New study predicts slower growth and consolidation as the wind energy industry matures

Cambridge, MA, Jan. 26, 2004 — A new study just released by Emerging Energy Research reports that the wind energy market grew 10% globally in 2003, but is expected to post a decline in 2004. Long term prospects are still bright, however, with growth expected to resume in 2005 as new markets gain steam. These and other findings are included in a just released study, Global Wind Energy Markets and Strategies, 2002-2010.

Wind energy capacity worldwide grew nearly 7,500 MW in 2003, according to EER estimates, up from 6,807 MW of added capacity in 2002, for a total market of nearly $8.0 billion. Germany, Spain and the United States led the way. But the market for wind energy is expected to decline slightly in 2004 as a result of contraction in the U.S. market, due to the expiration of the Production Tax Credit, and a slowdown in Germany.

The German market is still the world’s largest, but new installations fell an estimated 23% in 2003 and are expected to fall off dramatically from a peak of 3,247 MW added in 2002 to just over 2,000 MW in 2004, according to the study.

EER predicts that, on a global basis, growth will resume by 2005 as the offshore wind sector begins to take off in Europe, and as the U.S. market rebounds. EER estimates the market will continue to expand, reaching $10 billion by 2005 and $15 billion annually by the year 2010. The Asia-Pacific region will see the most significant growth over the decade as key markets begin to build scale.

The wind energy market’s center of gravity is shifting away from Germany and Denmark, with Spain, the U.S. and the United Kingdom expected to lead a broad shift in growth in other parts of Europe, North America, Asia and the Pacific. Pockets of growth are also expected to emerge in Latin America, Africa and the Middle East.

A significant number of countries, including Canada, the United Kingdom, Australia and Japan, are entering a key stage of wind development that will see accelerated growth and increased economies of scale for the wind industry as a whole. Only a few countries, such as Germany and Denmark, face market maturity pressures. These two countries represent the largest installed base and highest penetration of wind power, respectively. Both are aggressively pursuing the offshore sector to maintain growth levels.

The U.S. market continues to cycle up and down as a result of fluctuations in its key policy support mechanism, the Production Tax Credit (PTC). The PTC has been consistently allowed to expire, creating uncertainty and leaving the industry without a support mechanism for periods at a time.

Characteristic of its boom and bust cycles, the U.S. added 1,500 MW of wind capacity in 2003, as developers raced to beat the year-end 2003 expiration of the PTC, up from 410 MW added in 2002. Delays in passing a new PTC will result in a decline in 2004 to about 800 MW added, according to the study. However, while federal tax support has been allowed to lapse, key state initiatives will continue to drive wind energy growth in the U.S., says Godfrey Chua, EER Research Director and principal analyst involved in the study.

Radical competitive shifts as wind energy industry matures

The study, which is available for purchase, predicts major competitive realignment and consolidation as the wind energy industry matures. “The shift in demand has turned competition among wind turbine companies on its head,” says William Ambrose, EER president and founder. Dramatic expansion of wind capacity in the U.S. and Spain directly contributed to market share gains by GE Wind and Gamesa, respectively.

Both vendors leapt from the 4th or 5th rankings to a dead heat with German vendor Enercon for 2nd place. Meanwhile NEG Micon of Denmark saw its share drop dramatically, dropping it to 5th place. Vestas of Denmark maintained its market leadership in 2003 with a 22% share, but the growing pressure from Gamesa and GE Wind helped to prompt Vestas’ takeover of NEG Micon in late 2003, says Ambrose. More consolidation is expected as the market contracts in 2004, according to EER.

General Electric, which acquired Enron’s wind business in 2001, has been the most successful in exploiting the shifts, with its GE Wind subsidiary raising its global market share dramatically from 9.3% in 2002 to over 15% in 2003, primarily driven by its ability to exploit the U.S. demand bubble. GE Wind nearly doubled wind turbine shipments in 2003 in part by targeting its traditional power customers, including FPL Energy. While GE Wind leveraged its US presence, Gamesa Eolica continues to dominate its home market of Spain. The acquisition of rival Made Tecnologias Renovables from Endesa in 2003 added to an already ramping yearly volume that was estimated to surpass 1,200 MW in 2003.

Meanwhile, a new cast of characters – wind power-based independent power producers (IPPs) such as FPL Energy of the US and Iberdrola of Spain – have emerged to take a leading role in wind energy development. In the past wind turbine vendors have relied on local engineering and construction companies to develop wind energy markets. In recent years the wind development role has become an effective entry path into the independent power producer space. The wind-IPP market has attracted a growing list of the world’s largest energy companies including Shell, Electricite de France, and Tokyo Electric Power.

According to the EER study, FPL Energy is the leading wind power producer in the world, with over 2,500 MW of capacity under its ownership as of year-end 2003, all based in the U.S. A close second is Iberdrola, the Spanish utility that has been aggressively building wind farms in Spain and is beginning to venture into international markets, such as Brazil. Up-and-coming players include Shell WindEnergy, which plans to operate 2,500 MW by 2005, and Eurus Energy, a joint venture between long time developer Tomen and Tokyo Electric Power, which plans to develop an additional 1,000 MW in new wind power capacity.

In what is likely to become a pattern in the industry, says EER’s Chua, EDF took a 50% stake in SIIF Energies, which subsequently acquired enXco, a longtime windpark developer in the U.S. With EDF’s backing, SIIF/enXco is now emerging as one of the premier players in the new wind-IPP market. As in the manufacturing sector, consolidation and strategic partnering among wind developers, wind-based IPPs, and utilities are expected to accelerate in 2004, according to the EER study.

Global Wind Energy Markets and Strategies, 2002-2010, just released, provides a comprehensive picture of the rapidly changing market and competitive landscape for wind energy and associated products and services. The study was produced by Emerging Energy Research LLC, a Cambridge MA-based research and advisory company specializing in new energy trends. For more information please contact Godfrey Chua, telephone: 617-551-8482, email: gchua@emerging-energy.com, or please visit our website: www.emerging-energy.com.

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

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