By Richard Heap
They’ve gone! We’ve shut out the relatives; hidden the noisiest toys; and eaten the last shards of the chocolate mountain. Yes, the festive period is now officially over, and it is time to get back to business.
And, after a rollercoaster 2016, we fully expect more thrills and spills in 2017. But what exactly? Here are our top ten predictions for the trends and stories we expect to shape wind this year.
1. US wind to defy Trump: The election of a wind-hating climate change denier as US president will raise the industry’s anxiety levels, but we expect US wind to stay strong in 2017 despite Donald Trump. Wind still makes financial sense – though the Clean Power Plan, Environmental Protection Agency and production tax credit could all be watered down. It will certainly make compelling viewing.
2. China gets tough as crisis deepens: The Chinese slowdown will worsen in 2017 and exacerbate government fears of energy oversupply. China’s leaders have already moved to rein in approvals for coal-fired power stations, and we expect tougher restrictions to follow for the wind sector. The upshot is set to be lower levels of installations and investment in the sector globally this year.
3. Italy and France to unsettle Europe: The UK is set to launch the process to leave the European Union in March, but Brexit will not be the most unsettling issue for Europe this year. The Italian banking crisis will raise tough questions about the future of euro; and the rise of right-wing parties in France could also help re-shape Europe. Both are set to act as a drag on European growth.
4. Central banks stay cautious: Central banks in the UK, US and Europe have kept rates at historic lows for almost a decade, which has helped developers to keep their capital costs low; and makes wind farms look like better investments than government bonds. The US Federal Reserve has started to raise rates and the Bank of England might too, but caution is still the watchword.
5. Consolidation across the supply chain: Siemens is due to carry Gamesa over the threshold in March, and we could well see another big manufacturer marriage in 2017: Enercon, Envision and Senvion are all worth watching. We also expect to see more M&A across the supply chain as manufacturers seek to buy specialists that can help them to improve their machines and cut costs.
6. UK to soften anti-wind stance: We will not see UK prime minister Theresa May perform a major U-turn on her government’s hostility to onshore wind: the Renewables Obligation will disappear
and businesses will find life tough. But the approach of new energy secretary Greg Clark looks set to be less belligerent than his predecessors; and cost-cutting should bolster support for offshore.
7. Germany auction upheaval: Forget Germany’s elections. Those in wind will keep an even closer eye on its new competitive auctions for the sector. There is little sign that its leaders have learnt the lessons of its solar auctions, which achieved record low prices but at levels that made it difficult for developers to actually build schemes and left a supply gap. What’s German for ‘déjà vu’?
8. Offshore cost cuts slow: Dong, Shell and Vattenfall led on cost-cutting in offshore wind in 2016 as they won tenders at record low prices. The pace of these reductions will slow in 2017 as the industry adjusts to levels set at Borssele and Kriegers Flak. This is beneficial for cash-rich utilities who do not need to raise external finance for projects, but the fact a consortium won the Borssele 3 & 4 tender last month shows project financiers can still play a role.
9. Wind awakens to large solar: Onshore wind is the cheapest new source of electricity generation in some parts of the world, and solar is claiming the title in other parts. Auction-based tenders mean that wind is going head-to-head with solar in more parts of the world, and we expect a few wind developers and investors to wake up to the opportunity this presents for diversification.
10. Africa leads emerging markets: The 310MW Lake Turkana in Kenya is due to complete this year and, if successful, will reinforce in the minds of investors that there are opportunities across Africa. We expect more action in Ethiopia, Ghana and Kenya, as well in the established wind markets of Morocco and South Africa. The exception is Egypt, where investors want more protection.
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