Navigant Research Blog

Key Developments Are Laying Foundation for US Offshore Wind Market

— September 16, 2016

TurbineAmericans who don’t obsessively follow the wind power industry were recently greeted with the news from mainstream media outlets that the United States has installed its first offshore wind installation. The 30 MW Block Island project off Rhode Island is developed by Deepwater Wind, and commissioning and grid connection will be finalized over coming weeks. The broader question to industry followers and the American public alike is whether this heralds the beginning of an offshore wind market in the United States.

The US wind market still lacks the long-term policy certainty and incentives that counterparts in Europe and China have implemented. By the end of 2015, total global offshore wind capacity reached nearly 12,000 MW. A remarkable 3,755 MW of that total came online in 2015 alone, driven largely by Germany, and China is expected to install over 1,000 MW of offshore wind this year. Those figures put the one 30 MW US project in perspective.

However, the foundations are in place to see a strong US market develop in the early 2020s when multiple large-scale projects in the 300 MW or above range are likely to be built. The following are key developments driving the US offshore wind industry now and in coming years:

  • Federal Ocean Leases: More than 16,000 MW in the offshore wind project development pipeline is slowly advancing due to 11 offshore wind site lease auctions orchestrated by the federal Bureau of Ocean Energy Management (BOEM), plus favorable Northeastern state policies.
  • Tax Credits Extended: Supportive tax policies in the form of the Production Tax Credit (PTC) and the Investment Tax Credit (ITC) were reinstated in late 2015, and critical new timeline flexibility announced in mid-2016 now allows wind projects that begin construction by 2017 to have 4 years to complete construction and receive 100% tax credit value. The next 3 years provide declining tax credit values (80%, 60%, and 40%) if projects begin construction in years 2018, 2019, and 2020, providing a window of policy enactment that will see wind projects being installed through 2023.
  • US Department of Energy (DOE) Demonstration Projects: The DOE has awarded three Advanced Technology Demonstration Projects in New Jersey, Ohio, and Maine for the Fishermen’s Energy Atlantic City Windfarm, Lake Erie Energy Development Corporation’s Icebreaker, and the University of Maine’s New England Aqua Ventus I projects, respectively. All three are eligible for up to $40 million each, contingent on reaching milestones and congressional appropriations.
  • Massachusetts: Legislation was passed in July 2016 requiring utilities to contract for 1,600 MW of offshore wind.
  • New York: Long Island utility company PSEG has selected Deepwater’s 90 MW project as the winner of its all-resources RFP. NYSERDA will also participate in the upcoming BOEM New York lease auction to support a future offshore wind RFP.
  • Carper-Collins ITC Bill: There is a current bill on the docket in the US Senate to extend the 30% ITC to up to 3 GW of offshore wind. Recent cost estimates have taken the cost of the bill from $3.5 billion down to $535 million, making it more attractive to lawmakers.
  • Costs Dropping: A new cost analysis by the National Renewable Energy Laboratory shows credible scenarios for cost reductions below $100/MWh by 2025 in some areas of the United States. Results in recent European contract auctions are supporting this, including DONG winning a contract for 700 MW at €72.70/MWh (~$80.52/MWh) and Vattenfall winning a Danish near-shore tender at €63.8/MWh (~$71.15/MWh).
  • Abundant Resources: Today, a technical potential of 2,058 GW of offshore wind is accessible in US waters using existing technology. This is equivalent to an energy output of 7,200 TWh per year—enough to provide nearly double the total electric generation of the United States in 2015. The DOE says US national wind strategy should and could successfully develop 86 GW by 2050.

First Half of 2016 Shows a Wind Boom Underway

— August 1, 2016

Der Rotor wird angesetztWith the first half of 2016 drawn to a close, statistics on the U.S. wind market have been released from the American Wind Energy Association (AWEA) that show the expected major ramp up in wind project construction is now well underway. There are now 12,462 MW of wind projects under construction and a further 5,817 MW in advanced development. This includes over 3 GW of new construction announcements during the second quarter alone, the highest level seen since 2013.

In terms of installations completed during the first half of 2016, only a modest 310 MW was commissioned in the second quarter. This brings the total to 830 MW installed in the first half of the year. This doesn’t seem like much for a booming market, but this is a typical amount of wind generation added in a first half due to how construction occurs. The U.S. market always sees turbines gradually installed and commissioned throughout a given year toward a set goal of fully commissioned capacity by the end of a given year. Therefore, a given year’s fourth-quarter installation number is always far above the quarters that proceed it. Navigant’s U.S. wind market forecast estimates the year-end total to reach or exceed 8.2 GW.

