Mar 31 - Datamonitor

The global wind energy industry is facing challenges including rising raw materials costs, supply chain problems and skills shortages, due mainly to booming demand. With renewable valuations at an all time high, Datamonitor predicts strong growth will continue on the back of record sustainable energy investments driven by technology maturity, policy incentives and heightened investor appetite.

The worldwide success of wind energy and its tremendous growth have put unprecedented pressure on the manufacturers and capital costs of wind turbines and their components. Indeed, the annual market for wind energy installed capacity increased at a rate of 32% in 2006, with over 15,000MW of new capacity installed worldwide. The market predicts that these severe supply constraints are unlikely to abate much before 2012.

The recent rise in installed wind capital costs has been fuelled by component and general raw materials shortages and price increases, the rapid increase in turbine sizes, the decline of leading currencies, higher than expected maintenance costs, and possible increased profit-taking by suppliers. However, this is only moderately affecting wind's competitiveness, as rising steel, copper and carbon prices are also making coal, nuclear, and other electric power plants more expensive to build. Today, most turbine and components manufacturers have taken steps to respond to the boom in demand by substantially expanding their production capacity.

Utilities companies are, therefore, increasingly having to turn to third-party financing to fund wind farm projects as their balance sheets are unable to absorb the increased costs. As a result, there is speculation that this and the supply squeeze will jeopardize wind energy growth and the likelihood of achieving renewable energy targets.

Despite the range of challenges facing the wind energy industry, Datamonitor is of the view that growth is likely to remain strong on the back of record investments, which suggest that the existing technology is ready for scale-up and will become a larger part of the energy mix (onshore wind is now an established commodity, while offshore wind continues to be more difficult to finance). The wind energy industry is very much driven by policy, which today includes a burgeoning array of tariff and fiscal support initiatives (such as the January 2008 European proposal for a directive on the promotion of the use of energy from renewable sources) that together create a stable global environment for continued sector growth and investor appetite. Indeed, 2007 saw installed wind capacity surge by 31% compared to 2006, a trend that is likely to continue.