Navigant Research Blog

2015 Wind Installations Show Two Markets: China and Everybody Else

— May 2, 2016

Der Rotor wird angesetztThe figures for 2015 wind installations are in and they show two major trends. First, wind capacity continues to be installed at a major rate globally. Second, there are effectively two wind markets: China and the rest of the world.

In 2015, 63,135 MW of wind power capacity was added globally, a 23.2% increase from the 51,230 MW installed in 2014. On a cumulative basis, global wind power capacity grew to 434,109 MW from 372,381 MW in the prior year. This is according to the most recent and 21st annual global installation figures compiled in Navigant Research’s World Wind Energy Market Update 2016 report.

Markets New and Old

Growth occurred in almost every wind market, from the long-established European countries to new markets in Latin America, Asia, Africa, and elsewhere. North America and Latin America combined installed 14.5 GW in 2015, representing 23.0% of global capacity and just slightly overtaking Europe by a percentage point. The United States led with 8,598 MW of new wind capacity added in 2015 thanks to a building boom sustained by reinstated tax credits. Brazil followed with the most capacity in the Americas; its reverse auction system to award wind power purchase price contracts has proven very effective at supporting gigawatt-level installations on a yearly basis at competitively low contract prices.

Europe represented 22.1% of new global capacity with 13.9 GW in 2015, up from 12.1 GW in 2014. Germany saw the greatest increase, driven by major offshore wind capacity additions of 2.4 GW and a rush for developers to install onshore projects before incentives shifted to a more limited system in 2016. Record installations were seen in Poland, followed by substantial new capacity in France, the United Kingdom, Turkey, and over a dozen other countries.

China in the Lead

The degree to which the Asian markets—and China in particular—are driving wind demand cannot be overstated. The combined markets of South and East Asia represented 52.6% of global wind power capacity in 2015, up from 50.6% in 2014. Almost all of this annual record was driven by China, which installed a remarkable 30,293 MW, up from a record 23,300 MW in 2014, which itself was an incredible achievement. However, this increase has not improved China’s wind curtailment challenge, which worsened from approximately 9% wind curtailed in 2014 to around 15% curtailed in 2015.

China provides its wind developers and wind plant owners with feed-in tariffs (FITs), which are set prices per kilowatt-hour produced and levels varying according to wind speed location. The huge build in 2015 was partly driven by a minor adjustment downward of the rates beginning January 1, 2016, so wind developers rushed to bring capacity online before the rate adjustment. However, the rate drop is minor, so annual capacity installations above 20 GW are expected again for 2016 and in the near term.

Another notable market dynamic driven by China is that there is effectively a two-part global wind market splitting China and the rest of the world. This is not only in total capacity installed in a given year but in the underlying wind turbine supplier dynamics. China sourced 97% of its turbines from more than 23 Chinese wind turbine OEMs, shutting out all but a few Western turbine OEMs. Conversely, all installations throughout the rest of the world were around 97% supplied by over 18 Western and Indian wind turbine companies, and almost no Chinese suppliers.

This shows China’s overwhelming preference for its domestic vendors. Markets and developers outside of China have responded in kind by sourcing very few turbines from Chinese suppliers. Expect this dynamic to slowly shift as some of China’s more proven suppliers seek international diversification to offset a Chinese market slowdown and wind turbine manufacturing overcapacity in the country.

 

Gamesa Acquisition Could Stir Up Wind Turbine Vendor Dynamics

— February 24, 2016

Der Rotor wird angesetztSince early February, Siemens, Gamesa, and other stakeholders have been in talks exploring the potential for Siemens to acquire the Spanish turbine vendor. Should this come to pass, it would be a huge change to the top global wind turbine vendor dynamics. Vestas’ position as the number one turbine vendor would surely be challenged and more likely surpassed by a larger Siemens. 2015 project installation numbers are still being compiled, but Vestas led annual installations in 2014 with 12.3%, followed by Siemens with 9.9% and Gamesa with 4.7%.

The strongest reason for this acquisition is that Siemens’ wind business is weakest in the areas where Gamesa is strongest, such as India, Mexico, and Brazil. These are the key countries that Gamesa pivoted to when its home market in Spain collapsed in 2012 and 2013 due to austerity measures and energy policy reforms that terminated wind price supports.

