Strong 2019 figures mask market weakness

Good morning. Our regular readers will know that I don’t usually start analysis pieces so formally. But these are strange times and, if you’re like me, craziness is setting in. I just spent four hours removing a bolt from the climbing frame!

Now more than ever we see the importance of personal contact, and how a bit of kindness goes a long way. With that in mind, the team at A Word About Wind and our parent company Tamarindo Group would like to wish you, your teams and loved ones all the very best in these trying times.

And now, on with the analysis…

This week, the Global Wind Energy Council published the 2020 edition of its Global Wind Report, which analysed the performance of the industry globally last year and makes forecasts for the future.

This showed that 2019 was the second-best year for wind installations globally (60.4GW), but that there are weaknesses in the market.

There is of course one factor overshadowing everything right now: Covid-19. We can’t remember a time when people were looking more at the present and future, rather than the past. Last year's figures don't seem as important when whole sectors are paralysed. But wind has to avoid the same fate.

If you’d like to hear about the impact of Covid-19 from a panel of experts, join us for a live online discussion next Thursday at 3.30pm BST. Sign up here.

The GWEC report shows us that, despite installations of 60.4GW in 2019, the global wind industry doesn’t enter this downturn in the rudest of health.

Forty-three percent of that was in China and 15% in the US, and installations in both were boosted by the planned wind-down of support mechanisms: feed-in tariffs and the production tax credit respectively. Those construction booms won’t be replicated year-on-year.

The rest of the top five trailed far behind. The UK was third for installations with 1.8GW offshore and 629MW onshore; India fourth (2.4GW onshore); and Spain fifth (2.3GW onshore). It is right to celebrate these success stories. But we can also see how wind in 2019 was reliant on five countries for 72% of its installed capacity, and all are feeling the economic impacts of Covid-19.

Ben Backwell, CEO at GWEC, said this showed too many countries have ‘stop-go’ policies to support wind, or are simply underperforming. This also means that only 35% of wind farms built in 2019 were done with market mechanisms, and 59% relied on financial support fixed by central governments.

Market mechanisms dominate talk in the industry, but they haven’t dominated installations yet.

In fact, we have seen in countries including Germany that competitive auctions have driven down prices and led to undersubscribed auction rounds at a time when wind needs to reach 100GW a year to hit global climate goals.

Wind has done well at reducing its costs in recent years, but a low levelised cost of energy isn’t enough to get the industry to the level it needs to be. There is an onus on governments to remove barriers to development and set more ambitious policy goals. COP26 may have now been delayed, but the wind industry must be ready to step up as the policy situation evolves.

Covid-19 is already affecting 2020 installation forecasts.

GWEC is forecasting that installations will hit 64.5GW in 2020, which is 15% lower than its 76GW forecast at the start of 2020.

This echoes a prediction by Bloomberg New Energy Finance that 66.5GW of wind farms will be completed in 2020, which is around 12% lower than its previous forecast. But both expect the delayed schemes to complete in 2021 rather than 2020, and make next year a record. That’d be a good result.

Things look more pessimistic if the Covid-19 upheaval drags on longer, causes a deeper recession that harms energy demand, and forces companies to delay investment decisions on new schemes. That could cause long-term pain.

We aren’t there yet. The world economy will recover, as it always does. The questions are ‘When?’ and ‘What state will wind be in when it does?’

We’ll look to answer them in next Thursday’s webinar. See you there.

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