Location: New York
Author: James Griffin
Date: Wednesday, February 27, 2008

The European Commission has certainly proposed some tough renewable targets for member countries (see chart below). Whether these, and the Commission's overall aim of boosting the European Union's (EU) consumption of renewable energies to 20 per cent by 2020, can be met, is a matter of much debate. Nevertheless, what is clear is that to get anywhere near these figures requires a significant expansion in what was the power generating technology that saw the largest growth in Europe in 2007: wind power.

Statistics from the European Wind Energy Association (EWEA) show that the EU's installed wind power capacity increased by 18 percent last year to reach a level of 56,535MW. The total capacity of new wind turbines brought on line across the region was 8,554MW, an increase of 935MW on the 2006 total. And it is clear that one country led the way.

Spain set a new record in 2007, installing 3,522MW—the highest amount of any European country in any given year ever. Ten per cent of its electricity now comes from wind. There has also been some significant Spanish movement in early 2008, with Vestas Wind Systems receiving orders for a total of 27 wind turbines for two Spanish projects and Suzlon Wind Energy an order for 22 turbines for a single project.

In 2007, there was also sustained growth in France, which added 888MW to reach 2,454MW, and Italy, with 603MW for a total of 2,726MW. New member states also saw significant growth—around 60 percent—albeit from a much lower base. Poland was the most successful, reaching a total of 276MW.

Yet on closer analysis, the tremendous growth in Spain somewhat distorts the overall picture. In fact, if Spain is excluded, then the European market for wind turbines in 2007 shows a small decline compared to 2006. And what is clear is that a number of countries, such as Germany and the UK, pulled the percentage growth figure down.

Though what should be highlighted here is that these two countries are at opposite ends of the wind power development spectrum. In Germany, there are around 19,000 wind turbines dotted across the countryside, generating a world leading 22GW, or about five per cent of the country's electricity. These are significant figures. However, with the best onshore plots taken, there are fewer and fewer spaces left for companies to build.

For Germany the major focus is now offshore, which may provide one of the reasons behind the slow growth figure for 2007. Offshore wind farms usually have a longer development timeframe. However, Germany's environment ministry believes that offshore development could help the country generate a third of its electricity by 2030. The figure might seem large, but given its past development of onshore wind it would be foolish to bet against Germany achieving this, or getting somewhere close. The first large offshore sites are planned for this year in the North and Baltic seas.

At the other end of the scale is the UK. Given its tremendous potential, wind power in the UK is a largely unused resource and it was only last year that it passed the 2GW mark. In many respects the UK's approach has been characterized by much “umming and aahing.” There has been a significant recent surge in proposed investment, but many investors have been frustrated by the planning system. Getting a project beyond the planning red tape, for example, overcoming concerns from various parties such as the Ministry of Defence and following the procedures for grid connectivity has been onerous.

Some have described the UK as suffering from “trapped wind,” and with the British Wind Energy Association (BWEA) saying that it can take seven years from initial proposal to first electricity flowing, it is easy to see why.

The government currently has a bill before parliament that is intended to streamline the process of granting planning permission to large wind farm sites by referring them to the UK's new Independent Planning Commission. However, doubts still exist. Speaking recently to the Financial Times, Gordon Edge, director of economics and markets at the BWEA said the measures will be of little help as they will not be implemented until 2009, it will take a while to get the Commission up and running, and it only applies to large wind farms over 50MW.

The government remains ambitious, particularly with offshore. Only recently the UK's Business Secretary announced that the government wanted to see enough offshore wind farms come into operation to power all the UK's homes. At the moment, this looks a tall order and a long way off.

What is also interesting is to set Europe's wind power efforts in a global context. The Global Wind Energy Council (GWEC) recently stated that the global market for wind turbines grew by approximately 30 per cent last year to 20GW and was estimated to be worth about €25 billion in new generating equipment. And whilst Europe remained the leading market for wind energy in 2007, its yearly installations represented just 43 per cent of the global total, down from nearly 75 per cent in 2004. It begs the question: who is leading the way globally?

The answer is the United States, with 5.2GW of new installations in 2007. This is more than double the figure for 2006. In fact, new wind projects account for about 30 per cent of the entire new power-producing capacity added nationally in 2007. With investments collectively over $9 billion for the year, the U.S. wind power industry is certainly thriving and its companies are among the few bright spots on Wall Street.

With the U.S. total installed capacity now standing at 16.8GW, it might also be expected that the United States will overtake Germany as the largest market for wind energy by the end of 2009, provided that growth continues at the current rate.

There was also much growth elsewhere. The growth in Asia was described by the GWEC as “breathtaking,” with over a quarter of all new capacity in 2007 installed on the Asian continent. China led the field with over 3.4GW added, bringing total installed capacity to 6GW. India also saw steady growth and now has about 8GW of wind power installations, up from just over 6.2GW in 2006.

The global wind power industry is experiencing a boon. In some cases it may be on the back of subsidies and tax credits, but there is a feeling that the costs for renewables are falling, just as the costs of traditional power are rising. The next few years will make for interesting viewing, if these policy supports are removed. How will renewables fare? Many believe the answer to be “pretty well,” particularly when environmental issues are factored in.

Though it seems likely that the EU will continue to see its percentage of new capacity additions falling, in the face of large market such as the United States, China and India ramping up their efforts, the region's windy evolution will continue. It has to. Looking to the Commission's proposed 2020 renewable member state targets, for the majority, wind power remains the “major show” in town.

UtiliPoint's IssueAlert(SM) articles are compiled based on the independent analysis of UtiliPoint consultants. The opinions expressed in UtiliPoint's IssueAlert articles are not intended to predict financial performance of companies discussed, or to be the basis for investment decisions of any kind. UtiliPoint's sole purpose in publishing its IssueAlert articles is to offer an independent perspective regarding the key events occurring in the energy industry, based on its long-standing reputation as an expert on energy issues. © 2004, UtiliPoint International, Inc. All rights reserved.