On the back of the revised wind power potential, India’s commitment at the Paris Conference of Parties (COP21) and the target to achieve 60 GW of installed capacity by 2022, the wind segment is poised to experience high growth over the next few years. Globally, India is the fourth largest wind energy market, attracting investments from around the world. On the sidelines of the Windergy 2017 event, Renewable Watch spoke to Steve Sawyer, Secretary General, Global Wind Energy Council, on the evolution of the wind segment globally, the key issues and solutions, and the future prospects….
How has the wind scenario changed over the past year in terms of policy and technology? Which are the key emerging markets?
In 2015-16, China had a record year with 30 GW of capacity installed in a single year. Argentina, a country that has held great promise as a wind energy market, saw the rolling out of government plans for renewable energy development. India remained sceptical and was heading for a policy vacuum and possible change. The election of a new president in the US was a crucial change and we hoped that he would continue the Obama administration’s policy on renewable energy. Those were the developments 12 months ago. However, now we have a solid programme for development in Argentina, with 1.4 GW of installed capacity in the pipeline and another tender coming in the next quarter. Although China’s wind market has shown a substantially better performance in the first quarter of this year against last year, it is not certain whether the momentum will carry through this year.
Despite the election results in the US, it seems that the wind energy programme is moving forward reasonably well. The only real risk seems to be the new tax reform as the support structure, the only federal programme for wind and solar, for the production tax credit could be changed.
Meanwhile, Europe had a better year than expected. Brazil is in a mess and the strongly emerging market has retreated after seven years of rapid growth. Although there are signs that the Brazilian economy is starting to recover, it still faces a difficult political situation. South Africa is stuck because of the corruption issues of the government. South African power utility Eskom has blocked all contracts for new wind and solar capacities for the past two years. The repercussions of this have been severe. For instance, there was a locally owned wind tower factory and because of this situation, its last tower rolled off the line in November 2016 and the company was forced to shut down. So, there are now employment issues in South Africa.
Where are the prices of offshore wind likely to head?
For the industry as a whole, I think the development with the greatest long-term consequences is the dramatic decrease in prices of offshore wind. The offshore wind segment is about 25 years old now. By the 2000s, we were convinced that the segment was ready to take off, but it turned out to be much harder and more expensive, and took longer than imagined. Meanwhile, state-of-the-art onshore turbines were quickly growing in size from 1.5 MW to 3 MW. So, companies took onshore turbines with a little bit of waterproofing and stuck them in the sea, which obviously did not work well. There was rapid development of a whole new range of 5 MW-7 MW turbines that were being installed in deeper waters further offshore and so the prices went up, to reach an average of Euro 140-Euro 150 per MWh. At the same time, both the industry and the governments were getting nervous because these projects cost billions of euros. Some of the big farms cost Euro 2 billion-Euro 3 billion. This was followed by meetings, programmes and committees that were trying to bring down the costs, especially in the UK, which, at that time, was the biggest offshore wind market. Despite a few signs of the offshore wind market in the country rising, with the impending elections, we are not sure where the market is headed in the UK.
The target is to bring prices down to £100 per MWh in the UK and to about Euro 100 per MWh by 2020 in Europe. In early 2015, we had a positive sign with prices falling to Euro 103 for a project by Dong, the former Danish state utility, which is now privatised and is the biggest developer of offshore wind energy. With the size of turbines increasing, one no longer needs multiple foundations for, say, a 9 MW plant. Foundations being the most expensive part of offshore wind, turbines with high wattage help save significant costs for companies. Over the years, the issues relating to expertise, associated infrastructure, transmission substations and cabling for offshore had been smoothened. This resulted in a 700 MW offshore wind tender being floated in June 2016 at a price of Euro 72 per MWh and another one off the Danish coast for Euro 55. Prices fell further to Euro 49 for a tender released for execution in the Baltic region and to Euro 52 for another 700 MW tender released last year. Recently, in Germany, an offshore tender was released with a bid price of Euro 0, which means that the country will not sign a power purchase agreement and will instead absorb all the power produced.
What is the duration of construction for an offshore wind power plant?
Usually, the development of a project takes longer than the construction due to various bureaucratic and jurisdictional issues. Denmark is an exception with a relatively easy framework to encourage offshore wind and the government is now providing grid connections, the price of which is factored into the price of the plant. In the US, offshore wind construction is not easy because of the overlapping and conflicting jurisdictions between the federal and state frameworks. It is a similar case in India, with multiple clearances required from agencies. For instance, when we wanted to put up a simple test lab in Gujarat, we were asked to get clearances from at least eight agencies, of which five were of the central government and three were of the Gujarat government. However, once the permissions are in place, the construction typically takes two or three years. Given the natural advantages that India offers, such as moderate winters in most part of the country and light monsoons that do not stall construction work, the time taken for commissioning here could be much less.
How much offshore wind capacity has been installed globally so far and how much capacity is there in the pipeline?
Globally, 14.3 GW has been installed, of which 2 GW was added in 2016 in countries such as the UK, Germany, the Netherlands, China, Denmark and Belgium. Europe plans to install about 3 GW offshore in 2017 and about the same in 2018 to reach a target of 24 GW by 2020. Europe will continue to dominate the offshore market unless China’s offshore plans take off.
What are China’s prospects in the offshore wind energy segment?
Onshore wind installations in China were lower than those in the previous year. However, it is making progress in the offshore wind segment. It is expected to take off significantly next year, given that its offshore installed capacity addition has grown over the years with about 592 MW installed in 2016, overtaking Denmark.
What is the outlook for the Indian wind market in your opinion?
Original equipment manufacturers are upbeat about the progress in the wind segment in India. Additions in the fourth quarter (January-March) of 2016-17 were much higher than expected. This could be because of the rush to commission projects before the reduction in accelerated depreciation and abolishment of generation-based incentives, or perhaps due to a generally positive sentiment regarding the newly introduced competitive bidding regime. Meanwhile, industry stakeholders, including independent power producers, seem to be more cautious than aggressive. However, the larger problem at the moment is grid integration of the power being produced and whether the interstate transmission plan is going to work. The government is paying more attention to the wind segment now than it has done in the past couple of years, as it looks to meet the wind energy targets. However, achieving the 10 GW target for 2017-18 seems unlikely.
This is a transition phase for India, which holds great potential for wind energy. The growth opportunity here is enormous, for the renewable energy sector in general and for wind energy in particular.
