Speaker 1: This is Dana Perkins, and you're listening to Switched on
Speaker 1: the B and EF podcast, and today we're talking about
Speaker 1: the state of the global wind industry. Now, one could
Speaker 1: say that wind has been stuck in the doldrums. For
Speaker 1: those of you who are not familiar with this term,
Speaker 1: the doldrums is actually a nautical term referring to parts
Speaker 1: of the ocean where sailing ships could get stuck for
Speaker 1: long periods because of a lack of wind. Apart from
Speaker 1: it being a clever pun, maybe this is an apt
Speaker 1: description of where the wind industry has been for the
Speaker 1: past few years.
Speaker 2: To put this.
Speaker 1: Idea into numbers, year on year wind capacity installations grew
Speaker 1: by six percent in twenty twenty four. This is far
Speaker 1: short of the average annual growth rate of twenty five
Speaker 1: percent that is needed between now and twenty thirty to
Speaker 1: stay on track with net zero goals. Wind is simply
Speaker 1: not moving fast enough. But on the other hand, the
Speaker 1: one hundred and twenty four gigawatts of wind that we
Speaker 1: expect to see installed by the end of this year
Speaker 1: represents an annual record, So arguably, if wind has been
Speaker 1: in the doldrums, maybe now it's coming out of them.
Speaker 1: The answer to this question really lies and what has
Speaker 1: been done by policymakers to accelerate the market and how
Speaker 1: the wind industry is evolving, and then what role technology
Speaker 1: can play and unlocking new opportunities so that record breaking
Speaker 1: years are also aligned with net zero goals on policy.
Speaker 1: Certain countries are beginning to figure out the puzzle of
Speaker 1: how to scale wind and overcome barriers such as permitting
Speaker 1: that has held many markets back. On the topic of
Speaker 1: evolution of the industry, we look to China which is
Speaker 1: not only pioneering onshore wind it previously unheard of scales.
Speaker 1: Their turbine manufacturers are also increasingly becoming a factor in
Speaker 1: the global market, and in India, wind manufacturers are beginning
Speaker 1: to achieve traction on a significant scale. When it comes
Speaker 1: to technology, the prospect of floating wind could unlock opportunities
Speaker 1: to expand capacity in previously inaccessible location. So on today's show,
Speaker 1: Tom Rowland's Reese takes over hosting duties where he is
Speaker 1: joined by bnaf's head of Wind Oliver Metcalf. Oliver talks
Speaker 1: about some of the work his team has been doing,
Speaker 1: particularly in recent reports titled Unlocking Investment to triple renewables
Speaker 1: by twenty thirty, alongside the third quarter twenty twenty four
Speaker 1: wind turbine ordered data set, volume surges and floating offshore
Speaker 1: wind Big Potential but Big Price tag. BNF subscribers can
Speaker 1: access these reports at BNAF go on the Bloomberg terminal,
Speaker 1: or at BNF dot com. Right now, let's hear Tom
Speaker 1: and Oliver's conversation about wind. Where we are now and
Speaker 1: where the wind is blowing.
Speaker 2: Ollie, Hi, Hi Tom. So I'm going to start by
Speaker 2: maybe putting a little bit of pressure on you as
Speaker 2: the head of wind. And so I was looking at
Speaker 2: some of the output from our new energy outlook, which
Speaker 2: of course is not a forecast, it's a scenario modeling exercise.
Speaker 2: And we have two main scenarios. One is the economic
Speaker 2: transition scenario, where if there's no new policies and economics
Speaker 2: plays out what happens. And then there's our net zero scenario,
Speaker 2: where we add this constraint that the world has to
Speaker 2: get to net zero by twenty fifty, consistent with heating
Speaker 2: of one point seventy five degrees. So I looked at
Speaker 2: the role of solar and wind, and this is important
Speaker 2: because I know that often the conclusion of these kinds
Speaker 2: of studies is like, oh, there's no silver bullet to
Speaker 2: climate change. It's an all of the above solution. And
Speaker 2: I think it's not that that's wrong, but everything relies
Speaker 2: on the decarbonization of the power sector because so much
Speaker 2: of the other stuff requires clean electricity. And clean electricity
Speaker 2: the bulk of the heavy lifting is that's going to
Speaker 2: be done. There is going to be done by two technologies,
Speaker 2: wind and solar. This is I don't think this is controversial.
Speaker 2: So wind and solar, it is an all of above world.
Speaker 2: But wind and solar are like lynch pins to the
Speaker 2: whole things. If they don't deliver what they need to deliver,
Speaker 2: then the whole pack of cards falls down. So I
Speaker 2: looked at the neo net zero scenario and it says
Speaker 2: that in that world of net zero, by twenty to
Speaker 2: fifty on an annual basis, we should be generating twenty
Speaker 2: nine percent of our electricity from solar, and in our
Speaker 2: economic transition scenario, actually twenty eight percent of our electricity
Speaker 2: will be getting generated by solar. So this is if
Speaker 2: the economic transition scenario is saying that's the track we're on,
Speaker 2: and we're almost on the right track for solar. Solar
Speaker 2: is doing its bit wind net zero scenario forty four
Speaker 2: percent of our electricity generated by wind, so a bigger
Speaker 2: role than solar, but in our economic transition scenario only
Speaker 2: thirty one percent. That's telling us that we're not on
Speaker 2: track for wind. So it would seem that wind, on
Speaker 2: the trajectory we're on, is the weak link in the
Speaker 2: energy transition. I suppose my first question to you with
Speaker 2: that framing is where is the wind industry today and
Speaker 2: the wind market today, And with this kind of thought
Speaker 2: in mind, that it's not on track, what needs to change?
Speaker 3: We've seen a difficult couple of years for the wind industry.
Speaker 3: I think given the cost inflation we saw after the pandemic,
Speaker 3: high interest rates and supply chain bottlenecks that slowed down
Speaker 3: the growth of the wind sector on shore and offshore.