In 2014 yearly installation figures, Gamesa had 21.5% market share in Brazil, just behind General Electric’s (GE’s) 22.2%, while Siemens was in fourth place with 15.7%. In Mexico, Gamesa was the market leader with 72.6% market share, followed next in line by Vestas, while Siemens had no installations. In India, Gamesa led market share installation in 2014 with 32%, outperforming India-based Suzlon at 28%—and again, no Siemens installations.

Smoothing the Bumps

These three countries are important growth markets for turbine vendors, and diversification across geographies helps vendors smooth out booms and busts driven by changes in country energy policies. Market diversification is precisely why Nordex of Germany is in the process of acquiring Spain-based Acciona’s wind turbine business, which not coincidentally is also strong in the Latin American markets. A Siemens acquisition of Gamesa could even be viewed as a strategic counterweight against the Nordex acquisition of Acciona. This is a similar example of a turbine OEM with concentrated strength in Northern Europe acquiring another vendor in order to diversify business and cushion overreliance on limited European markets.

Gamesa and Acciona are also, arguably, homeless. While both companies have always had strong export strategies, they have not had the benefit of the strong home markets enjoyed by most of their competitors. Preliminary Navigant Research data shows zero new installed wind capacity in Spain in 2015.

Gamesa has enjoyed success in the U.S. market, but it has lagged behind the big three of GE, Vestas, and Siemens. Again looking at 2014 installation metrics, Gamesa had only 4% of U.S. market share compared to Siemens at 20.7%  (although it should be noted that Gamesa inked 518 MW of orders for the U.S. market in the second half of 2015 and continues to secure healthy sales). However, the company has sharply reduced its manufacturing and supply chain presence in the United States and now relies on exports of nacelles from Spain and outsources blades and towers. There is not much supply chain overlap with Siemens in the United States, which has substantially more manufacturing presence in the country.

Offshore is probably the most fascinating and problematic area of overlap. Gamesa is in a 50/50 joint venture (JV) called Adwen with French company Areva. Adwen’s technology is based on Areva’s geared medium speed technology (formerly Multibrid). This is a proven and competitive drivetrain with 600 MW installed in 2015, and there is over 1 GW of orders booked for projects outside of France. It would be difficult to imagine the JV continuing as-is if Gamesa was acquired by Siemens, which is already the world leader in offshore wind. Adwen could continue solely as an Areva company, but this would be challenging, and a replacement partner could be a wise choice.

 

M&A Activity in the Wind Market Picks Up

— October 23, 2015

2015 has seen a notable uptick in merger and acquisition (M&A) activity in the wind energy industry, which mirrors activity in broader global markets in general. Thomson Reuters reported a 36% increase in M&A activity and values reaching $3.5 trillion for 2015 (both globally and across all industries), the biggest yearly total since records of this data were kept in the 1980s. The largest news in the wind energy industry is General Electric’s (GE’s) takeover of Alstom’s power generation business. Additionally, Germany’s wind turbine vendor Nordex will take over Spanish turbine vendor Acciona’s wind assets for €785 million ($880 million).

To say this is fully a trend, however, may be an overstatement for the wind energy industry. The merger of the GE and Alstom wind businesses was a happy byproduct of the much larger acquisition by GE of Alstom’s power generation business. The GE-Alstom joint venture should ultimately be good for the offshore market by introducing another major conglomerate-backed offshore vendor to counterbalance Siemens’ approximately 60% market share of operational offshore wind capacity, followed by MHI-Vestas with around 14%.

The Nordex-Acciona deal is more strategic. According to Navigant Research’s report World Wind Energy Market Update 2015, Nordex installed 1,489 MW globally in 2014 and Acciona installed 345 MW. Nordex will improve its access to large markets like Brazil and the broader Latin American market, as well as its footing in the United States and Canada, where both companies have maintained a small footprint. Acciona will get a share and partnership with a company known for good technology and forward-looking R&D efforts that will allow Acciona to reduce its costs. The changing pace of  technology in the wind business has been relentless, and the associated R&D commitments—while significant—are not likely a major priority for Acciona, as its core business is focused on construction activities.

Signs of the Future?

