented 13% of the annual EU wind energy market installed capacity with 1,567 MW of new gross capacity connected to the grid in 2016. This is a 48.4% decrease compared with 2015, which was an exceptional year for offshore wind installation and grid connection due to delays in Germany getting resolved and 3.7 GW being installed. See Navigant’s Offshore Wind Market Update for detailed analysis of the market and supportive policies by country.

Offshore wind is a key growth area for wind in Europe, while onshore wind remains largely flat and is decreasing in some markets. This is the case in the United Kingdom, where onshore incentives were scrapped in early 2016 but retained for offshore. Similarly, incentives in Germany were reduced for onshore wind while being maintained for offshore wind.

Coal No Longer King

Also notable is that the installed wind capacity of 153.7 GW now has wind overtaking coal (152 GW) as the second largest form of power generation in Europe. In 2016, wind accounted for 51% of all new power installations in the region, and renewable energy accounted for 86% of all new EU power installations (21.1 GW of a total 24.5 GW of new power capacity). Solar had a strong showing with 6,700 MW, or 27.4% of 2016 installed capacity.

Conventional power sources such as fuel oil and coal continue to decommission more capacity than they install. Despite having decommissioned more than 2 GW this year, net gas-fired generation capacity continues to remain positive. Natural gas power plants saw 3,115 MW installed, representing 12.7% of all 2016 power generation capacity.

Since 2000, the net growth of wind power (142.6 GW), solar PV (101.2 GW), and natural gas (98.5 GW) capacity has coincided with the net reduction in fuel oil (down 37.6 GW), coal (down 37.3 GW), and nuclear (down 15.5 GW). The share of wind power in total installed power capacity has increased from 6% in 2005 to 16.7% in 2016, overtaking coal as the second largest form of power generation capacity in the EU and remaining first among renewables. Over the same period, renewables increased their share from 24% of total power capacity to 46%.


Wind Turbine Blade Strategy: Building In-House or Out?

— January 26, 2017

Wind and SolarThe continuing cascade of merger and acquisition (M&A) activity in the wind sector has primarily centered on a few high profile wind turbine OEMs, but it has also been accompanied by a few blade manufacturer acquisitions. Wind turbine OEMs are continually revaluating whether to build blades in-house, outsource them, or juggle a careful blend of the two sourcing strategies. There has been a trend over the past few years toward more outsourcing arrangements. However, two recent acquisitions of independent blade manufacturers are raising the question of whether the trend toward more outsourcing is slowing.

The largest of the deals was in October, when US industrial conglomerate GE inked a $1.65 billion contract to acquire LM Wind Power, the world’s largest independent wind blade manufacturer. LM’s annual blade manufacturing capacity is estimated by Navigant at around 6,300 MW. A much smaller deal announced in November saw German turbine OEM Senvion acquiring European blade design and manufacturing company Euros for an undisclosed cash sum.

Reversing Course?

So is the era of blade outsourcing reversing? In short, no. Instead, it is a continued validation of the “make and buy” sourcing that balances both in-house manufacturing with outsourcing. Over the past few years, wind turbine companies have increasingly gone down this path because it brings the advantages of both sourcing options instead of being wedded to the limitations of one. Having in-house capacity guarantees supply and ensures that increasingly sophisticated blades are designed and manufactured strictly to the wind turbine OEM’s needs. Outsourcing can give turbine vendors more flexibility in using globally located independent manufacturers while avoiding the need to build new factories to serve all global markets.

GE bringing blade production in-house does not refute or reverse the trend toward outsourcing. Rather, it rebalances GE’s previous 100% outsourcing to an OEM that can make and buy. It still plans to source from the independent vendors—although inevitably at lower rates now that it can satisfy in-house needs from LM under its ownership. Senvion already chose a route of make & buy, and the Euros acquisition just brings more expertise in-house at a time when sophisticated large blade rotors are so important to turbine design.

Furthermore, there has been well-reasoned speculation that GE’s LM acquisition may have been a preemptive defensive move to prevent Siemens—which has been on its own M&A spree —from acquiring LM. Siemens has and still produces all blades 100% in-house, but the company’s acquisition of Gamesa, which makes and buys, may have ignited a new interest in acquiring more blade production capabilities and options. Having more options and controlling interests in more companies would provide more solutions to the complicated blade sourcing strategy of the larger merged company as Siemens/Gamesa turbine designs and technologies are increasingly harmonized.

A Significant Market

Blades are costly and increasingly strategically important parts of the wind turbine supply chain. Blade costs are typically around 22%-24% of the overall cost of the wind turbine, or between $90,000 to $140,000 per blade, depending on size, materials, and other particulars, according Navigant’s recent Wind Turbine Blade Technology & Supply Chain Assessment report. The global wind blade market is significant, with between $6.6 billion and $7.7 billion in revenue expected annually from 2016 to 2025.

Going forward, there likely will still be some shake-ups among turbine OEMs and blade and other subcomponent suppliers, and some strategic moves may be made to in-source previous outsourcing. In general, however, wind turbine OEMs are expected to continue on a trajectory of blending in-house production with cost-effective flexible outsourcing.


East Coast Now Home to Record Lease Payment for Offshore Wind

— January 24, 2017

TurbineIf there was any remaining doubt of the commercial viability for large-scale offshore wind development off the East Coast, an auction held just before the end of the year for the rights to develop an offshore wind farm off Long Island, New York should put that question to rest. The bidding war was fierce, with 33 competitive rounds among some 14 developers, forcing the planned one-day auction into a second day. When the dust settled on the auction, the US subsidiary of Norway’s oil giant Statoil won the auction with its offer to pay the US Department of the Interior (DOI) $42,469,725 for the lease rights to develop.