Speaker 3: It's still having effect today. So equipment costs are still
Speaker 3: much higher for wind turbines, for example, when you compare
Speaker 3: it to solar or battery technology, where we've seen costs
Speaker 3: start to fall again after the cost inflation we saw
Speaker 3: after the pandemic. So the wind sector is still stumbling
Speaker 3: through this period of higher costs there are some kind
Speaker 3: of non economic factors that are really hitting the sector hard.
Speaker 3: So some grid connection constraints, permitting constraints tend to affect
Speaker 3: wind more than it affects solar. So that means that
Speaker 3: we've seen more sluggish growth for wind technology compared with solar,
Speaker 3: where we're seeing this boom and like you say, solar
Speaker 3: is roughly on track for net zero. We did a
Speaker 3: bit of modeling recently looking at the tripling renewables pledge
Speaker 3: that was outlined at the end of the COP twenty
Speaker 3: eight summit in twenty twenty three. The result of that analysis,
Speaker 3: where we were contextualizing that goal and then benchmarking progress,
Speaker 3: was that if we do manage to triple renewables by
Speaker 3: twenty thirty, that puts us roughly in line with our
Speaker 3: net zero scenario from our New Energy Outlook analysis. Or
Speaker 3: tripling renewables by twenty thirty would put us on a
Speaker 3: path to net zero by twenty fifty.
Speaker 2: So that's the right goal.
Speaker 3: Solars on track for that tripling renewables, and we're predicting
Speaker 3: that the wind sectors only just going to just of
Speaker 3: a double by twenty thirty, and that speaks to those
Speaker 3: economic constraints that we're seeing those continued high costs, but
Speaker 3: also some of those non economic factors that in some
Speaker 3: markets with significant support that's available to wind, it's not
Speaker 3: the economic stuff that's this holding the sector back, it's
Speaker 3: these non economic factors like grid connections and permitting. They're
Speaker 3: kind of boring regulatory stuff that needs to get sorted
Speaker 3: from a policy perspective to see the kind of growth
Speaker 3: that would be required for the wind sector.
Speaker 2: Like your answer, because you know, I was talking about
Speaker 2: a twenty fifty horizon and actually you've bought it much
Speaker 2: closer with this tripling renewables and twenty thirty, so expecting
Speaker 2: a doubling of wind where what we need is a
Speaker 2: tripling of wind. So these issues that you've highlighted definitely
Speaker 2: carry through and effect the market through to twenty thirty.
Speaker 2: Do you think they're chronic problems? Is there a way
Speaker 2: that these might get resolved in the longer term?
Speaker 3: I think that the good news is that we are
Speaker 3: expecting growth in the wind market. So in terms of
Speaker 3: annual installations by twenty thirty, we're expecting seventy percent more
Speaker 3: annual installations of wind than we're expecting this year. At
Speaker 3: the moment in terms of the really hot markets, we're
Speaker 3: kind of seeing star markets rather than a growth geographically
Speaker 3: spread around the world. The good news is that we're
Speaker 3: seeing examples of markets that are beginning to resolve these constraints.
Speaker 3: So looking at a market like Germany is really starting
Speaker 3: to resolve. It's on shore wind permitting constraints that really
Speaker 3: hit the market a few years ago, and now Germany
Speaker 3: is permitting an increase amount of onshore wind capacity every
Speaker 3: year and we're really seeing the result of that in
Speaker 3: terms of the amount of projects the government is willing
Speaker 3: to support, getting closer to their goals, and we're expecting
Speaker 3: really strong growth over the next few years. India is
Speaker 3: another market that was mired in many difficulties, whether that
Speaker 3: was land use issues and fragmented land ownership in the country,
Speaker 3: permitting constraints, under investment in the grid. There again, we've
Speaker 3: seen regulation go in to resolve some of those constraints
Speaker 3: and now we're expecting really strong growth in the market
Speaker 3: over the next few years. So there are countries that
Speaker 3: are beginning to resolve some of these issues, but it
Speaker 3: is a chronic issue around the world because we're seeing
Speaker 3: a lot of governments and officials announcing really high targets
Speaker 3: plans to install more wind capacity, but the chronic issues
Speaker 3: they're not putting in the supportive legislation that's required, the
Speaker 3: kind of boring regulatory stuff that I was talking about
Speaker 3: before to realize those goals. It's easy to say a number,
Speaker 3: it's less easy to put in place that regulation to
Speaker 3: cut the red tape that needs to be cut to
Speaker 3: realize fast growth for the wind sector globally.
Speaker 2: I mean, this is, by the way, just a reflection
Speaker 2: a classic example of the dilemma when you're working in
Speaker 2: a climate related sector of how to feel because I
Speaker 2: don't think most industries are expecting. What did you say
Speaker 2: it was seventy percent growth? Did I hear that right?
Speaker 3: Was it seventeen in terms of annual installations seventy percent
Speaker 3: higher in twenty thirty compared with twenty twenty four.
Speaker 2: Yeah, I mean that's huge, and then you know, doubling.
Speaker 2: Most industries don't get that. So on the one hand,
Speaker 2: if you're sort of a cheerleader for the wind industry,
Speaker 2: you'll be out celebrating, But then you have people like
Speaker 2: me saying, oh, that's not enough. From a climate perspective,
Speaker 2: it's really interesting to hear that there's these countries like
Speaker 2: Germany and India who beginning to figure it out. I
Speaker 2: know we're both based in the US, and I think
Speaker 2: the US has had some success with wind in certain
Speaker 2: markets and is still figuring it out in other regions.
Speaker 2: Do we see any evidence where there's some sort of
Speaker 2: global harmonization, like different countries are learning on what does
Speaker 2: work and doesn't work in resolving these issues.
Speaker 3: I think victually there is a wide consensus, and it's
Speaker 3: what the wind industry has been saying for a long time.