Big Three Lead the Pack

The manufacturers providing turbines for the first half of 2016 are the usual big three of GE, Vestas, and Siemens. Notably, GE is typically the leading installer of wind turbines in the United States in a given year, but for projects presently under construction, Vestas leads with over 3.8 GW of capacity over GE’s 2.9 GW. Siemens and Gamesa (soon to merge) follow with under 1 GW apiece. Navigant Research’s World Wind Energy Market Update 2016 report also compiles global and country-level market shares for the previous year.

Development so far in 2016 is mostly in the country’s windiest central corridor, including the states of Texas, Kansas, Nebraska, Oklahoma, Iowa, and New Mexico. Along this line, it is worth noting that the majority of wind generation is being added in politically conservative states. AWEA noted that the 10 congressional districts with the most wind power generation are in Republican districts, and now fully 88% of self-described conservatives support wind energy, up from less than 50% just 2 years ago. Wind energy has typically been hijacked by U.S. politics as a left-leaning liberal cause, but wind is slowly becoming less of a partisan issue as today’s power producers, utilities, and other end users embrace it due to its increasingly competitive cost. The average cost for installed wind projects in the country has fallen by 66% over the past 6 years, thanks mostly to more efficient and larger wind turbines.

Policy Stability Spurs Development

Another key reason for the massive buildup underway in the U.S. market is policy stability, an item that the market has historically had to function without. The Production Tax Credit (PTC) extension passed last December is structured so that wind plants that begin construction by the end of 2016 will receive 100% PTC value, projects starting construction in 2017 will receive 80% of the PTC value, 60% in 2018, 40% in 2019, and zero in 2020. Most importantly, new guidance provided by the IRS in May changed the construction window from 2 to 4 years. Therefore, projects on the tail end of the PTC window will be finishing construction all the way until 2023.

AWEA collected and averaged industry forecasts from a variety of sources (including Navigant’s forecast), and this combination shows a wind market that will install up to 48 GW between 2016 and 2021 when tax credits wind down, representing an average yearly installation cycle of 8 GW annually. Navigant’s forecast is on the more conservative side with expectations of 38.2 GW installed by 2021, but this may be revised upward as market activity is analyzed going forward.


Gamesa Acquisition Spells Uncertainty for Adwen Joint Venture

— July 25, 2016

Der Rotor wird angesetztThe Siemens acquisition of wind turbine manufacturer Gamesa has been underway for over a month now. There are predictable synergies between the businesses already summarized by Navigant Research; less predictable is what will come of Adwen, the offshore wind turbine 50/50 joint venture (JV) between Spain-based Gamesa and French industrial conglomerate Areva.

Areva has until September to decide between selling its partial ownership position, buying out Gamesa’s partial ownership, or selling the entire entity to a third party. Gamesa has valued its 50% stake in the JV at $81 million, according to its 2015 annual report. However, the actual valuation in today’s market is likely to be significantly below that due to the challenging nature of the offshore wind market. Areva is unlikely to proceed in the offshore sector on its own since the company has suffered significant financial losses on its nuclear operations and is undergoing restructuring and seeking state aid from France.

Siemens Buying the Stake?

Siemens may end up buying out Areva’s stake, but this is not preferable since it could risk  regulators scuttling the deal due to anti-trust concerns. The German conglomerate already has an unquestionable lead in the offshore wind sector, enjoying roughly 62% global market share of installed capacity by the beginning of 2016, followed by MHI Vestas with 18%. Adwen represents a roughly 6% share according to data from Navigant Research’s Offshore Wind Market Update report.

Siemens also simply doesn’t need Adwen’s technology. Adwen has a well-proven 5 MW offshore wind turbine, with 630 MW of installed capacity, and an 8 MW turbine in very advanced stages of development (both are medium-speed geared drivetrains). However, Siemens has its own highly refined offshore wind turbine technology led by its flagship 7 MW turbine, and the company has an uprated 8 MW unit with a 180-meter rotor coming to market soon. Siemens’ expertise, R&D, and supply chain commitments are tailored specifically to its direct drive turbines (with no gearbox). Siemens is also committed to building its own blades while Adwen outsources to LM Wind Power.

