European Wind Industry Trends, EWEC, Part I

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The European Wind Energy Conference (EWEC) was held last week in Marseilles, welcoming 7,500 participants over 4 days. The whole industry was there, participating in a massive competition of glossy brochures and freebies, but also hard business.

I had the pleasure to attend and would like to share here the trends I sensed by talking to exhibitors, and I will later make a short series of posts about specific topics: offshore wind, the non-EU Mediterranean market and the Chilean market. The trends I mention here are a general feel, not an academic discussion or a market analysis. However these weak signals, to use a sociology term, could hide opportunities…

Clearly, there is no euphoria but the industry is doing rather well. And certainly a lot better than the rest of the economy. As Ditlev Engel, CEO of Vestas, said at EWEC: “this is the end of the beginning”. I think it is very well put: this is no more an infant industry, but not yet a mature one and big challenges will need to be tackled for it to happen.

I heard several times that companies had been growing very rapidly last year, and now they’re holding on to see what 2009 is going to be like. No downturn is expected, but uncertainty is too high for bold expansion. That is particularly true for manufacturers and small developers.

A similar recurring theme was the focus on existing markets, in part because of industry specific caution but obviously also because credit is harder to get for new markets. Again, the focus is on making the most of today’s assets not on developing more.

With credit tight, developers with deep pockets – big utilities – are at an advantage, and are seizing the opportunity. Since a lot of the risk is in the installation phase, they are able to develop projects, and look for debt only once it is operational, at a much lower rate. In addition, these utilities’ negotiating position with manufacturers of wind turbines is very strong, particularly after the strong growth in supply. Consequently, market dynamics are evolving and we can expect sustained pressure on prices.

Nevertheless, government support is still expected to play a major role. Even though wind is close to competitiveness with gas, making subsidies are less critical, adapting the physical and regulatory infrastructure to this technology is not yet achieved. The T&D grid has not been designed with wind in mind, so that investments and regulatory changes are required to take wind penetration to the next level. For offshore, support is even more critical in order to have smooth permitting, good transmission in place and even harbors equipped for the specialized vessels.

So it seems that there are entrepreneurial opportunities in servicing the big players, grid technology and offshore. I’ll talk more about the latter in my next post.

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