Speaker 3: But I think policymakers are beginning to notice that these
Speaker 3: are common problems in many markets around the world, these
Speaker 3: issues around transmission, issues around permitting. Progress has been patchy
Speaker 3: in many cases. The EU has been encouraging member states
Speaker 3: to resolve some of these issues, in trying to implement
Speaker 3: some targeted changes in order to resolve some of these constraints.
Speaker 3: I think the difference between Germany and many of the
Speaker 3: rest of the EU countries is Germany almost immediately started
Speaker 3: implementing some of those EU suggestions and turn that international
Speaker 3: level policy, whereas many other markets around the EU have
Speaker 3: been dragging their heels. Other markets like Brazil are facing
Speaker 3: significant transmission constraints, but they've held very successful transmissional auctions,
Speaker 3: bringing the private sector in to build really long distance,
Speaker 3: high voltage transmission lines. So while those transmission issues are
Speaker 3: hitting the market today, we're expecting increasing installations towards the
Speaker 3: end of the decade as they begin to resolve. Some
Speaker 3: of those constraints are very well understood, and we're beginning to,
Speaker 3: like I say, see some markets resolve some of those issues,
Speaker 3: but it really takes active policy making because these issues
Speaker 3: just don't fix themselves on their own. And so I
Speaker 3: think those markets where we're really seeing that growth are
Speaker 3: the ones that have set those targets, but now they're
Speaker 3: really doing the additional work to build the regulation so
Speaker 3: that those targets turn into reality, rather than arriving at
Speaker 3: twenty thirty way off that goal.
Speaker 2: What's really interesting here as well, is there's this perception
Speaker 2: that pushing renewables, pushing a cleaner agenda is all about subsidies.
Speaker 2: This is a problem that has nothing to do with subsidies.
Speaker 2: You can't subsidize your way out of this issue. It's
Speaker 2: a non economic factor. It's to do with untangling a
Speaker 2: lot of local regulations and laws and having to do
Speaker 2: it over and over again in not just different countries,
Speaker 2: but even within the same country. Probably a lot of
Speaker 2: those laws are different.
Speaker 3: Yeah, a really good example is the US, which has
Speaker 3: very generous subsidies in the Inflation Reduction Actor extended those
Speaker 3: subsidies until at least the end of the decade. The
Speaker 3: problem in the US isn't an economic one for wind projects.
Speaker 3: It's around project supply, so it's getting more expensive and
Speaker 3: you have to wait longer for a grid connection agreement.
Speaker 3: In many US markets, permitting is incredibly fragmented, so some
Speaker 3: permitting is done on a federal basis, some permitting rules
Speaker 3: are on a state level, and in some cases it
Speaker 3: goes right down to the county level, and there's different
Speaker 3: permitting requirements depending on which county the wind project is
Speaker 3: getting built in. That's really difficult if you're a developer
Speaker 3: trying to navigate all of these different systems, some of
Speaker 3: which are stricter than others. In some there may be
Speaker 3: moratoria against new wind development, and in a county next
Speaker 3: door that might not be the case. And so yeah,
Speaker 3: those things are non economic. They're these really general federal
Speaker 3: subsidies available, but they make no difference if there aren't
Speaker 3: projects coming through the pipeline to use those subsidies.
Speaker 2: It's really interesting hearing about, you know, some of the
Speaker 2: developments in Europe, some of the developments in India and
Speaker 2: the US. Of course, we can't really talk about the
Speaker 2: global picture without talking about what's happening in China with
Speaker 2: regards wind, So how are things developing there?
Speaker 3: So China is by far the largest wind market globally.
Speaker 3: For onshore wind, it represents over half of global annual
Speaker 3: additions every year. Wow, offshore wind, it's almost that kind
Speaker 3: of depends on the year, but it's a really really
Speaker 3: big chunk of the market. So yeah, we can't talk
Speaker 3: about the global wind industry without talking about China. The
Speaker 3: sectors moving really fast there. So we forecast that China
Speaker 3: will add seventy one gigawatts of onshore wind capacity in
Speaker 3: twenty twenty four, seventy nine gigawats in twenty twenty five,
Speaker 3: but really really rapid growth in China compared with where
Speaker 3: we were just a few years ago. Part of the
Speaker 3: story in China is they're building these mega projects, they
Speaker 3: call them megabases, So that's really large scale projects built
Speaker 3: in the north of the country, typically for wind where
Speaker 3: it's really windy in desert areas. We're talking about projects
Speaker 3: at the gigawatts scale. Typically, projects we only really see
Speaker 3: offshore in other markets using really large turbines, so they
Speaker 3: getting scale not only on the project side, but also
Speaker 3: the kind of technology scale as well. We recently saw
Speaker 3: a Chinese turbine manufacturer now so fifteen megawatt turbine for
Speaker 3: use onshore in northern China. Now, it's really difficult to
Speaker 3: install turbines that big on shore usually because they're logistical constraints.
Speaker 3: You've got to ship these really long blades for a
Speaker 3: turbine that size, they might be over one hundred meters
Speaker 3: through small towns, up mountains and things like that. They're
Speaker 3: building these projects in deserts, so there are a few
Speaker 3: of those logistical constraints, so they can use those larger
Speaker 3: turbines that when you're using a higher capacity turbines, it
Speaker 3: means you need fewer of them for a project of
Speaker 3: the same capacity. Basically, that means that using a bigger
Speaker 3: turbine cuts costs because you also need fewer foundations, fewer cables,
Speaker 3: fewer days hiring a crane to install the things. So
Speaker 3: China's kind of realizing this scale in terms of project
Speaker 3: and turbines that are driving down the costs. That's really
Speaker 3: helping to drive growth across the market. But also there
Speaker 3: they've really pushed down the price of wind to a
Speaker 3: stop levels. So last time we did an analysis of
Speaker 3: wind turbine prices, the average price of a turbine delivered
Speaker 3: in China in the first half of twenty twenty four
Speaker 3: was three hundred thousand dollars per megawatt. That's around a
Speaker 3: third of the cost of the average turbine price delivered
Speaker 3: in other markets around the world. That's partly due to
Speaker 3: those impacts around scale that I was talking about before,
Speaker 3: but also the Chinese market is very fragmented. There are
Speaker 3: around twelve major turbine suppliers there and over the past
Speaker 3: few years they built up a huge over manufacturing capacity
Speaker 3: for wind turbines. For the the selles of wind turbines
Speaker 3: during this fragmented market, they've got an over capacity and
Speaker 3: these turbine makers are fighting for market share rather than
Speaker 3: necessarily focusing on the profitability of the contracts they're signing.