In place of Siemens acquiring Areva’s stake, a more likely scenario is the sale of Adwen to another interested party in the offshore wind sector. U.S.-based GE and Germany-based Senvion are reportedly preparing bids. Adwen was selected for approximately 1,500 MW of offshore wind development in France over the next few years. Therefore, its pipeline of projects where it is the preferred turbine supplier is arguably just as much of an asset as its actual wind turbine technology.

Third-Party Players

Of the known suitors, GE has the strongest financial backing to purchase Adwen, and its earlier acquisition of France-based Alstom shows further synergies, as the acquisition provided GE with a supply chain that dovetails with some of the company’s existing supply chain in France.

The Alstom acquisition also provided GE with approximately 1,500 MW of offshore wind contracts in France. This highlights a GE acquisition’s potential downside to the marketplace, as it would allow the company to monopolize all approximately 3,000 MW of offshore projects in the near-term French pipeline.

A more market-friendly approach would be a Senvion acquisition, which would split the French offshore pipeline to two companies instead of one. Senvion could also leapfrog from its existing 6.2 MW high-speed geared turbine to Adwen’s 8 MW medium-speed turbine (medium-speed is arguably a preferred design for offshore), and would benefit from the 1,500 MW French project pipeline at a time when Senvion is seeking more business outside of its home German market. What is ultimately decided by September is an unknown, but it fits an overall pattern of consolidation among wind turbine OEMs both on and offshore.


A Look at the Top Wind Turbine Manufacturers of 2015

— June 9, 2016

Der Rotor wird angesetztIn 2015, almost 29,000 wind turbines were installed globally by wind turbine OEMs, according to Navigant’s World Wind Energy Market Update 2016 report. Of the 41 OEMs supplying commercial-scale wind turbines, 28 of those companies are from Asia, 12 are from Europe, and one is from North America (GE). By the end of 2015, China remained the largest country in terms of the number of turbine OEMs that supplied wind turbines to the market, followed by India and Germany.

The strength of the U.S. market coupled with a major push from wind plant developers in China, Germany, and Poland to install capacity in 2015 before policy incentives adjusted downward in 2016 resulted in a record year of wind turbine installations. Additionally, healthy development and deployment continued in India, Brazil, Canada, and Turkey, as well as in some growing markets such as Mexico and South Africa. These trends also resulted in a shake-up among the top 10 wind turbine OEMs based on annual installed capacity. An overview of the 2015 rankings follows:

  • Goldwind unseated longtime global leader Vestas to take the top slot for annual capacity. Ninety-eight percent of its installations were located in the Chinese market; the total Chinese market saw a record 30.2 GW of wind installed.
  • Vestas had a record year, but capacity was not enough to surpass Goldwind’s leap to first place driven almost entirely by the massive Chinese market.
  • GE Renewables held on to its third place position, backed by strength in its domestic market in the United States and Brazil, as well as increasing installations in Europe.
  • Siemens fell two positions in the top ranking to fourth place despite nearly taking the top slot in 2014. However, the company’s 2015 offshore installations solidify its leading position in the offshore wind sector.
  • Despite no Spanish home market, Gamesa showed success in a variety of global growth markets such as India and Latin America, which propelled it from eighth place globally in 2014 to fifth place in 2015. The company even managed substantial installations in China, where few non-Chinese OEMs have found success. This success in geographically dispersed international markets shows why Gamesa is being targeted for acquisition by Siemens.
  • Enercon rode the installation boom in its domestic market of Germany and found continued success in securing international markets, but not enough to avoid dropping one place to sixth globally in 2015.
  • United Power, Ming Yang, Envision, and CSIC Haizhuang took the remaining top positions of seventh through tenth (in that order), driven by the record installation levels in China.
  • Senvion—for the first time tracked on its own after being sold by the Suzlon Group—just barely missed the year’s top 10 ranking by placing eleventh. The company demonstrated strength in both total megawatts installed and geographic diversity of installations.
  • As expected, India-based Suzlon slipped from the top rankings in 2015 since it was no longer combined with Senvion.
  • Nordex had a record year of wind turbine installations and placed fourteenth globally on 2015 installations.
  • The three other OEMs in the 11-15 rankings are Chinese manufacturers Sewind (Shanghai Electric), XEMC, and Dongfang.
  • Acciona placed sixteenth, experiencing 282% year-over-year installation growth and largely underlining why Nordex acquired Acciona’s wind division in 2Q 2016.

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