Study on the international market for wind power: Uncertain growth prospects and tough competition from Asia are leading to a wave of consolidation

• Global market for wind power set to grow more slowly in the next few years than previously thought
• China is the most dynamic market: By 2020,
  20 gigawatts (GW) of wind power capacity will be installed each year
• Asian competitors are flooding the international market with aggressive pricing and financing policies
• Grid parity likely in 3 to 5 years – production costs set to fall by 25-40%
• Slower growth, tougher competition from Asia and falling prices will lead to market consolidation

The global wind power boom is slowly tailing off – especially in Europe. After double-digit growth in recent years, the onshore and offshore wind power market will grow by only around 5% annually between now and 2015. In Europe, the onshore segment in particular is flat. By contrast, China shows the biggest growth potential: between now and 2020, installed wind power output will rise to 20 GW a year. But markets like the US, India, Canada, Brazil, Australia and Africa will also be buoyant in the next few years. However, growing competition from Asian players in the global market and the desired grid parity for wind power are forcing OEMs to cut costs by 25-40%. A large wave of consolidation in the wind power industry is therefore likely. These are the findings of a new international study, "Wind Turbine Manufacturing – A Case for Consolidation" by Roland Berger Strategy Consultants.

"Growth in the wind power sector will slow down noticeably compared to the boom years of the past," says Manfred Hader, Partner at Roland Berger. "Especially in Europe, we are seeing a flat market, particularly in the onshore segment. This is mainly because the onshore market is getting saturated and there is little government investment in countries like Spain. The European offshore wind market offers better opportunities."

Strong growth in China

While the international wind power market has enjoyed double-digit growth over the past few years, growth will slow to around 5% a year between now and 2015. By 2020 this will fall to roughly 4% a year. "This is a real challenge for OEMs and suppliers. In the future, they will be selling to customers in Asia, Oceania and Latin America," says Hader.

The Chinese wind power market in particular will grow strongly in the next decade. In 2015, the country will install 18 GW of wind power capacity; by 2020, this figure will be 20 GW. After China comes the US with 7 GW of newly installed capacity in 2015 and 9 GW in 2020. "The US still has a lot of potential for growth. But the uncertain political context, such as the unpredictable tax incentives for wind power, are creating insecurity in the American market," explains Hader.

The market for offshore wind turbines will grow most of all. Global installed wind power capacity will rise from 1.2 GW today to 4.4 GW in 2015 (+260%). By 2020, it will rise to 8 GW. Europe will account for the lion's share of 6 GW.

Asian competitors advancing

But Asian OEMs and suppliers in the wind power sector are crowding into the international market. Even today, eight of the ten largest suppliers of cast parts for wind turbines come from Asia. Their prices are substantially lower than those of their global competitors. "This in turn leads to a fall in the price of individual parts for wind turbines. The average price of a wind turbine has fallen by 22% since 2008. The international industry is starting to feel the pinch," says Marcus Weber, Partner at Roland Berger.

Grid parity requires more cost-cutting

Wind power is likely to achieve grid party in the next 3 to 5 years. This is essential if players are to retain their market position, especially Western European OEMs. But to achieve power generation costs of 4 to 5 euro cents per kilowatt hour (KWh), the industry needs to cut production costs by another 25-40%. OEMs can drastically reduce their production costs via product optimization, process improvement and strategic partnerships with suppliers. "By transitioning to small-series manufacturing, the wind power industry can take another step toward industrialization," says Weber. "This is the only way the industry can reach its ambitious cost targets."

Market consolidation

Falling prices, fierce competition from Asia and slower growth in the wind power industry as a whole will lead to market consolidation in the coming years – among manufacturers and suppliers. "The industry has to act globally and locally at the same time. It's a real challenge. So key manufacturers and suppliers have to boost their presence in major markets of the future," explains Hader.

Logistics is a crucial part of this. It is more efficient to make sensitive parts of wind turbines, such as towers and blades, in the customer's market rather than ship them around the world. But for profitable local production you need economies of scale. "Larger companies will therefore be in a better position," predicts Hader.