Speaker 3: So it means that the profitability of some of these
Speaker 3: Chinese suppliers have really suffered over the last couple of
Speaker 3: years as we've seen this astonishing reduction in price. So
Speaker 3: that is great news if you're a developer of a
Speaker 3: wind project in China. But for the Chinese turbine makers themselves,
Speaker 3: they're now looking at ways to boost profitability, and one
Speaker 3: way they're doing that is looking to export market.
Speaker 2: We're going to come back to the export markets. I
Speaker 2: had so many questions to ask along the way there. Firstly,
Speaker 2: I just want to dive into understand these like mega
Speaker 2: projects a little bit better. What you're describing is almost
Speaker 2: like onore offshore wind in that they're qualitatively different from
Speaker 2: your typical onshore wind, and they're I mean quantitatively as
Speaker 2: well in terms of the scale of the projects. Presumably
Speaker 2: there's a reliance on HVDC infrastructure, which is high voltage
Speaker 2: direct current transmission. Is this a new frontier for wind,
Speaker 2: not just in terms of scale, but because it's suddenly
Speaker 2: qualitatively different. Now you can almost describe this as a
Speaker 2: different category in the same way that your typical onshore
Speaker 2: wind is different from offshore wind. This sounds like something
Speaker 2: else again, this model that is being developed in China
Speaker 2: in the same way that certain markets were pioneers for
Speaker 2: offshore wind. Do you think that they are pioneering a
Speaker 2: model that could be replicated elsewhere.
Speaker 3: Potentially, and these mega based projects are becoming a crucial
Speaker 3: growth driver in the way we see it for the
Speaker 3: overall Chinese wind sector. We're expecting four tyike gig whats
Speaker 3: of these wind projects to come online in twenty twenty
Speaker 3: four and twenty twenty five, but we're expecting a further
Speaker 3: one hundred and six gig what's of these projects to
Speaker 3: come online from twenty twenty six to the end of
Speaker 3: the decade. Part of the reason that China can deliver
Speaker 3: these large projects is that they're building these projects where
Speaker 3: land is ample and there are a few permitting restrictions.
Speaker 3: Usually these are being built by big state owned developers
Speaker 3: as well, so there are kind of fewer of these
Speaker 3: regulatory barriers to building these projects those kind of areas,
Speaker 3: and that situation is harder to come by in other market.
Speaker 3: So we are seeing some really large projects under construction
Speaker 3: in the US. So there's a couple of projects being
Speaker 3: built in the US, one in Wyoming, one in Arizona.
Speaker 3: At the moment that are a similar scale to these
Speaker 3: megabased projects we're seeing in China, And while the turbine
Speaker 3: capacity aren't as large as the project's examples we're seeing
Speaker 3: in China, they're still realizing those economic benefits you get
Speaker 3: from pure project scale. But in other markets, it's hard
Speaker 3: to find those locations in those situations where you can
Speaker 3: build projects of that kind of scale.
Speaker 2: Got it. I mean that's super interesting, and I do
Speaker 2: wonder if if over time there might be other opportunities uncovered,
Speaker 2: you know, because it's it's not maybe as easy to search.
Speaker 2: When you're thinking about offshore wind. You look at coastline,
Speaker 2: you look at water depth, you look at wind speed,
Speaker 2: and you can already, like without too much research, identify
Speaker 2: all of the places where there's decent offshore wind potential.
Speaker 2: We are going to come back to offshore wind as well,
Speaker 2: actually in a moment. But you said made this point
Speaker 2: about Chinese turbine manufacturers. So if I understand correctly, the
Speaker 2: picture painted is the Chinese market is big. It's growing,
Speaker 2: I believe, Or is it always that big?
Speaker 3: No, it's big, it has grown and it will continue
Speaker 3: to grow for this.
Speaker 2: Rest Okay, So it's always been big, it's getting bigger,
Speaker 2: and it's going to get even bigger than that. But
Speaker 2: Chinese turbine manufacturers have maybe got too big too fast,
Speaker 2: and now there's overcapacity. And I remember, whenever I've looked
Speaker 2: at this, it's always seemed like there's two separate worlds.
Speaker 2: There's Chinese wind, which is a Chinese market served by
Speaker 2: Chinese manufacturers, and that's about half the global market. And
Speaker 2: then there's the rest of the world, served by a
Speaker 2: number of international companies, none of which are Chinese. So
Speaker 2: it's kind of been China and everyone else, both as
Speaker 2: a market and an industry. But you mentioned now that
Speaker 2: Chinese manufacturers are starting to make inroads into other markets
Speaker 2: around the world, So tell us a bit more about
Speaker 2: what that looks like and what's actually happening at the moment.
Speaker 3: Yeah, So the Chinese tab i maker's home market has
Speaker 3: historically been huge. It's meant that there was less of
Speaker 3: a drive for them to really target export aggressively. So
Speaker 3: there has historically been some progress that they've made, but
Speaker 3: that's really rapidly started to change over the last couple
Speaker 3: of years as pricing pressure has been so intense at
Speaker 3: home that they're now looking to export markets, where they're
Speaker 3: typically able to sell turbines at a much higher rate
Speaker 3: and earn a higher profit margin on those sales. Still,
Speaker 3: by our calculations, a turbine delivered outside of China, if
Speaker 3: it's supplied by a Chinese turbine maker, that's around twenty
Speaker 3: eight percent cheaper than an equivalent turbine supplied by a
Speaker 3: US or European manufacturer, And in many markets around the world,
Speaker 3: that price difference is very attractive, and particularly in emerging
Speaker 3: markets that are just kind of looking at wind more seriously.
