The year ahead in wind and solar

Industry leaders peer through the fog of uncertainty to offer their insights

Industry leaders peer through the fog of uncertainty to offer their insights

Recharge asked leading industry figures what their predictions were for the wind and solar markets during 2014.

On the whole, they foresee a return to higher rates of growth and a greater availability of finance. However, political uncertainty continues to cast a long shadow over the sector. Here are their edited responses.

ALFONSO FAUBEL | Vice-president, wind, Alstom Power

What do you expect for the wind industry in 2014 — stagnation, recovery or fast growth?

Recovery.

What political challenges is the industry likely to face?

Instability. The industry is rapidly growing in developing countries, where sometimes political stability is a challenge. And in mature markets, economic and environmental policies change fast. Constancy and visibility are key words.

What will be the key macroeconomic changes?

The world economy continues to expand slowly. The short-term risks associated with the situation in the euro area, fiscal adjustments in the US and the economic slowdown in large developing countries have diminished but not disappeared.

How will new technology affect the wind business?

Lowering the cost of energy is essential.  New technology will enable machines to offer better availability, reliability and performance. Producing more and better will systematically lead to a lower price of the kilowatt delivered.

What changes will the industry try to make in 2014 to increase revenues and profits?

Concentrate on key markets. Most OEMs are moving towards more targeted activity, focusing resources and efforts on a handful of key markets and countries.

 

ELBIA MELO | Executive president, ABEEólica, the Brazilian wind association

What do you expect for the Brazilian wind industry in 2014?

We expect another year of growth, because of the good results obtained in the last [national energy] auction. The fact that only wind power has been chosen, along with the average price of R$124.45 [$54.82] per MWh, indicates significant gains in the maturity of the industry and an ability to sustain the entire production chain.

What political challenges is the industry likely to face?

The percentage increase in local production of turbine components by 2016 is the main challenge. Brazil will need to produce components with the same quality and competitiveness as those made abroad. The payment of service charges by the electricity system by unbuilt wind farms is a political and economic challenge that undermines developers and can deter foreign investment.

Another challenge relates to the harmonisation of environmental legislation in several states. It is important that studies on environmental, historical and cultural heritage are standardised throughout Brazil.

What will be the key macroeconomic changes?

The consolidation of the entire production chain. This is related to the price of energy trading at auctions held at the end of 2013.

How will new technology affect the wind business?

The use of new technologies has made projects more efficient and competitive, and produces more energy in smaller areas. Another important point is that Brazil has winds of excellent quality and consistency. So the development of proprietary technologies for Brazilian conditions will result in a better use of our potential.

What changes will the industry try to make in 2014 to increase revenues and profits?

There will be advances in the study of wind systems. Increased use of equipment such as Lidar will improve wind profile statistics in each region, allowing the entrepreneur to develop a project more effectively and appropriately to the environmental characteristics of the site.

 

JOSÉ LUIS BLANCO | Chief executive, Acciona Windpower

What do you expect for the industry in 2014?

Recovery.

What political challenges is the wind industry likely to face?

Policy regulation and tariff systems in the EU; the PTC in the US.

What will be the key macroeconomic changes?

Return to growth worldwide, macro-stability, energy demand increases.

How will new technology affect the wind business?

The introduction of new smart technologies will reduce our products’ levelised cost of energy, but we do not expect the emergence of any “disruptive” technology.

 

JÜRGEN ZESCHKY | Chief executive, Nordex

What do you expect for the wind industry in 2014?

Experts forecast a one-off increase of new installations of almost 39%, to 49.8GW, before the global market reverts to a medium- to long-term annual growth rate of 5% from 2015. Onshore turbines will contribute about 90% of new installed capacity.

What political challenges is the industry likely to face?

Security of investment is important. Investors need a basic trust, as their engagements are long-term. Wind needs political stability and continuity. Changes in regulatory frameworks without considering a broad and intelligent new market design are challenges.

What will be the key macroeconomic changes?

