Global wind demand remains robust, representing a more than USD 540 billion opportunity through 2027. Despite mounting price pressures on the turbine supply chain due to prevailing wind auctions among mature and emerging markets around the world, top-line revenue growth for capital components as blades and towers are assured, according to the new research Global Wind Turbine Supply Chain Trends 2019 from Wood Mackenzie Power and Renewables.
The market share of top turbine OMEs has consolidated in recent years, and the trend will continue as the wind industry matures. The disparity in growth in turbine MW and units are impacting the supply chain players and the market landscape. Local content policy (LCP), best cost-effective countries, offshore wind demand and Industry 4.0 are fundamentally driving new investment flowing into the supply chain sector and defining global wind supply chain trends.
Local content policy attracts new investments
LCP is deployed by local governments to attract new investments, as turbine OEMs and component suppliers queue up these markets to win market share. Turkey, Russia and Argentina are three typical markets where Vestas, SGRE and other turbine suppliers are setting up facilities for localization. Capital components with higher logistics costs secure investment and turbine OEMs prioritise relative low-cost nacelle/hub assembly in LCP markets.
Proliferation of LCP in emerging markets drive turbine OEMs to innovate new business models to lower CAPEX. “Some turbine OEMs are partnering with industrial companies to manufacture the components to contain ballooning CAPEX investments in LCP markets. Vestas partnership with Liebherr for nacelles in Russia is a good example,” says Shashi Barla, author and Senior Analyst with Wood Mackenzie. Nevertheless, currency and financing risks pose threats to investors in those emerging markets.
Best cost countries are home to half of global supply
Supply chain migration to best cost countries is not a new phenomenon, but has intensified as companies further exploit the cost saving and volume potential achieved by relocating production resources into these countries, with an aim to serve both domestic and export markets. Barla points out: “Best cost countries in Asia Pacific region dominate with more than 50% of the global supply.” China, India, Thailand and Malaysia are among those countries due to lower labor and manufacturing costs.
India is considered as a key market for industry relocation for supply chain to mitigate adverse effects of US-China tariff tussle. Turbine OEMs and component suppliers are expanding in the market to meet domestic demand with an eye on US exports.
Offshore wind demand continues to boom
Global offshore wind market is on a fast track of growth. With a CAGR of more than 20% in offshore wind demand over the next decade, new supply chain investments are expected to comply with LCP and lower landed cost of strategic components. China, UK and Germany will be large offshore manufacturing hubs due to market size. Some of the onshore facilities will be leveraged for components that are not challenged by expensive logistics.
What foreign turbine OEMs are bringing to the emerging offshore markets are not only the equipment, but also expertise and lessons learnt from European countries. SGRE, MHI Vestas and Hitachi are three giants in turbine supply in Taiwan offshore market and are establishing Taiwan offshore supply by potential future investments into local supply chains from nacelles to foundations, from blades to generators.
Industry 4.0 speak louder
The evolving wind industry is embracing more cutting-edge technologies and concepts for innovations and future growth. “To improve the productivity and lower costs, companies will focus on industry 4.0 initiatives such as digitizing existing brownfield sites, exploiting information and communication technologies, mass custom production, and smart automation,” adds Barla.