Speaker 3: At the moment, we're seeing the influx of Chinese turbine
Speaker 3: technology and those cheaper turbines begin to drive up installations
Speaker 3: and increase the pace of wind market growth in those markets.
Speaker 3: So Chinese turbine makers are having more success in places
Speaker 3: like Central Asia, Southeast Asian countries like Vietnam, they started
Speaker 3: selling a lot of turbines. Some markets in the Middle
Speaker 3: East and Africa as well are starting to move from
Speaker 3: a situation where the market was completely dominated by US
Speaker 3: and European turbine manufacturers are now pretty much exclusively purchasing
Speaker 3: Chinese turbines in some cases, but there are also some
Speaker 3: kind of more established markets that are now making a
Speaker 3: similar switch. So I was talking about the Indian market before.
Speaker 2: Yeah, I was just going to ask.
Speaker 3: So the Indian market is a really exciting one for
Speaker 3: the wind industry at the moment. It's one of those
Speaker 3: markets with the highest rates of growth. But it's moving
Speaker 3: from a place where back in twenty twenty one, the
Speaker 3: vast majority of turbines commissioned were being manufactured by European
Speaker 3: and US manufacturers like Siemens Gamesa. Now it's local Indian
Speaker 3: manufacturers that were in real dire financial straits a few
Speaker 3: years ago, and now they've kind of turned that situation
Speaker 3: around and those domestic players are winning a lot of orders,
Speaker 3: but also Chinese turbine makers are making serious inroads there
Speaker 3: as well. Indian has some local content requirements which really
Speaker 3: favor companies that have local manufacturing capacity in the Indian market,
Speaker 3: and Envision, which is a Chinese turby maker, has set
Speaker 3: up a factory in the market and is really benefiting
Speaker 3: from securing.
Speaker 2: A lot of orders there over the last few years.
Speaker 3: So we track turbine orders secured by turbi makers around
Speaker 3: the world outside of China every quarter, and we've really
Speaker 3: seen over the last three years, that complete switch in
Speaker 3: the Indian market from being dominated by EU and US
Speaker 3: players to in twenty twenty four, almost all all of
Speaker 3: the orders we tracked have been for Chinese or Indian
Speaker 3: manufactured turbines.
Speaker 2: That's super interesting, and I guess there's two factors at
Speaker 2: play there. One is that Chinese manufacturers having to look
Speaker 2: beyond China because their domestic market, although huge, was not
Speaker 2: quite huge enough of them. And then also India's wind
Speaker 2: industry beginning to pick up. And I'm really interesting because
Speaker 2: I mean, you've identified India is this exciting place for
Speaker 2: wind right now, a growth market, and given the local
Speaker 2: content requirements, we know that a certain part of that
Speaker 2: is going to be going to Indian manufacturers. Can you
Speaker 2: ever see a scenario or a pathway forward where we
Speaker 2: might start seeing Indian wind manufacturers exporting, competing with Chinese manufacturers,
Speaker 2: competing with the US and European manufacturers potentially.
Speaker 3: I think some of those Indian manufacturers I was talking
Speaker 3: about before have been in real financial difficulty a few
Speaker 3: years ago, and so they've been getting back on their
Speaker 3: feet in their home market. But speaking to some of them,
Speaker 3: they've definitely got plans in the future to export more
Speaker 3: of their turbines. So yeah, there's definitely potential in the
Speaker 3: market to see this slight diversification of the global turbine
Speaker 3: supply market rather than this in India specific story that
Speaker 3: we've we've been noticing. So far, we haven't seen much
Speaker 3: progress in terms of actual turbine sales or orders come
Speaker 3: in for those Indian turbine manufacturers, so it's kind of
Speaker 3: plans rather than evidence that we're seeing so far. But yeah,
Speaker 3: there's definite potential there.
Speaker 2: It makes me think of another question that springs to mind,
Speaker 2: a related question, because if you're looking at any country
Speaker 2: to develop their industry, whether through economic planning or you know,
Speaker 2: industrial planning or any other means, you want to look
Speaker 2: at like what is the global capacity. So, for example,
Speaker 2: it is very well known that solar at the moment,
Speaker 2: there's global overcapacity of manufacturing. So I have often said,
Speaker 2: I don't think it makes that much sense for the
Speaker 2: US to be trying to develop its own solar supply chains,
Speaker 2: even with all the geopolitical considerations there, because fundamentally that's
Speaker 2: never going to be something you can export from. And
Speaker 2: I'm kind of thinking I was thinking the same thing
Speaker 2: in relation to you know, as I asked the question
Speaker 2: about India, is would it make sense for them to
Speaker 2: do that if there's global oversupply. Now you mentioned that
Speaker 2: there's overcapacity in China, which is half the market, So
Speaker 2: would you say that there is a global overcapacity in
Speaker 2: wind manufacturing at the moment.
Speaker 3: So wind of really complex machines. They're made up of
Speaker 3: loads of different components, and it's really a component by
Speaker 3: component story we're looking at is whether there's overcapacity where
Speaker 3: there needs to be more supply chain investment. So when
Speaker 3: we talk about there being overcapacity in China, that's definitely
Speaker 3: the case for mis cells, for example, so those boxes
Speaker 3: that sit on top of a wind turbine tower that
Speaker 3: house the generator, the gearbox, the main bearing, and all
Speaker 3: of those important subcomponents. But the other thing I'd say,
Speaker 3: when we're talking about an overcapacity for Nicell manufacturing in China,
Speaker 3: wind components are so large that once a market reaches
Speaker 3: a certain level of scale, it doesn't necessarily make sense
Speaker 3: to build those nes cells in China and ship them
Speaker 3: all over the world to manufacturer blades which are eighty
Speaker 3: one hundred meters long, and ship them from China everywhere else,
Speaker 3: like it might make sense for solar or battery equipment.