The economic slowdown afflicting the industrialised nations has spread to the emerging markets. Although they continue to drive moderate growth in the global economy, momentum has weakened recently.

For wind, this means sustained delays in connecting new capacity to grids in China, a more muted momentum in the US and sustained weak installation figures in Southern Europe. We estimate less worldwide new installed wind capacity for 2014.

Nevertheless, a rise in orders in the past few months reflects the industry’s growth potential.

This growth was accounted for almost exclusively by the onshore segment. Regionally, the greatest growth was recorded in Germany, Sweden and the UK, as well as the US and South America.

 

MARTIN BILLHARDT | Chief executive, PNE Wind

What do you expect for the wind industry in 2014?

Overall, we expect it to be a year of continuous growth, with regional ups and downs due to unstructured renewables policy in some countries. The Global Wind Energy Council sees compound annual growth rates of 15-20%.

What political challenges is the industry likely to face?

The main problems are caused by governments moving the goalposts. Only long-term objectives lead to a safe and predictable investment environment that all participants can rely on and develop strategies accordingly. For instance, the German decision to extend the offshore renumeration system by two years until 2019 helps us make long-term plans.

What will be the key macroeconomic changes?

The main changes are continuous increases in power prices driven by conventional producers as well as increasing energy demand — industrial and household. Wind will have a positive influence on these factors as it is the only technology that can be competitive with conventional energy in the short term and bring prices down.

How will new technology affect the wind business?

It will have a huge impact, helping lead wind to grid parity even in areas with less wind speed. More efficient turbines will have an especially positive impact on the cost per kWh.

What changes will the industry try to make in 2014 to increase revenues and profits?

Continuous improvement of the technology to increase efficiency and cost-effectiveness.

 

MORTEN ALBÆK | Senior vice-president, Vestas

What do you expect for the wind industry in 2014?

A mixed bag: growth in some markets, stagnation or modest progress in others.

What political challenges is the industry likely to face?

The main political challenge is uncertainty and ambiguity. Long-term investment decisions require a reasonable degree of policy certainty and clarity. Take the debate about EU 2030 policy. Vestas and industry colleagues are pushing hard for renewable-energy targets to be included in EU 2030 energy and climate policy. Doing so would contribute to creating longer term policy — and thereby investment — certainty and clarity.

What will be the key macroeconomic changes?

Predicting the future is tricky. The principal issue, though, is not so much what those macroeconomic changes might be, but how the industry deals with them. And here the key factor is flexibility and adaptability. Vestas, for example, is at the tail end of a two-year turn-around process that is creating a more flexible organisation that can adapt efficiently to evolving market conditions and customer demands.

How will new technology affect the wind business?

Innovation drives this industry. Moving forward, technology innovation will contribute to bringing down the cost of energy, making wind even more competitive against conventional sources.

What changes will the industry try to make in 2014 to increase revenues and profits?

Increasing revenues and profits is the name of the game for any business. We’re all striving to bring down costs, streamline our organisations and increase efficiencies. The industry also has to work even more effectively together to create more certainty and clarity in the policy environment. And we have to continue opening up new markets and innovating business models.

 

STEVE SAWYER | Secretary-general, Global Wind Energy Council

What do you expect for the wind industry in 2014?

I expect substantial recovery in the US and continued growth in the major emerging markets, which have been driving growth for several years.

What political challenges is the industry likely to face?

They vary widely from place to place, but overall, I would say policy uncertainty is challenge number one.

What will be the key macroeconomic changes? The structure of project financing has changed substantially, and that will continue, with a move away from commercial bank lending to private equity, institutional investors and state banks providing more finance, and commercial finance less. Also, we will no doubt begin to see changes in electricity markets to account for the unique characteristics of wind (and solar PV), which could be a boost, or could be a problem. Likely both.

How will new technology affect the wind business?

Turbine technology improvement is incremental rather than revolutionary. We’re now seeing cost-competitiveness of wind from a series of incremental improvements over the past several years. We expect that will continue. Other than the turbines, increasing intelligence of the management of electricity systems and the systems themselves will have a positive impact.

