For the first time since 2004, global wind turbine demand is expected to contract this year, by as much as 5%, finds a new study from MAKE Consulting.
The report says the overall decrease is mainly due to declining demand in the U.S., Spain and Italy – historically key markets with extensive local supply chains. This has created the need for capacity adjustments, while growth opportunities in new and emerging markets and the growing demand for larger wind turbines require additional investment due to local-content requirements or logistics.
Fundamental shifts in market demand caused by changes in support policies, power-demand projections and overriding macroeconomic factors are causing substantial capacity adjustments in traditional wind power supply chain manufacturing hubs, the report continues. Unstable support policies in key wind markets, such as the U.S. and Spain, have already resulted in significant redundancies and facility closures in the last 12 months, having a major impact on the global supply chain. Turbine OEMs have begun to withdraw production capacity from secondary markets and instead concentrate production in core markets with higher volumes to take advantage of economies of scale.
At the same time, the report says a need for expansion and new investments in the supply chain is created partly by growth opportunities in new and emerging markets associated with localization policies – e.g., Brazil and South AfricaÂ – and partly by the continued drive toward large offshore and onshore wind turbines that require the supply chain to produce longer blades, taller towers, larger-diameter bearings and more complex castings.
According to the report, increasing competition and low capacity utilization result in lower margins. In combination with volatility in demand and shortened demand visibility, this is putting both turbine OEMs and suppliers, as well as long-held sourcing strategies, under pressure. However, MAKE Consulting says this opens a window of opportunity for innovation and new business models in the global wind power supply chain.
Vertically integrated wind turbine OEMs are contemplating divestitures of in-house supply chain activities. Hybrid sourcing strategies and partnerships designed at striking a balance between cost, cashflow, security of supply, quality, control of proprietary technology and market access are on the rise. Suppliers are diversifying their business areas to reduce dependency on new wind turbine demand and new suppliers, and partners are entering the wind industry while others exit, the report concludes.