Forty-two and a half million dollars. This is more than twice the total of winning bids in 11 other previous offshore wind power auction sites combined. It’s reportedly more than twice the value of offshore oil & gas permits in auction under the DOI in the Gulf of Mexico. Proximity to the high-priced electricity market of Long Island and New York City is a clear advantage to the site.

Increasing Capacity

The New York Wind Energy Area, located 14-30 miles offshore, spans 79,350 acres and covers water depths of 65 feet-131 feet (20 m-40 m). The area could accommodate more than 1 GW of wind capacity, and likely more as turbine nameplate capacity continues to increase. The largest offshore wind turbine currently commercially available is an 8 MW unit from MHI-Vestas with a 164 meter rotor (538 feet). Siemens is well on track to uprate its 7 MW units with 154 meter rotors (505 feet) up to 8 MW. Four to six years from now, the newest turbines will be exceeding 10 MW per unit.

One gigawatt of offshore capacity served by next-generation 10 MW turbines would be a wind farm with only 100 turbines. It is perhaps not entirely a coincidence that New York’s Governor Andrew Cuomo announced in early January that the state had come to an agreement to decommission the aging 2 GW Indian Point nuclear power plant located up the Hudson River. It would take 200 next-generation offshore wind turbines to match the lost nameplate capacity of Indian Point. Two hundred turbines in one plant is entirely achievable given that the largest existing wind farm currently in operation, the 630 MW London Array, is made up of 175 turbines.

Enormous Opportunity

To be clear, Indian Point is not being replaced by offshore wind directly, but wind will help fill in the gap left over from the plant’s retirement. Statoil, among others, sees a healthy future with onshore and offshore wind, both as an enormous business opportunity and as a hedge against its historical focus on oil & gas. Notably, only a short while before the December offshore wind auction round, Statoil pulled out of its investments in the Canadian tar sands oil extraction at a significant loss, in effect exiting one of the most greenhouse gas-intensive energy extractions in favor of one of the cleanest sources of energy.

There will still be many steps in permitting and development before Statoil builds its offshore wind plant, but the amount of money it was willing to pay shows there’s major potential. The Northeast exhibits the confluence of factors inevitable to supporting major offshore investments: high energy prices, high energy demand, proximity to major electricity demand, a relatively shallow ocean bed, and strong and consistent offshore wind.


US Wind Generation Sets New Records throughout 2016

— December 7, 2016

TurbineThe past decade of steady wind plant commissioning throughout the United States is paying dividends, with new records being achieved on the proportion of electricity demand sourced by wind. The Electric Reliability Council of Texas (ERCOT), the grid operator for the state, recently announced it had hit an all-time record of wind output on November 27, with 15,033 MW of wind online just after noon that day. This represented around 45% of total electricity demand in the state, with over 24 million residents served by the ERCOT grid. The portion of load served by wind that day ranged from about 35% to more than 46%, averaging nearly 41% throughout the day. The previous wind generation output record of 14,122 MW was set on November 17, 2016. The current record for percentage of load served—48.28%—was set on March 23, 2016, at 1:10 a.m.

On an overall annual basis, in 2015, wind generation provided 11.7% of the energy used in the ERCOT region. As of the end of October, wind had served 14.7% of the region’s energy needs so far in 2016. With over 18,531 MW installed, Texas has more wind capacity online than any other state. This is largely thanks to a combination of high energy demand, strong wind resources, a permissive permitting environment, and major proactive state-based investments in transmission. In fact, Texas has so much wind on its system that electricity retailers are offering plans to consumers that include free electricity at night.

Across the Country

Texas isn’t the only state breaking records for wind capacity. The American Wind Energy Association (AWEA) has surveyed other grid operators and compiled other noteworthy examples of wind providing substantial proportions of electricity demand. North of ERCOT, the Southwest Power Pool (SPP) also benefits from similarly strong wind resources and abundant land for wind farms and easy permitting. On the same day ERCOT surpassed 15,000 MW, the SPP grid surpassed 11,300 MW, also representing a similar proportion of 48% electricity demand.

In the Midwest Independent System Operator (MISO) market, wind reached 25% of demand in late 2012. This is a large market, and its historic peak load for all generation was 126,337 MW in July of 2011. In the Northwest corner of the country, the Bonneville Power Administration says the record for wind capacity as a percentage of total demand peaked at 42.7% with 4,594 MW. Colorado saw wind supply 66.4% of total generation in the state, with 2,352 MW on the system.

New Projects, New Records

These daily records will continue to be surpassed as developers continue to commission wind projects. These records also underline that wind is making a very meaningful impact on the US electricity grid and that massive amounts of wind can be reliably integrated at very low cost. Wind energy output can be easily accommodated because changes in weather and wind speeds occur gradually and can be forecast by grid operators. Major flexibility is built into the power system to accommodate large and abrupt swings in electricity supply and demand. Some additional power generation reserves are needed to balance additional wind on the system, but studies by ERCOT have shown the cost to be around $0.04 per electric bill and 4% of total generation reserve costs.

More than a dozen wind integration studies by US grid operators and others have found that wind energy can reliably supply at least 20%-30% of the nation’s electricity, with some studies analyzing wind providing 40% of total electricity on an annual basis. The National Renewable Energy Laboratory’s Renewable Energy Futures study found no reliability problems for a case in which wind and solar provide nearly 50% of total electricity. If the recent records are any indication, these levels are a real possibility in the future.


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