Market Forecast for 2016-2020
Global wind capacity to nearly double in next five years
Click graph for a close-up image.
After setting new records in 2014, the wind power industry surprised many observers with another record breaking year in 2015, chalking up 22% annual market growth and passing the 60 GW mark for the first time in a single year; and this after having broken the 50 GW mark for the first time in 2014. Once again, the big story was China, installing an astonishing 30.8 GW against the backdrop of a slowing economy and nearly flat demand. Europe and the United States had surprisingly strong years; and Canada, Brazil, Mexico and other ‘new’ markets continued to develop.
Three big trends will continue to drive growth in the medium term:
Climate: the positive outcome of the climate negotiations at the UNFCCC’s COP 21 in December was an unexpected pleasant surprise. The long term targets adopted by 186 countries gathered in Paris is a de facto call for a 100% emissions free power sector by 2050 at the latest; and given the lack of any serious competition from any other emissions free power sources, this means a power sector supplied largely or completely by renewable energy, with wind and solar leading the pack.
The real test of the Paris Agreement, of course, will be in the implementation, and much could go wrong. However, we were heartened by the discourse at the dozen or so business conferences held in the margins of the Paris talks, where the message was clear: “the future is renewables, and that’s the direction we’re headed.” It will take some time before that translates into concrete developments across a range of markets, but it may have already played a role in the very aggressive RE growth targets contained in the recently released 13th Five-Year Plan in China.
Cratering prices: while we have seen very low wind prices in the US market for some time, and the Brazilian and South African tendering systems have also generated low prices for the last several years, we have recently seen a spate of tender results in Egypt, Morocco, Peru and elsewhere with what up until now were unheard of prices outside the US plains states – in the vicinity of €40/MWh or below, and in the case of Morocco, below €30/MWh. The latest surprise was Mexico’s first tender, with prices for both wind and solar.
Is this the new normal? Time will tell, but it is clear that the costs of both wind and solar technology have fallen dramatically in recent years, and new and complex financing structures are creating the conditions for renewables to be competitive in an increasing number of markets. Of course, some of this is explained by the excellent wind resources in some of these locations, but the downward pressure on prices will continue, and not just in new markets. China is lowering its FIT for wind this year, and will do so again in 2018.
US Market Stability: The United States, as a pioneer in the global wind industry as well as having some of the best wind resources in the world, has had much lower prices than most of its OECD competitors for some time, but the difficulty was always the on-again, off-again nature of the US market, as it was subjected to short term policy frameworks which left policy gaps every few years and hampered the growth of the industry.
So it was very welcome news, and a big surprise to all except for those directly involved, when the US Congress passed and the President signed into law a long term extension and phase out of the Production Tax Credit (PTC) which has been the main federal policy term support for wind energy in the US. So the US wind industry now embarks on its longest-ever period of policy stability, and the potential implications of this go far beyond the US market: in terms of company strategies; manufacturing location choices; and development of the supply chain. Five years from now the US wind industry will be a very different and much stronger animal, we believe.
In addition to climate and competitiveness, energy security ranks high up on the list of drivers for the global market, as does the need to clean the air of the choking smog that is making more and more of the developing world’s major cities unlivable. The demand for clean, sustainable and indigenous power sources to fuel economic growth outside will continue to grow, especially in emerging economies across Africa, Asia and Latin America.
So what about the short term? While it’s very hard to turn the trends listed above into market forecasts for the next several years, we anticipate a period of sustained growth, although we do not expect the kind of spectacular growth we have seen in the last two years. After ‘catching up’ with the Global Wind Energy Outlook Advanced Scenario in 2014, we’ve moved well ahead of it in 2015; and we now seem to have a much better chance of keeping on that track through 2020 than we thought 12 months ago.
Last year at this time we projected a 2015 market of about 53 GW, and while it’s nice to be prudent, that’s quite a large variance. What were the main differences? China, for one: just as nobody predicted that China would install 23 GW in 2014, nobody predicted 30 GW in 2015…we were looking at a flat market in China for 2015. Likewise for the US, while we expected an increase in the US, we didn’t expect that the market would essentially double from 2014 to 2015. For the rest of the world, we were reasonably close.