When looking back at a remarkable 2018 and towards 2019 and beyond, I can’t help thinking that the wind industry is entering a new phase of its development.
Renewables have gone from niche to mainstream in a few short years, with Vestas, for example, recently reaching 100 GW of installed turbines. The sector now needs to progress further — from being part of the mainstream to becoming the baseload energy source of the world.
This will be vital to the global fight against climate change, but will require a new way of thinking for our industry. In that regard, I’d like to highlight three key milestones from 2018 that I believe are changing the game:
Firstly, wind energy is the cheapest form of electricity in many markets. For instance, installation of wind and solar capacity in emerging markets overtook new fossil fuel capacity last year for the first time. Although the energy sector will always be heavily regulated, this basically means that the industry can increasingly focus on pushing for a level playing field and a market design that allow for increased use of low cost renewable energy. In that environment, economics will eventually take care of the rest.
Secondly, wind and solar reached one terawatt of installed capacity in mid-2018, according to Bloomberg New Energy Finance (BNEF). While it took around 40 years for renewables to install the first terawatt, BNEF projects that the second terawatt will be installed by 2023 — at around half the cost. This is an amazing increase in growth and demand, but to inject that level of renewable capacity into grids that fast, we need to address a bigger part of the energy system in our offering than we do today.
Thirdly, average selling price and profitability arguably stole a lot of headlines in 2018 as the impact of auctions, competitive tenders and merchant markets materialised in the pricing of our products. And although this doesn’t sound encouraging at first sight, the price decrease and later stabilisation improve our overall competitiveness, making the long-term outlook for renewables even brighter. With energy demand expected to grow by 40 percent in 2035 compared to 2017, and broad electrification of transport and heating now a competitive option, renewables are well-positioned to grow.
We can’t expect past experiences to tell us how to deal with coming opportunities and challenges.
For the industry, however, these milestones and positive outlook also signal that we are at a crossroads where we can either try to do what we have been doing in ever cheaper ways, or we can build on our progress and take on the bigger responsibility of making renewables the baseload energy the world needs. To fulfil our potential as an industry and help solve the two primary energy challenges that the world faces today – meeting the growing global energy need while addressing climate change – we can’t expect past experiences and lessons to tell us how to deal with the coming opportunities and challenges.
There’s no simple or universal answer to how we should face these challenges, but I can highlight a couple of strategic decisions Vestas has made, which highlights the direction of travel we believe our industry needs to take.
To start off, we changed our vision’s focus from solely wind to sustainable energy solutions. This sets a clear direction for Vestas that highlights our aspiration to develop and offer broader solutions that can replace fossil-fuel energy, meet growing energy demand (including from electrification) and integrate future energy system services.
More specifically, we are combining our core expertise within wind energy technology and services with other solutions such as hybrids, grid integration, and digital and financial solutions. We are changing how our products, services and solutions are designed and produced so our technologies continue to scale and are available wherever there is demand. Among other things, this includes introducing truly modular products and solutions in 2019, as well as engaging the entire value chain in product development and project execution and operation.
As an industry, we have done a tremendous job to bring down the cost of energy and make renewables mainstream. We are changing the energy system, but we need to improve further on what has made us successful. We cannot fulfil our full potential by simply relying on the lessons we have learned in the past, we need more integrated solutions to succeed in tomorrow’s energy system.
Anders Runevad is CEO at Vestas