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Bridging the wind investment gap to 2010

After a record year for new installations in 2008, the global wind industry faces greater near-term uncertainty as the deteriorating economic conditions in the USA threaten to dampen growth prospects and wind turbine supply chain investments globally, writes Emerging Energy Research (EER) Research Director Joshua Magee.

The global credit crisis has constricted the pool of available financing for new wind projects, while raising the cost of capital for those project deals successfully closed thus far. Due to the country’s structure of wind tax incentives, nowhere is the risk as great as in the US wind market, which led the global industry with approximately 8350 MW installed in 2008.

In the USA, the credit freeze and economic recession have highlighted the weakness of US wind tax incentive policy so far. The majority of new US wind installations belong to foreign utilities – such as Iberdrola and EDP – that depend on third-party tax equity partners.

With significantly fewer financial institutions investing in wind project tax equity and debt, US wind additions will likely substantially decline in 2009 even with the passing of the economic stimulus bill. At the same time, the market entry of new players with US tax equity appetite – including a growing number of US regulated utilities and multi-national companies from related industries – could help to at least partially bridge the gap in wind ownership demand.

As Europe also struggles in the near term with the global recession emanating from the US, the region’s wind industry continues to evolve from mature onshore markets into new growth opportunities in emerging countries, as well as into offshore where utility players such as Vattenfall with balance sheet capacity can capture larger projects.

As several markets in western Europe saturate, early signs of ownership restructuring – such as Theolia’s asset sale – and International Wind Power’s search for a financial partner – indicate an overall reshuffling of wind portfolios and emerging opportunities for well-capitalised players.

The Asian wind market has thus far felt a slighter and more delayed impact from the global recession and banking crisis. EER’s recent in-depth study of China concludes that the market will lead the global industry within the next five years. While Chinese wind growth continues to explode, the market remains largely a play for major domestic power generation players and a growing number of Chinese wind turbine equipment manufacturers.

The global wind turbine supply chain continues to make dramatic plans for large-scale build-out of production capacity across all major regions, with equipment manufacturers scaling products and attempting to capture customer orders in new markets.

Recent analysis of GE’s new 2.5xl product launch indicate an intensifying battle for multi-megawatt market share in Europe, at the same time that new Asian entrants such as Indian original equipment manufacturer (OEM) Kenersys attempt to find a foothold in the European market. However, the current economic crisis has impacted the rate of new customer orders particularly in the USA, causing OEMs to scale back near-term expansion plans and to temper order book outlook.

Many of the policy initiatives necessary for substantial industry growth, once the global recession corrects, are currently gaining momentum. Much will depend on how rapidly the Obama Administration addresses the major policy challenges facing the wind industry in the USA.

At the same time, European momentum toward enacting its long-term climate change targets could prove to do much to further spur large-scale onshore and offshore wind build-out throughout the region.

The global wind industry currently must bridge the gap between the strong performance of 2008 and expected long-term, steady market expansion in 2010 and beyond.

2009 will likely purge the industry of smaller, more speculative players as activity slows, and those that successfully weather the downturn will be in a substantially better competitive position. But for now, firms must avoid looking down as they build this bridge through temporary downsizings, project postponements, and refinancings—and keep their eyes on the greener pastures ahead.

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Energy infrastructure  •  Policy, investment and markets  •  Wind power