Steady growth until 2020 would suit wind investors


April 22, 2016

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It is crystal ball time. This week, the Global Wind Energy Councilhas published its annual report on the state of the sector.

This focused on strong growth in key markets including China, Germany and the US, which drove annual installations to more than 63GW and total global capacity to 433GW. The total amount of money invested in wind in 2015 was just under €300bn.

All of these are impressive figures. If anything, they are slightly surprising given that they came against a backdrop of slowing economic growth in China; and uncertainty in Germany and the US. The figures were undoubtedly bolstered by the fact that these three markets each had exceptional years at the same time, but it is at least reassuring for wind investors that the oil price crash has had little impact on the growth of wind. This is positive news.

But we would rather look forward than back, and on that basis it is interesting to consider GWEC’s forecasts for the next five years. The organisation is predicting growth in global wind capacity of 83% over the next five years to just under 800GW in 2050. This is lower than the 118% growth in total wind capacity over the last five years, but steady growth would still be good if it actually happens.

GWEC is basing its prediction on four key trends and events.

The first is the fact that there was an agreement at the United Nations COP21 climate talks in Paris in December. Now, we can argue about how useful this agreement was, given that it did not set specific goals. However, it did set an aim for the power sector to be free from emissions by 2050, and that should keep wind in the minds of large numbers of politicians.

The second is that there are countries where wind energy is matching the low prices being achieved in some US states. GWEC says Brazil, Egypt, Morocco, Peru and South Africa are among those where wind energy is economically viable at a levelized cost of energy of €40/MWh. This means wind is becoming increasingly competitive, and set to be more so as the industry makes tech advancements. This should help wind grow in new markets.

The third positive for wind is that there is increased stability in the US after the five-year extension of the wind production tax credit, which was agreed in December. As well as supporting the growth of wind in the US, this will also support the plans of the firms that are investing in new technology and the industry outside the US.

And the fourth trend is that nations in emerging markets in Africa, Asia and South America are looking to fix problems with energy security and pollution. Wind can be the solution.

You can argue that GWEC is part of the wind industry and so will of course have a positive view on the prospects for the sector. There is some truth in that. But we do not look at any of these individual predictions and think they are unbelievable. They make sense, and so the idea that there will be steady growth over the next five years looks reasonable to us. It is not the most exciting prediction ever made, but we actually see that as a positive.

This is not a ‘gold rush’ market where quick growth will be followed by a fast contraction. Wind has solid investment fundamentals, and businesses can feel confident that any sensible investments can result in good returns. A stable global market like this can only help the companies making breakthroughs on, say, battery storage.

Individual markets will remain turbulent, of course. Poland is the latest example of a country where good work building a wind sector can be destroyed by capricious politicians. But firms that take a global view and are not exposed to just one country can still thrive.

Steady growth may not sound exciting — but we cannot think of anyone in the sector who would not accept it.

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