Frost: Wind Energy Markets See Signs of Slowdown

December 8, 2008 // Published as a news service by IHS

"The current economic situation is slowly affecting the wind energy industry," said Frost & Sullivan research analyst Gouri Nambudripad.

"We are going to see a slowing down of the double-digit growth rates that were witnessed in the past few years.

"Some market players are reducing their aggressive production and development targets and this is going to trickle down the supply chain."

This situation will have positive effects, analysts said, like a reduction in turbine prices (due to a fall in raw material prices) and the reduction of delivery times of components leading to a more balanced demand supply situation.

"The industry seems to be heading from the overheated undersupply state into a supply-demand equilibrium, if not into a state of having spare production capacities and thus having to fight rigorously for the new orders still remaining in the market," said Nambudripad.

Over the past three to four years, the demand for these components has grown tremendously, analysts said. To secure supplies of critical components - gearboxes and bearings - wind turbine producers were resorting to various strategies, such as vertical integration and signing long-term contracts with suppliers and sub-suppliers.

However, suppliers were not prepared to face the increasing demand. Analysts said this situation was causing a shortage of supply that, coupled with component design problems, was affecting the industry.

Analysts said prior to the onset of the economic meltdown, the trend was expected to continue for at least the next two to three years. With today's economy, the strategies of the component suppliers, as well as those of turbine manufacturers, will be different considering a slowing demand for turbines and the components for those wind turbines.

The new reality will foster a fierce competition between suppliers, turning into a growth opportunity for those who are capable of reducing their costs and prices faster. Analysts said other factors contributing to falling prices include decreased costs for raw materials and construction services.

The sharp decrease in raw materials prices, such as steel and copper, will inevitably decrease equipment prices. For example, steel prices reached a record high between June and September 2008, then fell to December 2007 levels in less than three months. Analysts said not only are prices affected, but delivery times are also narrowing, as steel mills await new orders.

The decrease in raw materials and component costs, coupled with ongoing government support extended to the green energy industry, is likely to sustain the demand for wind turbines. Yet it is paramount for the industry to maximize the performance of existing assets and address the remaining technical issues. In doing so, analysts said the wind industry is likely to emerge stronger when the crisis is over.

Source: Frost & Sullivan.