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Wind power, industry dynamics and future outlook

  • The most competitive power generation technology and what lies ahead?
  • Will the recent support from the majority of EU members change the offshore wind power outlook?

 

The global power generation has historically been dominated by the thermal sources, mainly coal. But governments around the world are struggling to fight the climate change, the focus is shifting towards much cleaner and environmentally friendly sources of power, especially renewable. The United Nations Climate Conference 2015 in Paris gave a major thrust to renewable energy growth. In the past 5 years, renewable energy installed capacity has achieved a CAGR growth of 9%, this is much higher than the total growth achieved by the non-renewable sources. The total renewable capacity increased from 1,331 GW (2011) to 2,011 GW (2016).

Wind and solar power have made a significant contribution to the growth of renewable and registered a CAGR of 16 and 33 percent during the above period. A continuous growth in renewable was supported by falling input costs, declining equipment prices backed by technological advancements, low financing cost and supportive government policies, this is also expected to continue in the future.

In this blog, Televisory examined the movement in wind power generation space, particularly during the last few years and the future outlook for the sector. 

The total capacity for wind power plants increased from 74 GW (2006) to 467 GW (2016). The net capacity addition for the wind was more than the solar power in the above period except for 2013 and 2016.

Moreover, internally there are two sources of wind power generation, onshore and offshore. The former is very successful owing to innovative technology, an overall increase of wind turbine size, declining turbine cost and policy support by governments. Although offshore wind farms are more efficient and capable of generating extra electricity than onshore, they constitute only 3% of the total wind power capacity internationally. An offshore set-up requires a high capital in order to connect to the on-land grid, it also demands highly advanced technology, these factors have traditionally hampered the growth of offshore. In totality, the net capacity addition for wind power segment stood at 51,019 MW (2016), the offshore was 2,804 MW and onshore was 48,215 MW, respectively. 

The huge investments in wind power sector are also driven by a consistent reduction in internal costs, which is favourable over other sources of power generation. According to the below charts, the LCOE (levelized cost of electricity) of different technologies, the range of LCOE for onshore, offshore, solar thermal and biomass is comparable and stood around 0.100 USD/kWh (2016), while the geothermal LCOE range was the lowest and the solar PV and hydropower was the highest. On a positive note, the average LCOE for solar PV declined by 34%, whereas the onshore and offshore wind power registered a decline of 28% and 30%, respectively (2010-16). The average LCOE of wind power (particularly onshore) was the lowest among all except for hydropower. A high capital investment and the requirement for advanced technology is a drawback for offshore power space and these factors are also pushing LCOE to remain high. 

Significantly, in the past few years, LCOE per MWh for both onshore and offshore wind power declined and the variable came down from USD 84.1 and 176 to USD 74.7 and 143.5, respectively (2010-16). The key rationale behind the decline in LCOE for the wind was larger turbine size, the bigger scale of installations, declining wind turbine prices and lowering per unit O&M cost.

Furthermore, the cost side comprises capital cost (installation cost) and operation and maintenance costs. The turbine cost is the major capital cost for onshore and offshore wind projects, however, this differs in magnitude as turbine cost constitutes around 64-84% (onshore), while it is 30-50% (offshore). The grid connection and the construction cost share is higher for offshore mainly due to a high cost associated with the use of undersea cables to transmit electricity and it is difficult to set up wind tower in the tidal sea water. The O&M cost accounts for 20-25% of the LCOE for wind power, this is still lower than the fossil fuel-based plants.

In conclusion, a lower LCOE backed by the technological improvements has made wind power more attractive than other forms of renewable energy as well as distinct competitive fuels based power generation source like gas. In future, Televisory expect the wind power capacity addition to be higher than the other sources both for the renewable and non-renewable generation. According to the forecast by Bloomberg, the total wind power capacity is anticipated to reach to 955 GW by 2025, this will be more than double the current reading which stands at under 500 GW. Secondly, for onshore and offshore, this capacity is estimated to reach to 918 and 37 GW, respectively. The forecast is also backed by a separate report from International Energy Agency (IEA) under the new policies scenario, which suggests that overall share for wind power will increase to 8.2% (by 2020) and 9.8% (by 2025). While all present predictions are focusing on onshore. But for offshore, majority of the member states in the EU have lately supported a high investment for R&D and policies. Europe has added 5,400 MW of offshore wind capacity in the last 3 years as compared to the rest of the world, which added a mere 1,140 MW. Hence, with a huge world coastline of around 356,000 km (Source: CIA), there is an enormous potential for offshore wind power development, which remained untapped for long. Therefore, as the human race witnesses, healthy technological advancements in offshore and while other governments also encourage efforts like the ones in Europe, this could further change the industry dynamics for wind sector and power generation globally.

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