What changes will the industry try to make in 2014 to increase revenues and profits?

It depends very much on the market and the company. However, increased production, reduced O&M costs, maximised yield, streamlining of the value chain, plus many others... all will play a part.

 

STEFAN KARLSSON | Head of Windpower Initiative, SKF

What do you expect for the industry in 2014?

We foresee good growth in installations, mainly due to a substantial recovery in the US, with improved and prolonged terms in the support system. Several factors will also provide good growth in China. On top of these major markets recovering, the globalisation of wind will continue in 2014, with new and emerging markets developing.

What political challenges is the industry likely to face? Wind energy is still a new technology on a learning curve, but it will require financial support in competing with traditional sources for some years. It is therefore most challenging when these support systems are being quickly reduced, or even removed, sometimes with retroactive effect. The industry needs a longer-term planning horizon for investment decisions, so the request to our political leaders is to formulate a stable framework. We also see a major challenge to get national renewables targets as part of the EU 2030 climate targets.

What will be the key macroeconomic changes? The slow economic growth in several markets, mainly in Southern Europe, will limit investments, which will hold back the speed of transition to a new generation structure. An even more serious factor is the quick development of shale gas, and the effect this is having on carbon prices. Unless we see a substantial increase in charges for CO2 emissions, there are severe risks for climate development as well as negative effects on the development of renewables.

How will new technology affect the renewables business?

Wind and solar have shown an impressive learning curve and are continually becoming more attractive as investments for utilities. Technological development, with more efficient and smarter turbines, extended lifetime of wind farms and more cost-efficient O&M, will further drive down the levelised cost of energy. Advances in economic energy storage and grid improvements are the key factors in making our energy systems 100% renewable over time.

 

SIMON CURRIE | Global head of energy, Norton Rose Fulbright

What do you expect for the renewables industry in 2014?

Very similar to 2013, with strong growth in South Africa, the US, China, the UK, Morocco, Brazil, Chile, Uruguay and Turkey. We will see new markets grow in the Middle East and Ghana, Namibia, Kenya and Zambia. We are excited by the prospects in Southeast Asia, especially for solar as it becomes increasingly competitive. Being competitive is the name of the game. It is no longer about subsidies and green energy but whether renewable energy can compete on an even footing. Brazil, Chile and South Africa have shown that renewables in the right environment can compete head to head with other technologies. But in markets where power prices are low, new capacity isn’t required, there are cheaper alternatives or the system requires base load, we expect renewables to struggle in 2014.

What political challenges is the industry likely to face?

Politicians can no longer be seen to give enduring support for green energy if voters believe the costs are too high. In many cases “green jobs” have proved to be mythical. The industry needs to show that support is no longer needed for many technologies in many markets. It also needs to emphasise that the support given to renewables is often less than to other forms of energy. If you look at the numbers behind the support for new nuclear in the UK, this becomes clear.

What will be the key macroeconomic changes? 

The shale story isn’t going away. We have only just started to see the impact of increased exports of US shale gas on global energy markets. Coal will continue to be an attractive option when fuel prices are low, and many countries have coal plants, so the marginal cost of producing electricity is much lower than other options.

We have seen an economic upturn and stock markets at near-record highs, resulting in several renewables initial public offerings in the UK, Canada and the US. But there are clouds on the horizon, with a general expectation that interest rates will rise in coming years, so yield-focused investments may be less attractive.

On the other hand, demand growth in energy markets is fuelling the need for rapidly increased generation capacity. One feature of several renewables technologies that doesn’t get the attention it deserves is the quick build time. Take South Africa: by mid-2014, you will have around 1GW installed from a base of zero in early 2013. 

How will new technology affect the renewables business?

We have seen more interest and investment in energy storage in 2013 and expect this to continue strongly this year. I would like to see more hybrid solutions, especially for emerging markets. The combination of solar PV with diesel and other thermal fuels can deliver cost savings and promote access to baseload equivalent supply.

