Wind do­ing well, but not with­out hur­dles

The Weekend Australian - Review - - Investments - Keith Orchi­son

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 into the power sup­ply main­stream — grow­ing from only 2000MW of global ca­pac­ity in 1990 to 57,000MW in 2005 — wind projects have taken off in re­sponse to ris­ing global warm­ings fears, tougher emis­sion laws and 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 8 per cent of global elec­tric­ity de­mand.

A study un­der­taken by Ger­man con­sul­tants work­ing with the Ger­man Wind En­ergy In­sti­tute claims that as much as 718,000MW of wind ca­pac­ity could be in­stalled world­wide by 2017, with the vol­ume of an­nual new in­stal­la­tions ris­ing from 20,000MW last year to 107,000MW in 10 years’ time.

Ca­pac­ity world­wide is re­ported to have passed the 100,000MW mark in April and China now aims to drive up wind de­vel­op­ment 20- fold to reach 100,000MW in its own right by 2010. Mean­while, the Amer­i­can power sec­tor re­ports that 200,000MW of wind gen­er­a­tion is be­ing built in the US or is in var­i­ous plan­ning stages. The Amer­i­cans are at present in­volved with 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 5365MW ca­pac­ity in 2007, ac­count­ing for 35 per cent of all new Amer­i­can elec­tric power de­vel­op­ment last year.

The US, along with China, Spain, Ger­many and In­dia, ac­counted for 78 per cent 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 five­fold 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 8000 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.

While sales have been dom­i­nated by a half­dozen 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.

In re­sponse to in­ter­na­tional de­mand and 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: China’s Gov­ern­ment has ruled that 70 per cent 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 — tar­get­ing 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 the fourth place to­day.

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, ex­tra­or­di­nary 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.

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.

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