Which way now?

Like many other industries, the European wind energy market is currently in a period of recovery from the financial crisis, yet there is still potential for growth. According to the European Wind Energy Association (EWEA), Europe’s offshore wind potential is capable of powering the continent seven times over.

“If you look at the limits of what was thought a turbine could be able to produce 10 years ago and what it’s able to produce now – which has exceeded that limit tenfold – it’s pretty exceptional the rate at which the industry has developed.”
-Marc Mühlenbach

EWEA says there are currently 830 wind turbines installed and grid connected in Europe, totalling 2063 MW in 39 wind farms in nine countries. In 2009, 201 wind turbines were installed and grid connected totalling 584 MW, up 56 percent from the previous year.

During 2010, 1000 MW is expected to be installed, representing 71 percent market growth compared to 2009. Currently there are 16 offshore wind farms under construction, totalling over 3500 MW and a further 52 wind farms have been fully consented, totalling more than 16,000 MW.

It's obvious there is a lot of activity in the European wind sector, underlining the continent's traditional role as a global leader in this area. This reputation for leadership has been built up in part thanks to the depth of experience enjoyed by the industry's key players.

As analyst Marc Mühlenbach of Emerging Energy Research points out, "We have a diverse group of qualified players in Europe, including very experienced smaller developers that have been in the industry since the beginning, as well as utility players that have acquired experience since wind has become more of a mainstream energy form. We also have experience with IPPs - independent power producers - which can be industrial players or construction players or even financial players.

"There is a broader scope of experienced players than ever before. We might have had utilities involved in wind even five or 10 years ago, but now they've gained more experience as wind has become a more credible source of generation for electricity."

This question of credibility is an important one. Although the installation and use of wind power has been growing steadily throughout Europe in the past decade, the path to success has not been without obstacles. One of these has been the availability of relatively inexpensive - at least in the short term - traditional fuel sources.

"Let's not forget that other generation sources have a lot of potential as well and have been a lot cheaper traditionally," Mühlenbach says. "A combination of factors has allowed wind to reach its current importance. For example, if we had cheap gas, but then gas prices rise, that will start ringing alarm bells that having a cheap source of energy isn't all that matters.

"At the same time, we haven't had  the political incentives to the degree that we now have across the region up until recently. It's been a very scattered initiative in Denmark and then in Germany and in Spain as well. Before it became EU policy, it was a matter of time in bringing costs down. Then there's the issue of the technology becoming viable and proven."

In Mühlenbach's view, considering these challenges, the growth shown by the wind sector in the past decade has been pretty good. "We could say, 'Why hasn't more been done?' but we could just as viably say, 'Look at the rate of development of wind over the last 10 years,' and the rate that it's reached in this time is actually quite astounding.

"So while yes, maybe more could have been done, on the other hand if you look at  the limits of what it was thought a turbine could be able to produce 10 years ago and what it's able to produce now - which has exceeded that limit tenfold - it's pretty exceptional the rate at which the industry has developed."

Strength

There are certain countries within Europe that are stronger in wind than others - Spain and Germany in particular - largely because they've been at it the longest, and have had time to build up a strong industry presence. Estimates put the number of people employed in the wind industry in Germany, for example, at 64,000. "Countries like Germany and Spain keep topping the charts in installation because there's an industry to support - and an industry that in turn supports - the growth of wind energy," Mühlenbach says.

"It's massive. It means job creation. It means exports, obviously. In the case of Germany, there are already component manufacturers there, thanks to the presence of manufacturers  for existing industries such as automotive and steel. You have a lot of steel companies based around the northern harbours in Germany building foundations for offshore turbines.

"Having industry presence - again, speaking mainly for Germany here - is something that allows for job creation for the industry to build up and the concentration that a lot of these manufacturers have is extremely high, if you look at the map of where they're located in Europe. So it's a historical thing, but also early policy initiatives were made in these countries to support the industry taking off."

Mühlenbach says it is also a matter of resources. "There a few very simple things you need to consider when deciding on constructing a wind farm. You need to look at the resources and the measurements you get from there first and foremost, because you need to know the capacity factors of your turbines. You need to know how much they're going to be able to produce and you want to know ahead of time if the incentive framework where you're going to build your farm is going to work for you."

But good wind speeds aren't enough to guarantee the success of a wind power implementation - this can also depend on the availability of other renewable resources. "If the Norwegians, for example, find huge gas reserves outside the continental shelf off Norway, then there's little incentive to develop wind energy," Mühlenbach points out. "Plus they have hydro resources powering absolutely everything they need for 99 percent of their electricity generation. It really was an industry that had to be created in Norway. The components were there for the industry to exist in these countries but it was definitely something that had to be pushed.

"On the other hand, if you look at how the way the market economy works in Germany, it's not a  venture-capital boom, latest discovery type of market. It's more incremental innovation and step-by-step engineering focus. However, a country where there are low incentives, such as Turkey, could still make sense; there's still a push for a lot of development because the resources are extremely high and the wind speeds are extremely good."

Barriers

Some typical development bottlenecks emerge more frequently in some markets than in others - for example, lengthy bureaucratic processes around permission for planning and construction. "If you're developing in Eastern Europe," Mühlenbach underlines, "you're going to have decide whether or not you want to deal with years and years of very bureaucratic processes. Is that worth it? Can you hold on that long to develop a project? Do you have the money to weigh it off on your revenues from producing electricity if you're going to have to wait for a grid connection for three years in Poland, for example?

