What’s driving the growth opportunities in wind?

London, 13 Apr 2017

Wind power has gained a foothold in Europe in the past two decades as a viable and efficient energy alternative. And with falling production costs now driving new demand for windfarms around the world, 2017 is expected to bring momentum and focus to the industry.

Macquarie expects worldwide wind capacity installation to grow on average 4.3 per cent a year to 2020, to a total of 66.5 gigawatts (GW). Falling production prices are boosting this trend, as the cost of unsubsidised wind power converges with prices for more traditional energy sources.

"Wind accounts for only 7.5 per cent of the overall global power mix but it is a dominant feature of new electricity capacity being installed,” says Macquarie Research alternative energy analyst Gurpreet Gujral.

The levelised cost of electricity (LCOE) – the net cost to install an energy system divided by its expected lifetime output – for onshore wind worldwide could fall by 24 per cent by 2030 as turbine and generator designs continue to improve.

"Wind accounts for only 7.5 per cent of the overall global power mix but it is a dominant feature of new electricity capacity being installed."

While Europe has led the way in wind power, other regions are now strongly embracing the technology. Macquarie forecasts new equipment demand will jump 32 per cent in the US in the next four years and 26 per cent in China.

Large economies in Asia, Latin America and Eastern Europe which currently have negligible wind power capacity are also likely to provide growth opportunities for the industry.

Europe moves offshore

Europe has been a significant driver of onshore wind farms in recent years, with Denmark, Sweden, Germany and Spain deriving more than 10 per cent of total energy from wind.

While the pace of new installations in Europe has now stabilised, new revenue sources in the region are emerging for manufacturers.

One such source will be offshore wind sites. In 2015, global installed offshore wind capacity grew by 4.1GW to 11.7GW, most of which was commissioned in Germany and the UK.

Macquarie forecasts the installed capacity, although significantly smaller than onshore wind, will more than treble by 2020.

Wind energy storage, necessary to ensure a stable energy supply, is another technology that will gain relevance in coming years.

Denmark, which relies on wind power for more than a third of its electricity needs, manages its supply by storing excess wind energy at hydro plants in Norway for future use.

As home to many of the early modern onshore wind farms, Europe will also require updating installed capacity before other markets. The repowering of obsolete turbines with new and more efficient equipment will represent an emerging source of revenue for manufacturers.

Global growth

Gujral cites the US as having the most promising growth outlook for wind power. The extension of production subsidies until 2023, ongoing investment in transmission lines, increasing plant ownership by utilities and more power purchases from corporates will all underpin pricing and orders over the next four years.

Macquarie estimates that by the early part of the next decade, unsubsidised wind will be more competitive than a combined cycle gas turbine plant in the US. Subsidised wind power in the US in most states is already cheaper than new natural-gas plant power.

Next generation

The global country mix of wind power installation will change in coming years. Macquarie estimates that by 2020 14GW of wind power will be added by a group of 15 nations that currently barely rank in global statistics. The list includes Indonesia, Saudi Arabia, Malaysia, Korea and Argentina.

Wind power penetration in established markets continues to grow amid efficiency and economic gains and the push for emissions-free energy. But developing countries are catching up, benefitting from technology advancements that were not available for early adopters. As demand expands and costs fall, the outlook for new wind power farms looks positive.

For more information on the report ‘The Winds of Change – Global Alternative Energy' (13 July 2016) contact Macquarie Research.