Does this suggest that other M&A are on the way? Perhaps. There could be more deals, but the wind industry (excluding China) is mature, so there are few M&A opportunities, and other acquisitions would have to be large. The ownership structures of other players are also somewhat protected. Germany’s Enercon is protected from takeover since a controlling interest in its shares were transferred to the Alloys Wobben Foundation, a trust formed specifically by its founder to protect Enercon from acquisition. Suzlon has a large controlling interest by its founding family. Gamesa has a major shareholder position by Iberdrola, which has a strategic interest in maintaining turbine supply agreements with the company. Germany’s Senvion, on the other hand, is likely to be sold by Centerbridge Partners (a hedge fund) at some point in the next 5 years. Private equity is not likely to have an appetite for the risk and expenditure required to stay competitive in the offshore market.

Consolidation among the Chinese vendors is likely given the slowing growth of the Chinese economy and the losses and lack of confidence in its stock market. A slowing of China’s annual wind market build cycle is inevitable. Wind projects built in China before adequate grid connection is ensured may be similar to the country’s overbuilding of ghost cities—unoccupied housing complexes built before enough consumer demand was in place. Last year, 23.3 GW of wind was installed in China with almost all of that capacity coming from 22 Chinese wind turbine vendors. M&A activity and one or more outright exits are inevitable among Chinese vendors, as there are too many occupying the market—even if build rates do continue to grow.

 

High Focus on Low Wind Turbines

— October 5, 2015

Wind turbines with taller towers and larger rotors designed for efficient power generation in areas of low-speed wind have taken over the industry over the past few years with no sign of slowing. At this year’s HUSUM Wind 2015 wind conference and exhibition in Germany, four new low wind speed models were unveiled to the market by four top wind turbine OEMs. These turbines are targeted toward the Northern European wind market, where low wind speeds and space constraints favor these designs, but they are growing more popular. The system specs show the industry is continuing to innovate and push the boundaries for onshore wind turbines.

Denmark’s Vestas unveiled the largest rotor variant of its 3 MW platform—its new V136-3.45 designed for low wind International Electrotechnical Commission (IEC) class IIIA sites. Following now typical naming conventions in the industry, the 136 denotes rotor diameter in meters, and the 3.45 represents the turbine’s rated megawatt capacity. The 66.7 m blades are Vestas’ largest yet for onshore turbines, and they are the latest in a series of blades released in recent years that follow the company’s switch to structural shell designs after decades of using a central spar design. As with long blades from other vendors, preimpregnated carbon fiber plays a key role in achieving strength and length with manageable weight. The blades also have a slim design that is augmented with aerofoils, vortex generators, and serrated trailing edges (which appears to be a newly revoked patent previously owned by Siemens).

Also notable is the use of the Vestas’ large diameter steel tower (LDST), a tower design that is detailed in Navigant Research’s Supply Chain Assessment 2014 – Wind Energy report. Put simply, the tower design vertically splits the largest bottom tower section into three shell sections that are bolted together at the wind plant site. This allows for a wide enough base (6.5 m) to support hub heights of 132 m and 149 m.

Germany’s Senvion also unveiled a new IEC IIIA low wind turbine, the 3.4M140, which features a 140 m rotor using 68 m carbon-infused blades and hub heights of 110 m and 130 m. This is an uprated design from the company’s current 3.2 MW, 122 m rotor offering. Notably, the doubly fed induction generation drivetrain moves to full power conversion on the new model from partial conversion on the existing 3.2 MW units. Senvion achieves its tall hub heights using a hybrid approach that combines lower sections of prestressed concrete with standard tubular upper sections. Navigant Research has detailed recent hybrid tower designs, which are the most common approach used to reach high hub heights.

Uprating the drivetrain is German company Nordex’s approach to its new low wind turbine, the N131-3.3MW. This turbine retains the existing 131 m rotor and carbon-infused 65.5 m blades used on the company’s current N131-3.0 offering, but uprates the power output with changes in gearbox torque, generator, and power converter (retaining DFIG with partial conversion). The N131-3.3MW is also designed for remarkably tall hub heights of 134 m and 164 m by use of hybrid concrete and steel towers.

European OEMs weren’t the only players showcasing new low wind offerings at HUSUM. U.S.-based General Electric (GE)—which has grown minor market share in Germany—unveiled a 3.2 MW turbine with a 130 m rotor turbine designed for IEC IIIA wind speeds. GE’s largest offering presently in the low wind category is its 2.75-120 model, so this is a notable uptick that brings the company closer in line with its European competitors. Hub heights for the 3.2 MW turbine will range from 85 m to 155 m, with the higher-end options employing GE’s unique space frame design, which features a bolted lattice tower covered in fabric.

 

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