In 2014, we will see the deployment of larger offshore turbines, which will continue the drive towards lower per-MW costs across the industry.

Concentrating solar power needs to show it is able to drive down costs, so it becomes competitive rather than sticking at the top of the levelised cost of energy curve.

We are strong supporters of greater interconnection between markets in Europe, North America and Asia. This isn’t new technology, but we are looking at bringing electricity from further away than ever before — even delivering Icelandic geothermal and hydro power to the UK.

What changes will the industry try to make in 2014 to increase revenues and profits?

The evolution of capital structures will continue. We have seen many players bring additional capital to work on operational projects. The industry has become adept at finding alternative sources of capital, and the providers of capital are now well educated on the investment proposition. You can’t sit in one market with your fingers crossed, hoping that life will get better. You are much better off if you have a global or regional view and are able to develop opportunities in those markets where renewables will play a very active part.

 

LUC GRARÉ | Senior vice-president, REC

What do you expect for the solar industry in 2014?

Supply and demand will keep roughly in balance. On the other hand, we can already see that it will be harder for Chinese manufacturers to sell solar panels in Europe. Therefore, the Asian market is becoming increasingly important for them, so the price pressure in Asia-Pacific will keep increasing, but China will be the world’s largest market this year, which may result in a shortage of panels. For 2014, we expect global demand of 40-45GW.

What will be the key political and macroeconomic changes?

With the EU anti-dumping measures officially in place, a lot of Chinese manufacturers will have difficulties accessing the European market, so they will focus more on Asia. With European subsidies and feed-in tariffs (FITs) on the decline and electricity prices increasing, self-consumption is on the rise, turning solar into a competitive source of electricity.

How will new technology affect the solar business?

All manufacturers, including REC, work on cell efficiency improvements. We also await further R&D in storage technologies.

What changes will the industry try to make in 2014 to increase revenues and profits?

Manufacturers have to work on cost improvements. We have already seen the turnaround of some manufacturers, including REC, in the second half of 2013 because panel prices stabilised. In addition, it is important to look into new business models that are not based on subsidies or FITs, such as self-consumption. We are intensifying our activities in this segment.

 

ROB HASTINGS | Director of energy and infrastructure, UK Crown Estate

What do you expect for the renewables industry in 2014?

For Western economies, 2014 will be a period of consolidation. Within these economies there is the need to reduce the burden of subsidies, so technology selection is less likely to be made on a lowest-cost basis. Ambitions for carbon emission reductions will continue to soften. For Eastern and emerging economies, renewables deployment will maintain momentum fuelled by lower costs compared with hydrocarbons, and with the need to gain socioeconomic benefits from the industrialisation of the sectors.

What political challenges is the industry likely to face?

In Europe, the key challenge is cost. The combined impact of consumers having to fund the replacement of ageing power infrastructure with relatively high gas prices will drive up the cost of energy to consumers throughout the next decade. Renewables adds to this burden because they are also bearing the costs of decoupling economies from hydrocarbons. 

What will be the key macroeconomic changes?

In the UK: energy price inflation and investment capital availability. The first is largely driven by international energy markets. The second is more to do with global conditions and pressures on infrastructure funding in depressed markets. It is putting upward pressure on the cost of capital and fuelling price inflation.

How will new technology affect the renewables business?

Renewables are largely a technology play. They will continue to be affected by technological progress, particularly as most renewables technologies are only halfway along the development life cycle.

What changes will the industry try to make in 2014 to increase revenues and profits?

Cost reduction. 

 

ARIS KARCANIAS | Managing director, economic and financial consulting, FTI Consulting

What do you expect for the renewables industry in 2014?

This will be a defining year for the industry as it exits the boom cycle and enters a more mature state of development, setting the tone for the next decade. While the fundamental drivers for clean energy remain, renewables are still feeling the hangover from the economic crisis, the consequences of bold investment decisions made in the 2008 boom and the impact of policy uncertainty. Moreover, utilities that are expected to deliver on renewables targets face price and regulatory pressures, integration challenges and a shortage of cash to realise their pipelines.

