Turbine makers struggle to meet dynamic demand
Saturday, 17 November 2007
Fiona Harvey
WIND is the most mature of renewable energy technologies, apart from hydroelectricity and the burning of biomass. In recent years, the use of wind turbines to generate electricity has grown remarkably: by 25 per cent in 2007, according to the World Wind Energy Association (WWEA).
Growth rates are likely to remain strong, and the WWEA predicts that there will be 160GW of wind capacity by 2010. Wind turbine technology has also progressed, with bigger turbines and a wider choice of offshore models. Turbines capable of producing up to 5MW are now becoming available for offshore use, and 3MW turbines onshore are replacing the smaller 1.5MW turbines that were standard a few years ago. These turbines have also been made more efficient. Clipper Windpower, based in the US, said in September it was developing a 7.5MW turbine for offshore use, at a site in the north-east of England.
More, and more countries are expanding their wind generation capacity. In the US, about 3GW of wind power are expected to be built by the end of this year, topping last year's record when 2.5GW were added to the country's capacity. A single megawatt produces enough electricity on average to serve 250 to 300 homes in the US - more in other countries.
Germany boasts more wind power than any other country, and in 2006 added about 2GW to its capacity to reach 20GW. Spain and the US share second place, with about 11GW each. India added nearly 2GW last year, to reach a total of about 6GW by the end of 2006. China's wind market is also growing strongly, making it the sixth-biggest market in terms of installed capacity, behind Denmark, which was the world's wind pioneer for more than two decades.
But, though growth has been strong, it was from a small base and the industry still accounts for only a tiny proportion of electricity generation: little more than 1.0 per cent. And though the outlook for wind remains bright, there are pitfalls awaiting the unwary generator and investor.
First among these is the supply of turbines. Most turbine manufacturers are operating with a large backlog, thanks to record growth that has vastly outstripped supply. Manufacturers have been unable to ramp up their capacity fast enough, and have been hampered by high commodity prices making their main raw material - steel - more expensive.
As a result, customers must wait 18 months or more for delivery of their turbines. Victor Abate, vice president at General Electric, the world's joint secondbiggest wind turbine manufacturer by market share, says the company's products are sold out to the end of 2009. Other manufacturers are in a similar position. The average price of turbines has risen in line with demand and commodity costs, so the average turbine can now cost about £1.0m per MW.
Constraints on supply and high prices mean that only buyers with strong balance sheets or good supplier relations stand a chance of getting turbines at present, says Mortimer Menzel, of Augusta and Co, an investment bank in London. A further problem in some mature markets such as Germany is finding suitable sites for new wind farms.
Subsidies, or other forms of government assistance, are still needed to encourage new wind farms in most places. Wind is still more expensive than fossil fuel alternatives such as coal and gas. But the costs are coming down, even as the oil price rises.
Another problem dogging the image of the wind industry, according to the British Wind Energy Association, is the number of harmful myths that have grown up around it.
For instance, one canard frequently repeated in the British press is that the manufacture, siting and operation of wind turbines produces a greater quantity of, greenhouse gas emissions than are avoided by the use of the turbine over its life time. In fact, about six months of generation will more than repay the "carbon debt" built up by making a turbine.
Another, more damaging, misconception is that wind power is so intermittent - as the wind only blows strongly enough to turn turbines for a proportion of each day that fossil fuel power stations must be kept running in the background to shore up the wind supply. But the UK's Energy Research Council has found that at least 20 per cent of a country's electricity supply could come from wind before this was a problem. To reach above 20 per cent, advanced "load-balancing" techniques to adjust supply and demand could be brought to bear.
Finally, some observers fear the market valuations for wind companies may be reaching a peak. EON, the German utility, recently bid $1.4bn for the US assets of Airtricity, an Irish company, which comprise only about 20OMW of turbines that have yet been installed, and a larger number that are planned. Mr Menzel says: "This is another transaction that proves investors are willing to give significant value to development assets beyond the value of operational wind farms."
Over the next few years, the wind industry is likely to be a focus for consolidation. One of the most remarkable success stories in the past year has been Suzlon, an Indian company which shot from being the world's fifthbiggest wind turbine manufacturer to challenge the likes of General Electric and Gamesa to be the second biggest company in the world after the market leader Vestas.
Suzlon surprised investors by snatching Repower, a German turbine company, away from Areva, the French energy technology company, for €1.2bn in a bid battle that lasted for most of the first half of this year, Last year, Suzlon paid $565m to buy Belgian gearbox maker Hansen Transmissions International.
Tulsi Tanti, the chairman, says no further large acquisitions are waiting in the wings, as his company now has all the technology it needs to be an "end-to-end" turbine manufacturer, Few expect the dynamism of the wind market to dissipate, despite the problems of supply and the high price of equipment. Mr Tanti says: "If people want to do something about climate change, and they have to, then wind is something we need."