Speaker 2: Right, it's not as modular I suppose.
Speaker 3: Exactly, and the components are just just bigger. So it
Speaker 3: means that actually we're seeing some Chinese turbine manufacturers that
Speaker 3: are targeting specific markets are setting up local facilities despite
Speaker 3: the fact that they've got this over capacity at home.
Speaker 3: So Goldwyn, the largest Chinese turbine manufacturing actually the largest
Speaker 3: turbine maker in the world in terms of commissioned capacity
Speaker 3: last year according to our Wind Turby Market Shares report,
Speaker 3: just opened manufacturing facility in Brazil for example. I mentioned
Speaker 3: Envision has its factory in India, and we've seen some
Speaker 3: Chinese turby makers talk about opening manufacturing facilities in Europe.
Speaker 3: So even though we've got this over capacity in China itself,
Speaker 3: it doesn't necessarily mean that that capacity will or can
Speaker 3: be used to service the global market, got it.
Speaker 2: So it's not with wind, It's not as simple as
Speaker 2: adding up all the capacity in the world and then
Speaker 2: comparing it to the needs it's always going to be.
Speaker 2: It's inherently more local.
Speaker 3: Yes, yeah, that's true, And like I said before, it's
Speaker 3: inherently kind of component based as well. Right, So there
Speaker 3: are some parts of the supply chain that are in
Speaker 3: significant under supplies. So if you look to offshore wind,
Speaker 3: for example, if you speak to the developer today, if
Speaker 3: you want to secure an installation vessel that can install
Speaker 3: the really heavy foundations or the turbines offshore, these are
Speaker 3: really specialized vessels, and as turbines get bigger, the number
Speaker 3: of vessels in the fleet that can install these heavy components,
Speaker 3: these tall components is shrinking. So if you speak to
Speaker 3: a developer today, you're looking much later in the decade
Speaker 3: if you're looking to book one of these vessels to
Speaker 3: install turbines or foundations at your project. So we're looking
Speaker 3: at a situation where there's massive overcapacity for some components
Speaker 3: in the market, but for other supply chain services, we're
Speaker 3: looking at a really really tight market. So it's really
Speaker 3: component by component when you look at the wind supply chain.
Speaker 2: Speaking of offshore wind, this whole framing i've given of
Speaker 2: wind in a way needing to step up so that
Speaker 2: it isn't the weakest link. And you've provided lots of
Speaker 2: examples of, you know, reasons to be optimistic, things that
Speaker 2: are exciting, that are happening. We haven't talked about new
Speaker 2: technologies at all, and I know that your team has
Speaker 2: been looking a little bit at floating offshore wind. So
Speaker 2: just tell us a little bit more about what the
Speaker 2: role of floating offshore wind could be and where it's
Speaker 2: at right now as a technology.
Speaker 3: Yes, so floating off your wind could be a really
Speaker 3: exciting new avenue of growth for the wind sector. It's
Speaker 3: a much more nascent technology. So whereas the vast majority
Speaker 3: of projects up until now, turbines have been installed on
Speaker 3: foundations that are fixed to the seabed, and we're seeing
Speaker 3: some demonstrator projects, much smaller projects so far of turbines
Speaker 3: that are installed on floating platforms that are then more
Speaker 3: than anchored to the seabed. At the moment, this is
Speaker 3: a much newer technology, it's much more expensive, and it's
Speaker 3: just at a demonstrator scale.
Speaker 2: So when you say it's much more expensive, can we
Speaker 2: put a number on that? I think you said that
Speaker 2: an onshore wind turbine from China is a three hundred
Speaker 2: one thousand dollars per megawatt. So what are we looking
Speaker 2: at for the kind of state of the art floating
Speaker 2: wind turbine?
Speaker 3: I think rather than looking at just the cost of
Speaker 3: the turbine, it's you sort of look at the project
Speaker 3: as a whole. Today, floating wind is well over two
Speaker 3: times as expensive for one of those kind of early
Speaker 3: demonstrated projects than an equivalent bottom fix off your wind
Speaker 3: project that we're seeing being installed at the industrial scale.
Speaker 3: So the largest project on the construction at the moment
Speaker 3: around the world is in UK waters so at bottom
Speaker 3: fixed project, and that's three point seven gigawatts. We're expecting
Speaker 3: that to come online over the next couple of years.
Speaker 3: If you compared that to the largest operational floating wind
Speaker 3: project today, that's eighty eight megawatts or less than nine
Speaker 3: point one gigawatt. So the sectors are at completely different
Speaker 3: stages at the moment. So floating wind projects at the
Speaker 3: moment today, those early demonstrator scale projects are coming in
Speaker 3: markets that are willing to pay the cost premium needed
Speaker 3: to bring the cost of this new technology down. So
Speaker 3: that's markets in Europe. We've had seen some early demonstrators
Speaker 3: in Japan, but beginning to see the sector look to
Speaker 3: make that next step up in scale. So I mentioned
Speaker 3: the largest project so far, it's off the coast of Norway.
Speaker 3: It's it's eighty eight megawats owned by Equanor called the
Speaker 3: High Wind Tampon project. This year we've seen France hand
Speaker 3: out a revenue support contract to a floating wind project
Speaker 3: or will be just over two hundred and fifty megawatts.
Speaker 3: The UK has handed out a subsidy contract a couple
Speaker 3: of months ago to a project that will be four
Speaker 3: hundred megawatts.
Speaker 2: So beginning to see these.