What political challenges is the industry likely to face?

The main challenges stem from two fundamental conflicts of interest. The first conflict is between the climate change agenda and the need for economic recovery. The second conflict is the industry needing attractive and certain policy, while at the same time reducing the burden on governments and consumers.

How will new technology affect the renewables business?

New technology is helping renewables access new markets, reduce the cost of energy and integrate into the grid. There is also an increased focus on IT and software to aid forecasting, performance improvement and integration. But the should start to shift towards commoditising and standardising technology, to realise the benefits from economies of scale.

What changes will the industry try to make in 2014 to increase revenues and profits?

1) Move towards larger-scale power-plant projects and continue using technologies that enable the integration of renewables to the grid. 2) Diversify products by developing specialist technology that meets the unique demands of more complex projects at high altitudes, and in cold climates and deep waters. 3) Although specialist technology is important, the industry is seeking to develop platform technologies that can be manufactured in higher volumes to benefit from economies of scale.

 

PATRIK SETTERBERG | Senior analyst, Nordea

What do you expect for the renewables industry in 2014?

For wind, I’m expecting a year of recovery. The US will be back again after a slow 2013.

What key macroeconomic changes are likely to affect renewables financing?

Movements in interest rates and prices of coal and gas.

What will be the main changes in terms of the type of financing and products?

The equity market will probably return as a potential source of finance.

Can we expect new types of investors to become more important?

Yes. Pension funds, infrastructure funds and private equity firms will play bigger roles.

What does the industry need to do to reduce risk?

Achieve further reductions in the cost of energy. It should also work to remove local-content requirements in the production phase.

 

SALVATORE SANTORO | Senior vice-president, energy division, DNB Bank

What do you expect for the renewables industry in 2014?

Not fast growth, potentially early recovery, but the outlook might be affected by persisting threats to the economic recovery in mature economies.

What key macroeconomic changes are likely to affect renewables financing?

Budget constraints in developed economies, increased investment in emerging markets and technology advances making renewable energy more competitive.

What will be the main changes for renewables in terms of the type of financing and products?

There will be less reliance on bank financing and increased reliance on export credit agency support and institutional investors.

Can we expect new types of investors to become more important?

Institutional investors are becoming a greater source of equity capital and debt financing.

What does the renewables industry need to do to reduce risk?

It needs to continue improving its “learning rate” and aim for parity with conventional energy. This will allow renewables to be deployed with little or no subsidy, which has proved to be the most critical risk point in the development of renewables recently.

 

OLAV JUNTTILA | Partner, Greentech Capital Advisors

What do you expect for the renewables industry in 2014?

Stagnation, recovery and fast growth, all at the same time — albeit in different segments. Solar will likely continue its rapid growth in some markets, like North American distributed, but stagnate in Europe. And while Europe may also see declines in wind installations, Brazil and India will probably see fast growth. Overall, we believe that solar will continue its year-on-year growth globally, and wind will enter a phase of further growth.

What will be the key macroeconomic changes to renewables financing?

The most important factor is the lack of change to interest rates. As long as global rates stay at record lows, increasing amounts will flow to the sector in search of yield.

What will be the main changes in terms of the type of financing and products?

We expect publicly traded yield vehicles to continue growing rapidly, as they bring liquidity to complement the already attractive yield story. For much the same reasons, we also expect bonds to increasingly be used as a source of debt financing.

Will new types of investors become more important?

Some large pension funds have already moved into the sector, and we expect many of them to increase their commitments. In parallel with new products becoming available, we expect smaller funds to become more active. Many of them would like to invest, but do not have the ability of the larger funds to employ in-house expertise to make direct asset investments.

What does the industry need to do to reduce risk?

The biggest risk continues to be dependence on subsidies and regulations, so the less dependent on these the industry can be, the better. Lowering costs and figuring out storage are critical.

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