WIND is the most mature of renewable energy technologies, apart from hydroelectricity and the burning of biomass. In recent years, the use of wind turbines to generate electricity has grown remarkably: by 25 per cent in 2007, according to the World Wind Energy Association (WWEA).
Growth rates are likely to remain strong, and the WWEA predicts that there will be 160GW of wind capacity by 2010. Wind turbine technology has also progressed, with bigger turbines and a wider choice of offshore models. Turbines capable of producing up to 5MW are now becoming available for offshore use, and 3MW turbines onshore are replacing the smaller 1.5MW turbines that were standard a few years ago. These turbines have also been made more efficient. Clipper Windpower, based in the US, said in September it was developing a 7.5MW turbine for offshore use, at a site in the north-east of England.
More, and more countries are expanding their wind generation capacity. In the US, about 3GW of wind power are expected to be built by the end of this year, topping last year's record when 2.5GW were added to the country's capacity. A single megawatt produces enough electricity on average to serve 250 to 300 homes in the US - more in other countries.
Germany boasts more wind power than any other country, and in 2006 added about 2GW to its capacity to reach 20GW. Spain and the US share second place, with about 11GW each. India added nearly 2GW last year, to reach a total of about 6GW by the end of 2006. China's wind market is also growing strongly, making it the sixth-biggest market in terms of installed capacity, behind Denmark, which was the world's wind pioneer for more than two decades.
But, though growth has been strong, it was from a small base and the industry still accounts for only a tiny proportion of electricity generation: little more than 1.0 per cent. And though the outlook for wind remains bright, there are pitfalls awaiting the unwary generator and investor.
First among these is the supply of turbines. Most turbine manufacturers are operating with a large backlog, thanks to record growth that has vastly outstripped supply. Manufacturers have been unable to ramp up their capacity fast enough, and have been hampered by high commodity prices making their main raw material - steel - more expensive.
As a result, customers must wait 18 months or more for delivery of their turbines. Victor Abate, vice president at General Electric, the world's joint secondbiggest wind turbine manufacturer by market share, says the company's products are sold out to the end of 2009. Other manufacturers are in a similar position. The average price of turbines has risen in line with demand and commodity costs, so the average turbine can now cost about £1.0m per MW.
Constraints on supply and high prices mean that only buyers with strong balance sheets or good supplier relations stand a chance of getting turbines at present, says Mortimer Menzel, of Augusta and Co, an investment bank in London. A further problem in some mature markets such as Germany is finding suitable sites for new wind farms.
Subsidies, or other forms of government assistance, are still needed to encourage new wind farms in most places. Wind is still more expensive than fossil fuel alternatives such as coal and gas. But the costs are coming down, even as the oil price rises.
Another problem dogging the image of the wind industry, according to the British Wind Energy Association, is the number of harmful myths that have grown up around it.
For instance, one canard frequently repeated in the British press is that the manufacture, siting and operation of wind turbines produces a greater quantity of, greenhouse gas emissions than are avoided by the use of the turbine over its life time. In fact, about six months of generation will more than repay the "carbon debt" built up by making a turbine.
Another, more damaging, misconception is that wind power is so intermittent - as the wind only blows strongly enough to turn turbines for a proportion of each day that fossil fuel power stations must be kept running in the background to shore up the wind supply. But the UK's Energy Research Council has found that at least 20 per cent of a country's electricity supply could come from wind before this was a problem. To reach above 20 per cent, advanced "load-balancing" techniques to adjust supply and demand could be brought to bear.
Finally, some observers fear the market valuations for wind companies may be reaching a peak. EON, the German utility, recently bid $1.4bn for the US assets of Airtricity, an Irish company, which comprise only about 20OMW of turbines that have yet been installed, and a larger number that are planned. Mr Menzel says: "This is another transaction that proves investors are willing to give significant value to development assets beyond the value of operational wind farms."
Over the next few years, the wind industry is likely to be a focus for consolidation. One of the most remarkable success stories in the past year has been Suzlon, an Indian company which shot from being the world's fifthbiggest wind turbine manufacturer to challenge the likes of General Electric and Gamesa to be the second biggest company in the world after the market leader Vestas.
Suzlon surprised investors by snatching Repower, a German turbine company, away from Areva, the French energy technology company, for €1.2bn in a bid battle that lasted for most of the first half of this year, Last year, Suzlon paid $565m to buy Belgian gearbox maker Hansen Transmissions International.
Tulsi Tanti, the chairman, says no further large acquisitions are waiting in the wings, as his company now has all the technology it needs to be an "end-to-end" turbine manufacturer, Few expect the dynamism of the wind market to dissipate, despite the problems of supply and the high price of equipment. Mr Tanti says: "If people want to do something about climate change, and they have to, then wind is something we need."