Nearly 20 companies serving the North American wind market have collapsed or exited the market since 2013, according to a new report from market research firm FTI Consulting. Further, the report finds that policy uncertainty and global instability have forced more than 120 wind suppliers from the market.
The report, Global Wind Supply Chain Update 2015, finds that such policy uncertainty and inconsistency in several top wind markets, such as the U.S., Europe and China, have resulted in a more streamlined global supply chain.
According to FTI Consulting, current market conditions are driving competition in both quality and cost aspects; suppliers are being driven to provide innovative products and value added services to assist turbine OEMs and end users in bringing down the levelized cost of energy (LCOE) of wind in order to remain competitive with conventional energy sources.
Further, FTI Consulting notes that overcapacity is driving turbine original equipment manufacturers (OEMs) to make the product requirements even stricter and to negotiate for extended warranty and payment periods. Therefore, the market research firm estimates that market consolidation will continue. Notably, FTI Consulting warns that Tier 2 and Tier 3 suppliers lacking established relationships with turbine OEMs – as well as research and development capabilities – will no longer be serving that market by 2018.
‘The situation is likely to persist over the next two years due to policy uncertainty; further, market instability has prevented suppliers from deploying new capacity in order to balance out,’ the report finds.
FTI Consulting notes that prolonged market contraction has forced major turbine OEMs divest in-house non-core production assets and opt for outsourcing. As a result, the hybrid model of vertical integration and outsourcing has gained popularity.
‘The wind industry has been in the process of transformation since 2011, and the global wind supply chain is not matured yet,’ explains Feng Zhao, head of wind energy at FTI's energy practice and the report's key author.
‘The exit/non-participation of so many suppliers delivers a dangerous signal to governments. To bring wind toward a position where it can compete head-to-head with conventional energy sources, it is imperative to find a balance between maintaining attractive and certain policy and reducing the burden on governments and consumers caused by paying renewable energy subsidy.’
The report also provided an outlook for key wind energy components, such as rotor blades, gearboxes and towers:Â
Rotor blades. Europe has traditionally been the hub of rotor blade manufacturing, but the growth of wind energy in other parts of the world has resulted in a geographical shift of blade manufacturing away from Europe to North America, South and East Asia and, most recently, Latin America.
There are 30 independent suppliers for blades worldwide, with LM Wind Power meeting 13% of the global demand in 2013. Following recent closures and divestments of in-house blade manufacturing facilities, there is a shift toward outsourcing of rotor blades by large vertical integrated turbine OEMs. Despite such a shift, there are still 20 wind turbine vendors with in-house capabilities for blades. These vendors covered half of global demand in 2013.
The estimated total annual blade supply is more than 95 GW at present, which is 4 to 5 times and 3 to 5 times greater than the forecasted demand in 2015 and 2018, respectively. In order to bring down the LCOE, leading blade suppliers have recently introduced advanced materials (such as a hybrid material combining the properties of carbon and glass fiber), innovative designs for the blade extension as well as aftermarket service solutions.
Gearboxes. Following economic and political turbulence over the last two years, a number of suppliers have exited the market; however, there remained more than 30 gearbox suppliers at the end of 2014 with total annual manufacturing capacity of more than 65 GW, of which the top 5 suppliers – Winergy, NGC, ZF, Bosch Rexoth and Chongqing Gearbox – can produce at least 60%.
Assuming growth in global wind demand in-line with projections, FTI notes, global demand for gearboxes over the next 4 to 5 years will be approximately 41 GW to 42 GW, equivalent to only 65% of current output capacity. Given the level of overproduction, several large European suppliers have begun to strategically shift toward providing services for the operations and maintenance market in order to maintain long-term viability.
Towers. Market entry barriers are low for towers, due to the low technical complexity. With 103 identified suppliers globally, capable of producing more than 39,600 towers annually, there is ample supply in the global market. Taking into account the average turbine size for every region, the supply of towers could potentially reach more than 73.5 GW per year, which is almost double the demand in 2015 and still considerably higher than the demand in 2018. This also explains why so many tower suppliers have collapsed or stayed out of the business in the past two years, the report finds.
