Wind doing well, but not without hurdles

Weekend Australian
Saturday 28/6/2008 Page: 5

AFTER another banner year, the wind industry is becoming a major target for sustainable funds with analysts predicting a huge further increase in investment - but the level of growth is starting to create its own turbulence. After taking 15 years to inch its way into the power supply. mainstream -' growing from only 2000MW of global capacity in 1990 to 57,000MW in 2005 - wind projects have taken off in response to rising global warming fears, tougher emission laws and the rocketing crude oil price.

European consultants predict that, on present trends, wind power will have a million megawatts capacity in 2020, able to deliver up to 8 per cent of global electricity demand. A study undertaken by German consultants working with the German Wind Energy Institute claims that as much as 718,000MW of wind capacity could be installed worldwide by 2017, with the volume of annual new installations rising from 20,000MW last year to 107,000MW in 10 years' time.

Capacity worldwide is reported to have passed the 100,000MW mark in April and China now aims to drive up wind development 20-fold to reach 100,000MW in its own right by 2010. Meanwhile, the American power sector reports that 200,000MW of wind generation is being built in the US or is in various planning stages. The Americans are at present involved with the world's largest expansion of wind power. Boosted by federal subsidies and local state support; investors laid out $US9 billion for new wind farms with 5365MW capacity in 2007, accounting for 35 per cent of all new American electric power development last year.

The US, along with China, Spain, Germany and India, accounted for 78 per cent of new wind installations worldwide in 2007. For manufacturers, the surge in wind investment represents a river of gold. It is estimated that more than 15,000 turbines were sold in 2007, earning manufacturers about $US26 billion. This will increase fivefold in the next 10-12 years if growth predictions are borne out.

The wealth cascades from the big manufacturers to smaller suppliers, too. Each turbine contains about 8000 parts and a large amount of their production is outsourced. Turbine sales last year, for example, carried with them a market for more than 43,500 turbine blades and more than 22,500 tonnes of composite materials.

While sales have been dominated by a half dozen large manufacturers to date, the market expansion inevitably has attracted more players. It is estimated that there are now 40 turbine manufacturers around the world, 30 of them recent start-ups or diversifications by utilities and power equipment businesses.

The value proposition has been highlighted this month by the world's biggest contract for construction, installation and service of wind farms being inked in Spain between Gamesa, a Bilboa-based system supplier, and lberdrola Renewables, the subsidiary of the largest Spanish energy utility. Iberdrola is the world's biggest wind power producer.

In response to international demand and competition, the world's biggest turbine manufacturer, Denmark's Vestas, with plants in nine countries, has announced that it will spend $US2.5 billion on new factories, aiming to hold a quarter of the global market. German-based 'Siemens plans to triple its turbine capacity around the world by 2011 in response to bagging orders worth $US2.4 billion from America and $US1.2 billion from Britain. It can only offer new customers delivery in 2012 from its existing facilities.

GE Energy, which claims second place in turbine production, boasts a total of $US12 billion in orders at present and says its capacity is sold out: until end-2009. It, too, is expanding production in five countries: Vestas, GE Wind and Gamesa currently hold almost half the Chinese wind components market, but they are about to be confronted by tougher regulations and more competition: China's Government has ruled that 70 per cent of turbines erected in the country must be locally built and it is also supporting domestic manufacturers in making licensing agreements and joint ventures with western companies.

Goldwind, the biggest Chinese-owned manufacturer, has raised $US245 million this year through an initial public offer (IPO) to fund factory expansions. China High, the country's biggest fabricator of gearboxes, the most critical and: complex part of a wind turbine, is working on a four-fold increase in production over the next two years -- targeting both the local and export markets. Its goal is to become one of the world's top three manufacturers of gearboxes.

An illustration of the wind sector's potential and also the perils of rapid expansion is India's Suzlon Energy, which has rocketed up the turbine manufacturing global league in 12 years to hold the fourth place today. Two-thirds of the 70 to 80 new factories to produce the turbine blades required to meet projected wind capacity growth between now and 2020 are expected to be built in Asia, As with any business bubble, extraordinary expansion quickly throws up problems as well as opportunities.

Generators are confronted by fast-growing capital costs, increasing difficulty in locating good wind sites, demands from landowners for higher compensation and stiffer resistance from communities "invaded" by wind farms. Manufacturers are finding it hard to locate suitable workers at affordable wages European factory workers complain that their employers are migrating to China and India because labour costs there are so much lower - and are confronted by sharp rises in commodity and transport prices.

Energy market managers are having to deal with the need to rebuild the transmission system in some countries if wind development continues at this pace - existing networks are designed to deliver electricity from a few large power stations, not hundreds of turbines scattered across rural areas.