Wind doing well, but not without hurdles

By Keith Orchison (published in The Weekend Australian, 28-29 June 2008)

After another banner year, the wind industry is becoming a major target for sustainable funds with analysts predicting a huge further increase in investment -- but the level of growth is starting to create its own turbulence.

After taking 15 years to inch its way in to the power supply mainstream -- growing from only 2,000 MW of global capacity in 1990 to 57,000 MW in 2005 -- wind projects have taken off in response to rising global warmings fears, tougher emission laws and most recently the rocketing crude oil price.

European consultants predict that, on present trends, wind power will have a million megawatts capacity in 2020, able to deliver up to eight percent of global electricity demand.

A study undertaken by German consultants, working with the German Wind Energy Institute, claims that that as much as 718,000 MW of wind capacity could be installed worldwide by 2017, with the volume of annual new installations rising from 20,000 MW last year to 107,000 MW in ten years time.

Capacity worldwide is reported to have passed the 100,000 MW mark in April and the Chinese government now aims to drive up wind development twenty-fold to reach 100,000 MW in its own right by 2010.  Meanwhile the American power sector reports that 200,000 MW of wind generation is being built in the US or is in various planning stages.

The Americans are at present the world's largest expansion of wind power. Boosted by federal subsidies and local state support, investors laid out $US9 billion for new wind farms with 5,365 MW capacity in 2007, accounting for 35 percent of all new American electric power development last year. (Even with this growth, wind only meets 1.2 percent of US electricity supply at present.)

The US, along with China, Spain, Germany and India, accounted for 78 percent of new wind installations worldwide in 2007.

For manufacturers, the surge in wind investment represents a river of gold. It is estimated that more than 15,000 turbines were sold in 2007, earning manufacturers about $US26 billion.  This will increase five-fold in the next 10-12 years if growth predictions are borne out.

The wealth cascades from the big manufacturers to smaller suppliers, too.  Each turbine contains about 8,000 parts and a large amount of their production is outsourced.  Turbine sales last year, for example, carried with them a market for more than 43,500 turbine blades and more than 22,500 tonnes of composite materials such as glass fibre and carbon fibre to make the blades.

While sales have been dominated by a half dozen large manufacturers to date, the market expansion inevitably has attracted more players. It is estimated that there are now 40 turbine manufacturers around the world, 30 of them recent start-ups or diversifications by utilities and power equipment businesses.
The value proposition has been highlighted this month by the world's biggest contract for construction, installation and service of wind farms being inked in Spain between Gamesa, a Bilboa-based system supplier, and Iberdrola Renovables, the subsidiary of the largest Spanish energy utility. Iberdrola is the world's biggest wind power producer.

The contract will deliver $US9.7 billion to Gamesa for installing and maintaining 4,500 MW of wind turbines for Iberdrola between 2010 and 2012 in Spain, Mexico and the US -- and it covers only 70 percent of the generator's new wind investment needs.

In the past 18 months Gamesa has built nine factories -- two in Spain, three in China and four in the US -- and now has 32 production sites in six countries.

In response to international demand and fast-growing competition, the world's biggest turbine manufacturer, Denmark's Vestas,with plants in nine countries, has announced that it will spend $US2.5 billion on new factories, aiming to hold a quarter of the global market.
German-based Siemens plans to triple its turbine capacity around the world by 2011 in response to bagging orders worth $US2.4 billion from America and $US1.2 billion from Britain. It can only offer new customers delivery in 2012  from its existing facilities.

GE Energy, which claims second place in turbine production, boasts a total of $US12 billion in orders at present and says its capacity is sold out until end-2009. It, too, is expanding production in five countries.

Vestas, GE Wind and Gamesa currently hold almost half the Chinese wind components market, but they are about to be confronted by tougher regulations and more competition: the Chinese government has ruled that 70 percent of turbines erected in the country must be locally built and it is also supporting domestic manufacturers in making licensing agreements and joint ventures with western companies. 

Goldwind, the biggest Chinese-owned manufacturer, has raised $US245 million this year through an initial public offer (IPO) to fund factory expansions.  China High, the country's biggest fabricator of gearboxes, the most critical and complex part of a wind turbine, is working on a four-fold increase in production over the next two years -- targetting both the local and export markets. Its goal is to become one of the world's top three manufacturers of gearboxes.

An illustration of the wind sector's potential and also the perils of rapid expansion is India's Suzlon Energy, which has rocketed up the turbine manufacturing global league in 12 years to hold fourth place today, reporting that its current order book is worth $US4.2 billion and that its expansion program at a cost of $US1.5 billion will enable it to double production capacity to 5,700 MW by 2010.

Launched by a family of Indian engineers with no previous electricity industry experience, Suzlon has built market share through constructing its own plants in India and through overseas acquisitions, including a Belgian gearbox manufacturer for $US680 million and a German turbine maker for $US1.9 billion, part-funding its charge through a $US1.1 billion IPO.

The company, however, has run in to production quality problems, having to recall more than 1,200 giant turbine rotor blades installed in the US Midwest because they have cracked in use, forcing it to provide replacements plus reinforcement of others in operation and exposing it to claims from generators for lost production.

Suzlon's emergence highlights another important trend in wind development -- most of the new manufacturing capacity is being located in Asia, and especially China and India. Two-thirds of the 70 to 80 new factories to produce the turbine blades required to meet projected wind capacity growth between now and 2020 are expected to be built in Asia.

As with any business bubble, extra-ordinary expansion quickly throws up problems as well as opportunities. 

Generators are confronted by fast-growing capital costs, increasing difficulty in locating good wind sites, demands from landowners for higher compensation and stiffer resistance from communities "invaded" by wind farms. 

There is a furious row currently underway in Spain, for example, over plans to install 90 wind farms on the Sierra de Gata in north-west Extramadura, one of the country's last relatively untouched landscapes -- with ecologists upset over the impact on wildlife being joined by the tourist industry and local residents unhappy that they have to host power facilities that will deliver most of their output to Madrid and Barcelona.

Manufacturers are finding it hard to locate suitable workers at affordable wages -- European factory workers complain that their employers are migrating to China and India because labour costs there are so much lower -- and are confronted by sharp rises in commodity and transport prices.

Energy market managers are having to deal with the need to rebuild the transmission system in some countries if wind development continues at this pace -- existing networks are designed to deliver electricity from a few large power stations not hundreds of turbines scattered across rural areas.

The current situation and the 10-year outlook is causing some in electricity supply in Australia to question the viability of the Rudd Government's new mandatory energy target plans.  The proposed increase in MRET from 9,500 GWh a year in 2010 to 45,000 GWh in 2020 is reckoned to require up to 10,000 MW of extra wind power, to be placed mainly in Victoria, South Australia, southern NSW and Tasmania.

How this is to be accomplished in 10-12 years, given global equipment supply constraints, as well as capital cost and consumer price issues along with large-scale transmission infrastructure development requirements are all factors that the government will need to address -- plus community reaction to massive wind farm construction in rural areas.

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