WIND GOING FORWARD

Wind Energy Outlook for North America; Wind Power Generation Capacity and Turbine Deployments: Market Analysis and Forecasts
Gali Beh and Clint Wheelock, 3Q 2009 (Pike Research)

"In 2008, U.S. wind power generation capacity passed the 25 GW mark by adding over 8 GW from the year before, which represented the largest individual gain of any country in the world. This growth rate of 50% exceeded that of the year before (45%) indicating that the market is still relatively young and the economic crisis that began in 2008 has not slowed it down…In 2007, generation capacity from renewable sources made up only 4% of the world’s electricity sources, but 16% of new electricity generation capacity additions were from renewables with wind power making up more than 80% of these gains…The year 2009 will be a defining moment for wind power markets around the world. The global economic crisis that began in late 2008 has thrown the industry into confusion, along with most other global industries. Two competing market views exist…"

"The optimist sees this moment as one of great opportunity and potential growth. The U.S. has enacted renewable energy targets and incentives including feed-in tariffs, renewable energy tax credits, and grants…The recession, rather than dampening public enthusiasm for renewable energy, has highlighted the need for government investments…[F]undamental drivers of the wind power market are fairly recession-resistant. First, total demand for electricity is expected to keep increasing, and electricity prices should continue to increase in the long term…Second, wind energy has several key advantages…Wind power has a lower lifetime cost of kilowatt-hours (kWh) produced and requires less land conversion (in the case of solar) or water diversion (in the case of hydroelectric)…[W]ind energy forecasting models are improving in accuracy at a rate unmatched by solar capture predictions…[and] technological innovations…continue to bring down the overall price…Economies of scale are accelerating…[and] demand for more efficient, more secure, and cleaner sources of electricity will continue to grow."

Pike sees the short-term outlook as favorable but complicated but...(click to enlarge)

"The pessimists say…the bottom won’t hit until late 2009 or 2010 since there is a long lag time…The largest impediment to the growth of wind power during a recession is its economic disadvantage to power from traditional fuels…[F]unding for wind energy projects has become significantly tighter…[W]ind power growth is contingent on successfully overcoming current transmission constraints…Existing transmission lines are not always located near wind resources, and it is infeasible to move a significant amount of electricity over long distances…[because] the U.S. is made of three fairly separate and congested regional grids…

"Shock waves from the global economic recession will affect wind industry players differently. Worst hit will be the small “mom-and-pop” developers…[who] can no longer access the funding…[T]here are 300 GW of wind development projects in the queue in the U.S. alone…Even if the record-breaking 8 GW of new capacity that was installed in the U.S. in 2008 continues, there would still be almost 40 years of projects in the U.S. pipeline. This represents a significant opportunity for large developers with enough cash to pick up the best pre-development projects for bargain prices. Still, one major developer has said that it would not be placing any new turbine orders for delivery in 2011…"

...The long-term outlook is outstanding. (click to enlarge)

"If it’s true that the demand for new turbines will stall or decline during the recession, established turbine manufacturers may not feel the effects until 2010 because they are still fulfilling orders made more than a year ago…Construction of current developments has continued on pace…[but] these will be fulfillments of orders placed before the recession began. New orders are not expected to continue to grow at the rate they have in recent years. Fortunately, many turbine manufacturers (OEM and components) have long-term service contracts that bring in stable annuity revenues that may somewhat compensate for declining new turbine orders. Replacing newly-aging fleets (the wind industry is about 30 years old) may help further stimulate demand…

"Pike Research’s perspective on the wind energy industry is that it will continue to grow, but not at the pace that was expected prior to 2009. U.S. installed capacity may reach more than 80 GW by 2015. To get there, turbine manufacturers must leverage opportunities and deal with pressures from all sides. On the generally positive side, government policies are favorable…but questionable…Raw materials should be widely available, with the possible exception of some specialty inputs…[T]urbine manufacturers…[are] tapping into economies of scale…improving component reliability, introducing remote sensing and control systems, and continuing to invest in R&D. Wind power has some important advantages over traditional and other renewable sources. Consumers continue to be interested…and demand for electricity will continue to rise…[N]egative pressures [will come from] financing problems and transmission line congestion, lack of reliability, and lack of remote access. Overall, Pike Research expects the turbine sales in the U.S. to grow by a compound annual growth rate (CAGR) of 9.7% to reach an annual production volume of almost 8,000 turbines (with an average capacity of greater than 1 MW) by 2015."