Successful policy transitions and CoE gains critical to global outlook
MAKE Consulting’s Q1/2017 Global Wind Power Market Outlook Update presents an analysis of global and regional wind power installation forecasts through 2026.
The global wind power industry added 52.4 GW of capacity in 2016, resulting in the second highest year of annual grid-connected capacity trailing only the peak year in 2015. Although annual grid-connected capacity in the China market dropped 34% YoY (year over year) following a policy-induced rush in 2015, the rest of the world sustained annual capacity levels YoY with about 33 GW of capacity.
A critical transition period for the global industry continues in 2017, as policy regimes in several markets globally shift to auction-based mechanisms, and the global industry awaits clarity on firm commitments motivated through compliance with the Paris Agreement. Moreover, a lack of firm, long-term policy direction in key markets has caused focus to intensify on economic build opportunities, the realization of which depends on industry-wide LCOE gains. The increasing importance of cost reduction guides technology development and innovation, impacting the entire wind value chain through consolidation and industrialization. As onshore growth proliferates in emerging markets, mature markets will rely increasingly on growth in the offshore sector and the repowering of existing assets to meet renewable energy targets.
MAKE expects a compounded annual growth rate (CAGR) of more than 3% from 2017 to 2026, resulting in the addition of 627 GW of wind capacity. Near-term demand is strong, as several key markets globally frontload development ahead of policy changes, which supports annual increases in growth through 2020. Annual growth levels out to some degree following this surge before peaking again from 2024 to 2026.
The U.S. market is poised for an unprecedented period of growth, as the industry qualified a tremendous amount of capacity for PTCs in 2016. The Trump agenda is a potential risk, but the economics of subsidized wind in the U.S. are extremely competitive, and growth should be largely unabated. An estimated 73% of 10-year growth in the US is concentrated into the next five years.
Low demand growth in Canada limits opportunities in traditional provinces and implementation of new growth mechanisms in Western provinces have been slow. Demand from the U.S. for Canadian hydro may create some opportunity, but overall, wind power growth in Canada over the 10-year outlook is little more than half of the capacity added over the preceding 10 years.
Timing and execution of auctions in Latin America will determine market size over the outlook. The cancellation of and lack of participation in auctions in Brazil last year will impact growth in the medium-term, but possible auctions in 2017 provide upside. Outside of Brazil, auctions in Chile, Mexico, Argentina, Peru, and Colombia contribute to a CAGR of 6.7% over the 10-year outlook, with steady annual growth over the next five years.
Annual growth in Europe over the outlook will shift from new onshore build in traditional markets in Northern Europe (CAGR of -0.7% from 2017 to 2026) to emerging onshore markets in Southern (CAGR of 5%) and Eastern Europe (CAGR of 16%). New offshore capacity will account for 34% of growth in Northern Europe while repowering represents 16% of growth in the sub-region. In the near-term, however, developers in Germany and the UK are exploiting expiring incentives and connecting the last of eligible onshore projects, which will culminate in a peak in 2017 in Northern Europe.
Turkey and France will account for 65% of growth in Southern Europe over the outlook as each market averages more than 1.3GW in annual growth. The Spanish market is set to rebound from several years of disappointment, with its outlook largely dependent on the final details of the upcoming auction.
In Eastern Europe, the Polish government’s lack of support for wind and other renewables deflates the overall market size of the sub-region over the next 10 years. Steady annual growth in the longterm in Ukraine and Russia helps to fill the void lost from potential in Poland, but both markets are rife with uncertainty and geopolitical risk. Emerging markets in the Balkans offer a bright spot, as developers will connect initial projects in 2017 and build from a project-based market to one of continuous demand, particularly in Serbia.
The inconsistent annual growth pattern of many markets in the Middle East and Africa (MEA) will straighten out over the outlook as annual growth is expected YoY. Challenges remain, both in terms of policy clarity and overall infrastructure (e.g., transmission), but as leading markets such as South Africa, Egypt, and Morocco establish footing, an aggregation of capacity from emerging markets will boost annual growth. A CAGR of 22.2% from 2017 to 2026 is the highest of any sub-region globally in MAKE’s outlook.
Annual growth in China dropped expectedly YoY following its record year in 2015, but the market still accounted for 37% of capacity added globally in 2016. The NEA issued warnings to six provinces in early 2017 due to sub-standard wind utilization hours. The warnings accelerate a dynamic already underway, which is a development shift into Class IV regions and other regions with good wind resources and limited curtailment. Maturing know-how in China’s offshore sector, particularly in Jiangsu province, boosts the near-term outlook.
Growth in India highlights the rest of Asia, as it is expected to add 36 GW over the 10-year outlook. Developers in India will adjust successfully from the non-renewal of the GBI and reduction in half of the AD incentive, as low bids at the recent wind auction indicate the competitiveness of wind power in the market. State-level auctions may be introduced in Australia, which could bolster growth ahead of the 2020 national renewable energy target. MAKE expects a 10-year CAGR of 15% in Australia’s wind power market, with strong near-term demand leading up to 2020.
Outside of the big three markets in Asia, annual onshore grid-connected capacity levels will increase as emerging markets (e.g., Thailand, Vietnam, and the Philippines) gain consistency. However, offshore development in several land-constrained markets will largely characterize market activity. South Korea will connect its first utility-scale offshore project to the grid in 2017, which is critical to establishing a track record and momentum as offshore is expected to account for 30% of the market’s growth over 10 years. Offshore development in Taiwan and Japan has not progressed as smoothly, as delays due in part to difficult site conditions, impact project economics and impede a faster pace of development.
Firm order intake increased 8% YoY in Q4/2016 to more than 14 GW, primarily due to a late surge in orders in the Americas. Combined with strong order intake in Asia-Pacific excluding China, order intake in all of 2016 surpassed 51 GW, a significant amount considering that order intake in China dropped YoY. A 2% increase YoY in order intake globally supports near-term growth expectations.
The Q1/2017 Global Wind Power Market Outlook Update includes a detailed market forecast update for more than 50 key and emerging markets for wind power from 2017 to 2026. The forecast data includes a split of expected onshore and offshore development as well as an analysis of wind turbine order and wind turbine pricing trends.
For additional information contact: Luke Lewandowski, Research Manager
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