Speaker 3: Projects just beginning to reach that stage of commercial scale,
Speaker 3: and reaching that scale is going to be crucial for
Speaker 3: the sector to make those learnings to bring down the
Speaker 3: cost of the technology and to learn how to go
Speaker 3: from the very specialized process of manufacturing one of these
Speaker 3: floating platforms to the serial manufacturer of lots of these
Speaker 3: things to build a large scale project. So the sectors
Speaker 3: going through that process today, which means that we forecast
Speaker 3: the overall capex for a floating wind project from between
Speaker 3: kind of six to eight million dollars for megawat today
Speaker 3: to decrease to four point four million to five million
Speaker 3: dollars from megawatt by twenty thirty. A lot depends on
Speaker 3: the characteristics of the project site. So floating wind is
Speaker 3: built in deep waters usually above seventy meters water depth,
Speaker 3: but we're seeing some projects going at around seventy to
Speaker 3: one hundred meters. If you're looking off the coast of California,
Speaker 3: you're looking at projects that will be installed in waters
Speaker 3: over one thousand meters water depth. So there's a big
Speaker 3: range in costs depending on the site specific characteristics. But
Speaker 3: we are expecting to see costs come down, which is
Speaker 3: going to be crucial if the floating wind sector is
Speaker 3: going to go from a really subsidy driven phase today
Speaker 3: to being at all competitive with other technologies.
Speaker 2: I suppose there's a more fundamental question I have to
Speaker 2: ask about floating offshore wind is why you know you
Speaker 2: mentioned it's it's way more expensive than fixed bottom off
Speaker 2: offshore wind, which is in turn more expensive than onshore wind.
Speaker 2: So yes, these costs can come down, you know, and
Speaker 2: that would be driven by subsidies together get that scale.
Speaker 2: But why is anyone talking about floating offshore wind.
Speaker 3: So there are a lot of markets around the world
Speaker 3: that have limited seabed areas with shallow enough waters to
Speaker 3: build bottom fixed projects. So while in many of those
Speaker 3: markets they're building bottom fixed projects today, markets like South
Speaker 3: Korea like Japan, we're expecting if they want to make
Speaker 3: offshore wind a crucial part of their wider energy transition strategy,
Speaker 3: they're going to have to start to look towards floating wind.
Speaker 3: And another key example is the west coast of the US,
Speaker 3: where the continental shelf drops off very quickly, so you
Speaker 3: get very deep waters very quickly.
Speaker 2: As you move further offshore.
Speaker 3: It's very difficult in California, for example, to secure a
Speaker 3: permit for an onshore wind farm, and you've got grid
Speaker 3: today that's getting increasingly dominated by solar. Solar generation and
Speaker 3: wind generation tends to be quite complementary. But if they
Speaker 3: can't build an onshore wind project, and they don't have
Speaker 3: waters shallow enough to build a bottom fixed offshore wind project,
Speaker 3: then they're going to have to look towards floating wind.
Speaker 3: So we see a few of these markets around the
Speaker 3: world that need to add wind to their mix. They're
Speaker 3: struggling to build on shore projects and so they're going
Speaker 3: to have to look towards floating wind at some point.
Speaker 3: I think those are the markets we're expecting to see
Speaker 3: an increasing number of commercial scale projects, probably as we
Speaker 3: move into the early twenty thirties and floating.
Speaker 2: Off sure, I mean you mentioned it. It is moored
Speaker 2: to the seabird, so I presume that rather than it
Speaker 2: being the water depth just no longer matters. It more
Speaker 2: opens up a range of depths. Is that a fair
Speaker 2: way to describe it? Or is it that you could
Speaker 2: literally build this anywhere?
Speaker 3: I think when you get to those really deep waters
Speaker 3: it brings its own challenges. There are certain technical gaps
Speaker 3: at the moment for floating wind that see the still
Speaker 3: need to get resolved so it's not just a cost issue,
Speaker 3: and one of those is around electrical infrastructure, and for
Speaker 3: projects in really deep waters, they still haven't really resolved
Speaker 3: all the technical constraints around building an offshore wind substation
Speaker 3: that collects all the generation from each of the individual
Speaker 3: turbines and then exports it back to shore with a
Speaker 3: really large cable. Now, many of the larger projects, even
Speaker 3: if they use floating turbines, they've either run the cables
Speaker 3: from each individual string of turbines all the way back
Speaker 3: to shore, so you have multiple cables running back to shore,
Speaker 3: or they've built a bottom fixed offshore wind substation, usually
Speaker 3: with a kind of really deep jacket foundation or picked
Speaker 3: a point of the site that does have slightly shallower
Speaker 3: waters to build that bottom fixed substation, even if the
Speaker 3: turbines are floating.
Speaker 2: That doesn't become possible.
Speaker 3: If you're looking off the coast of California and the
Speaker 3: waters are one thousand meters deep, you just can't build
Speaker 3: a bottom fixed foundation for your substation there. So there
Speaker 3: are some technical gaps for the electrical equipment that needs
Speaker 3: to go in that in that floating substation, and those
Speaker 3: haven't really been resolved or there hasn't been a solution.
Speaker 3: So some companies have been proposing, for example, underwater substations,
Speaker 3: which is just a completely wacky and new concept for
Speaker 3: the industry. Some have been looking at floating foundations, but
Speaker 3: some of the equipment that goes into these substations don't
Speaker 3: deal too well with the small movements you'd get with
Speaker 3: being on a floating platform. And also some of the
Speaker 3: cables that will be required to run the power from
Speaker 3: this substation down to the seabed they have to be
Speaker 3: dynamic cables that can deal with kind of mooing loads,
Speaker 3: and for those really high capacity cables, some of the
Speaker 3: technical constraints still haven't been worked out. And so yeah,
Speaker 3: there are some significant difficulties that might make delivering one
Speaker 3: of those projects in a really deep water market like
Speaker 3: California significantly more difficult than the early, smaller scale demonstrators
Speaker 3: we've seen coming online in the UK, in Norway and
Speaker 3: that we're expecting to see in East Asian markets like
Speaker 3: South Korea.
