Recovery of the global wind energy sector during the latter half of 2009 will be sustained throughout 2010, say analysts.

By Sam Phipps

Despite the failure of UN members to agree binding terms on carbon emission cuts at the Copenhagen conference on climate change in December, investment into wind energy is set to increase.  The stronger investment climate is a  result of  improving credit conditions and favourable policy frameworks in key economies such as the US and China.

“The US stimulus packages are leading the way and confidence is definitely improving across the board,” says Nigel Taunt, managing director, venture capital, at Impax Asset Management, a clean tech fund. At the time of interviewing, Impax was preparing to disclose details of two wind energy finance deals.

Taunt notes that by the end of 2009, equity investors within the wind turbine manufacturing sector and its associated supply chain were showing more interest in the sector than earlier in the year. “The willingness to actually commit to new investments is returning,” he says.

At the same time, project backers – both equity and debt – are beginning to mobilise again, providing some forward momentum in the sector.

“I see 2010 as being a continuation of this story – China is moving quickly to install new wind capacity and that is having a ripple effect across the supply chain,” says Taunt.

“So, a seasonal message of – relative – cheer, compared with the dark days earlier in 2009,” he adds.

Carbon trading bears influence

Frankfurt-based Martina Ecker, managing director of Jefferies investment bank, agrees that orders for turbine manufacture have risen in the last few months.

While she anticipates this trend to continue, she warns that it is likely to do so in a “very patchy” manner.

The resulting revenue streams will take months to trickle through owing to the long lead-time in turbine production, but they will eventually reinforce the more positive mood.

“Many suppliers are still struggling in terms of financing but it is picking up and the utilities have started to invest again. People are more confident than they were,” says Ecker. “Some of the bigger players like Vestas have issued convertible stock, so they are properly financed for projects.”

She says the lack of any tangible results from Copenhagen will likely have a limited, if not negligible, effect on wind energy developments over the next 12 months.

 “Those countries that are interested in renewables have their policies in place and will continue with them. Copenhagen was much more about how to price carbon, and though it’s related, it’s a completely different game really.”

Taking a more tempered view, Jack Nicholls, who works in the strategic and policy studies group at renewable energy consultancy Garrad Hassan, says it is too early to draw conclusions about the long-term impact of Copenhagen.

However, he cautions that the carbon trade system will impact a number of emerging wind energy markets. ‘Its worth keeping your eyes on,” says Nicholls.

With broad reference to China and the US, Nicholls expects the overall market to be back on track within twelve to eighteen months.

Policy framework drives offshore development

On the offshore wind front, the UK’s wind energy sector received a boost in late-2009. During the pre-budget report, the UK’s chancellor for the exchequer, Alistair Darling, reaffirmed the UK’s commitment to support the sector by issuing two renewable energy certificates (ROCs) per megawatt hour until 2014. He first raised it from 1.5 ROCs in the April Budget.

The pledge is significant given the UK’s lead in offshore wind energy. According to the British Wind Energy Association, the UK has more projects installed, in planning or in construction than any other country. Darling also granted an extra £50m (€56mn; US$80mn) for new UK offshore wind manufacturing and testing facilities.

“Keeping the two ROCs funding for offshore wind will help the UK retain its world lead and kick-start billions of pounds of investment ahead of the next major phase of offshore developments,” said Maria McCaffery, BWEA’s chief executive.

Wind has been the world’s fastest growing renewable energy source in the last seven years and UK waters now host 228 offshore wind turbines with an installed capacity of 688MW, says the BWEA.

A further 1,407 turbines are under construction in the UK, which will total 4,600MW. By 2020 this will roughly quadruple to 20,000MW.

A clutch of big - mostly European - players dominate the turbine market, including Vestas, Gamesa, Siemens, Nordex and Acciona. Elsewhere US group General Electric is also significant.

But a debt problem for India’s largest turbine maker, Suzlon Energy, has caused some alarm among analysts.

The company, the third biggest of its kind in the world – is reportedly planning to sell its remaining 26 percent stake in Belgium’s Hansen Transmissions only three years after the acquisition.

Suzlon paid US$565 million (€393mn; £353mn) for Hansen in 2006 but has sold down its stake in the last year as part of a US$2.5bn (€1.7bn; £1.6bn) debt refinancing. 

The outlook for rest of the wind sector, however, remains bright. The Indian firm’s chief executive, Tulsi Tanti, has estimated that, even with no Copenhagen deal, industry-wide turbine sales will grow by about 20 percent to 25 percent a year in the next decade.