Wind energy: balance sheets key to success as industry eyes long-term growth
The global wind energy sector is feeling effects from the world financial crisis and economic downturn, just like any other industry. It faces a short-term shortage of project finance, as a result of the problems of the banks. However analysis by New Energy Finance shows that its medium-term and long-term growth outlook remains very robust.
The dominant influences on the wind sector over coming months are expected to be - strong policy support; the challenges to find finance; consolidation; and bold moves by investors who have their eye on the long term. Only this weekend, private equity firm Magnum Capital led the purchase of Portugal’s largest wind business, Enersis, from Babcock & Brown for EUR 1.2bn.
The wind sector is being driven forward by policy-makers’ determination to reduce carbon emissions from their power generation sectors, and by the desire of both governments and utilities to improve energy security by diversifying their sources of electricity. Also, in recent weeks, another motive has emerged for governments – the wish to accelerate investment in renewable energy as a way of stimulating economic activity during a recession.
The International Energy Agency, in its latest World Energy Outlook published last week, raised its forecast for world wind power generation in 2030 from 1287TWh to 1490TWh, no less than 11 times the 2006 figure. New Energy Finance will be publishing its own forecasts for long-term investment in clean energy sectors, including wind, early in 2009.
In the immediate future, the biggest issue for the sector is the impact of the credit crunch on the availability of debt – and in the US, tax equity - finance for wind farm projects. The supply of these types of finance has fallen sharply in recent months, and what is still available is more expensive than in 2007. This is having knock-on effects on wind turbine makers, who are finding that the resulting project delays for their customers are reducing the number of devices they are likely to ship in late 2008 and 2009.
However these influences will be going to work on a sector dominated by well-established trends associated with high growth, such as inflated raw material prices, rising turbine prices and increased project valuations. The cold winds from the outside world are likely to cool the wind sector in the short term, but not freeze it.
Estimates by New Energy Finance are that global onshore wind turbine prices increased by 26% in euro terms from 2003 to the second quarter of 2008; and that prices paid for commissioned wind assets and for project developers increased by 8% and 49% respectively between July 2005 and the second quarter of 2008.
Michael Liebreich, chairman and chief executive of New Energy Finance, said: “The underlying growth dynamics of the wind industry are formidable. Brave players are likely to invest in the coming months in the expectation that finance for projects will start to free up in 2009.
“We expect to see greater merger and acquisition activity as companies with strong balance sheets take advantage of the weaker position of others. Lower raw material costs and mounting competition will feed through to turbine prices in the years ahead, and this will further increase wind’s attractiveness as a generation technology,” Liebreich commented.
New Energy Finance has examined the increasing competition in turbine supply. There are half a dozen big and well-established wind turbine manufacturers from Europe and the US, but these are being increasingly faced by smaller rivals with strengths in niche areas such as offshore wind, and – in particular – by low-price competitors from China and India. New Energy Finance estimates that by 2012, local and foreign manufacturers in China will be contributing as much as 30% of the total global demand for wind turbines.
New Energy Finance has recently published a series of research documents for its clients analysing prospects for wind in the light of industry pressures and financial and economic events.
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