Speaker 2: I mean, one of the things that being in this
Speaker 2: sector has taught me is to never bet against human
Speaker 2: ingenuity time and time again, whether it's with the scale
Speaker 2: of wind or whether it's with the costs of things
Speaker 2: like batteries and photovoltaic solar. You know, things that were
Speaker 2: problems can get solved. So if those technical problems with
Speaker 2: floating offshore wind can be resolved, do you have a
Speaker 2: rough view of how big an addition to the market
Speaker 2: it could be. So you know, if we're looking at
Speaker 2: say twenty fifty, what percentage of wind could be floating
Speaker 2: offshore wind.
Speaker 3: Well, we forecast the offs your wind market out to
Speaker 3: twenty forty and our viewers that floating turbines could make
Speaker 3: up more than ten percent of the cumulative operating offshore
Speaker 3: wind fleet by that year. But yeah, the cost of
Speaker 3: floating wind has to dramatically fall in order to see
Speaker 3: that scale of installations.
Speaker 2: And when you calculated that ten percent, do you think
Speaker 2: that you were you know, in terms of how these
Speaker 2: technical problems get solved. Do you think that you are
Speaker 2: being sort of sober realists or techno optimists. Could this
Speaker 2: be bigger or do you think that's like an upper limit.
Speaker 3: At the moment. There's a lot of potential for floating wind,
Speaker 3: but some of these early projects have been running into difficulties.
Speaker 3: Costs have been spiraling for some of these early scale demonstrators.
Speaker 3: Some of these things could be teething issues, but I
Speaker 3: think we've always been quite pessimistic on floating wind, and
Speaker 3: I think we're beginning to see some of our forecasts
Speaker 3: we made a few years ago start to come true
Speaker 3: compared with what some other market experts were saying.
Speaker 2: So maybe I should better against human ingenuity a little
Speaker 2: bit more often.
Speaker 3: Yeah, I think everything's possible from engineering perspective. It's a
Speaker 3: case of whether things make sense from a cost perspective.
Speaker 3: The good thing is that we forecast costs are going
Speaker 3: to come down, So by twenty thirty, we're expecting around
Speaker 3: a forty percent cost reduction compared with those early scale
Speaker 3: demonstrated projects we've seen to date, so that's going to
Speaker 3: be crucial. But we're still expecting by twenty thirty and
Speaker 3: by twenty forty for floating wind projects to be significantly
Speaker 3: more expensive than bottom fixed So we're probably going to
Speaker 3: see floating wind projects not necessarily compete directly on a
Speaker 3: cost basis with bottom fixed off your wind, but like
Speaker 3: I say, they're going to come in markets that kind
Speaker 3: of have to look to floating wind if they want
Speaker 3: to scale their offs your wind sector earlier. So those
Speaker 3: are the markets where we're expecting growth, and we're still
Speaker 3: expecting it to be a really policy subsidy driven sector
Speaker 3: in those markets all the way out to twenty forty.
Speaker 3: So that's the growth driver here, and significant cost reductions
Speaker 3: could accelerate that progress, but we're not expecting to see
Speaker 3: such quick cost reductions that floating wind is going to
Speaker 3: be a competitive technology when we think about the other
Speaker 3: technologies available it.
Speaker 2: It's going to be in the mix, but it's not
Speaker 2: going to be a game changer, I think, is what
Speaker 2: I'm hearing.
Speaker 3: Yeah, that's why I think that ten percent number still
Speaker 3: assumes that we resolve some of those technical constraints. We
Speaker 3: resolve some of those cost constraints, but it's still only
Speaker 3: represents kind of a small proportion of the market.
Speaker 2: So, Ollie, I started by saying that in the energy transition,
Speaker 2: maybe wind is in danger of being the weaklink. And
Speaker 2: I think from having talked to you, I feel less
Speaker 2: pessimistic about wind. It seems to me that the although
Speaker 2: it's not maybe necessarily a technology solution like floating offshore
Speaker 2: wind that's going to resolve this, it sounds more like
Speaker 2: it's human persistence. So some of these examples you've given
Speaker 2: where countries are working out some of the thorny regulatory
Speaker 2: questions to try and help wind maximize its potential. We're
Speaker 2: also just seeing some of the scaling that's happening in China.
Speaker 2: Are you feeling optimistic about the market? Do you think
Speaker 2: I was unfair when I said it was in danger
Speaker 2: of being the weaklink? Or as someone who looks at
Speaker 2: this small clily, do you feel that maybe the neo
Speaker 2: picture that I painted doesn't really capture the full potential
Speaker 2: and momentum that's happening in this market.
Speaker 3: So I think things desperately need to accelerate. If you
Speaker 3: look at what my team forecasts for the next ten
Speaker 3: years or so. Like I say, we're still expecting a doubling,
Speaker 3: not a tripling, by twenty thirty and that tripling only
Speaker 3: comes by twenty thirty five. So comparing where we stand
Speaker 3: today to where we need to be, we need to
Speaker 3: accelerate rapidly. But I am filled with confidence that we
Speaker 3: are starting to see incidences of good practice. We're starting
Speaker 3: to see countries resolve some of these constraints that are
Speaker 3: chronic across the global industry. So if some markets can
Speaker 3: solve these issues around permitting and grid, then there's no
Speaker 3: reason why we can't start to see things start to
Speaker 3: change in other markets. And hopefully my team's outlook gets
Speaker 3: rosier and rosier as we see some of this kind
Speaker 3: of necessary legislation start to come in place. So I
Speaker 3: think you painted an accurate picture that WIND isn't where
Speaker 3: it needs to be to get the world on track
Speaker 3: for net zero. But I think if markets start to
Speaker 3: implement some of those solutions that we're seeing in some cases,
Speaker 3: then we might see a kind of acceleration that would
Speaker 3: be required to get us on track.
Speaker 2: And if this stuff was easy, would have already done it. Ollie,
Speaker 2: thank you so much for joining today.
Speaker 3: Thanks very much for having me on.
Speaker 1: Today's episode of Switched On was produced by Cam Gray
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