"Bureaucracy aside, the other thing to consider is whether or not the infrastructure is present. The best resources are often in rural areas - coastal regions or mountainous regions or remote regions. It's very often the case that high wind speeds are to be found where there's a lack of infrastructure."

Given that another barrier to wind farm site selection has often been opposition from local communities, why are more wind turbines not built offshore? Mühlenbach says that any turbine construction is a logistical challenge: you have to go somewhere where the resources are good so you're sure that you're going to be generating a healthy revenue stream for many years. "It's not uncommon, especially in Eastern Europe - where a lot of developers are moving to now -to have to build roads to be able to access your project, or to have build out the grid and pay for that. If you're building a very large project you may even have to build a substation to connect your project's output to the national grid.

"If you're already having to do all this onshore, not only the cost but the logistics of having to do all that offshore would be beyond what most developers can afford. So offshore is far more expensive, but the main reason why not all things are built offshore is that it's logistically something that we're not always prepared to do yet. Clearly it's picking up, but that industry needs to be created, just as the onshore industry was.

"Until that happens, until that critical mass is in place and there's a steady construction flow - whether it's foundation, installation vessels, substations or grid build-out - all these things need to be in place in order for a wind farm to function. All of this takes much more effort and much more money to do offshore."

Despite this, the momentum is there, and Mühlenbach predicts that between 2020 and 2025 Europe will see a large push towards offshore, with almost a quarter of installations taking place there.

Competition

While the wind sector in Europe is still looking strong, we are in danger of being caught up by other regions, as Mühlenbach explains: "There's such enormous potential in the US and China that no single European country can compete with the kind of growth you see there. You have to talk about Europe as a whole in order to compete with the vastness of these countries. Although a lot of it, especially in the US, is being done with European technologies and even European developers.

"You have the largest number of turbines being installed in the US. GE is American and they're very much the market leader over there, but that's not to say that you don't have European manufacturers capitalising. They are building manufacturing plants in several parts of the US. You have a lot of European utilities that have capitalized on the fact that there's huge demand there and once there's stable policy environment in place, there will be the kind of growth that no single European country can compete with. If you look at last year, for example, the US installed as much as all of Europe together.

"The problem with the US is that traditionally it's been a boom and bust market. It's not been a place where there's been enough stable support to create the kind of investor confidence you've had in Europe, where growth has been very steady. There has been very little shift in the last two or three years in terms of how much has been installed annually, and we're heading towards the same  annual installations again this year; slightly higher than last year, when it was a bit crisis-struck.

"But then you have China, which is at the point of overtaking everyone. China installed more megawatts in terms of wind energy than either Europe or the US last year. They have incredibly ambitious targets, and they also have a demand that's just not comparable to what we're used to."

However, this upward growth can't continue forever: there will come a time when the number of annual installations won't be an increasing figure every year. "You're not going to be able to install more than the previous year for all eternity," Mühlenbach says, stating the obvious. "The interesting thing that we have to face as analysts in terms of forecasting market growth is deciding exactly when this time will come.

"Eventually that line is going to come to a curb and then start sinking, and we're going to have to find out exactly when we think that that might be. In the more mature markets like Germany, for example, we're seeing the beginning of onshore market saturation we're seeing a transfer of growth from onshore to offshore. We see that in the next four to five years when we think that more megawatts will come from offshore every year than onshore, starting around 2014 or so.

"Other markets will follow suit, that's the way it's going to go . There are a limited number of wind turbines to be installed in the first place, because there's a technical limit, and secondly, there are other resources that are going to add to this mix.

"Several EU countries have already submitted their national action plans for renewable implementation, and others are yet to follow. We're going to see what countries are going to do, what their intention is of reaching their 2020 targets and what their energy mix is going to look like in order to reach these targets.

"It's entirely possible that let's say a country we thought was going to install X megawatts of wind to reach these targets has decided, 'Okay, maybe we're going to reach our technical limit sooner than we thought and we're actually going to reach our targets by installing more biomass and we're going to generate heat from biomass instead of electricity from wind and that way we're going to reach our climate targets or our legal energy target.'

"We might see indicators for small shifts in terms of predictions of what wind energy is going to contribute but we're pretty confident that wind energy is going to be the largest contributor of all the renewable options to reaching these targets."

Offshore potential

IHS Emerging Energy predicts the following as the status of the offshore wind market:

In 2020:

The installed offshore base in Europe will be more than 39 GW

Offshore will account for more than 17% of total installed wind capacity

Offshore will account for 35.8% of new MW additions

By 2025:

The offshore base will soar to more than 74 GW

Offshore will rise to more than 24% of installed wind capacity

Offshore will account for more than 43% of new MW additions

Centralised vs distributed

Marc Mühlenbach gives us his thoughts on the future implementation of distributed wind power generation.

"There are initiatives for decentralised and rooftop and wind power generation, but I don't see it advancing at the same rate by any means as the large scale commercial wind farms. If you look at the average size that's being planned right now or if you look at  offshore plans and the size of some of the projects in new markets like Sweden or like Romania, for example, the direction is very clear.

"If you think of grid integration initiatives interconnecting all of Europe, especially the EU countries, the direction is obvious in terms of centralizing wind energy resources; which is not to say there aren't going to be important distributed initiatives. I know that RWE, which is one of the largest utilities, is involved in and has invested into rooftop wind energy initiatives. It's not hugely significant but it's not to be discounted entirely.

"In solar it's easier: you can install panels and just power your own needs. This is something that's changing now, if you're looking at the solar markets in Germany and Spain, for example, but historically the tariffs have been far more generous as well. So there's been quite a push for individuals to do this."