The global wind turbine supply chain is racing towards a USD 600billion cumulative opportunity over the next decade
Annual average wind turbine supply is forecast to reach USD 60bn over the next decade, reflecting an increase of 8% compared to 2019. Higher average turbine prices and 20% growth in offshore demand will reflect a healthy 37% uptick in supply chain potential, valued at cumulative USD 222bn by 2028. Strategic capital components like blades and towers represent a USD 25+bn annual opportunity by themselves.
Rush in installation activity in 2020 results in a shortage of blades and bearings
A record 77GW of global wind demand, with 58% attributed to the two biggest markets China and the US, has strained the wind supply chain in 2020. The coronavirus has exacerbated the situation by jeopardising about 10-15% of production volumes in China, Spain and Italy. However, Chinese companies resumed production in China early March, resulting in a downgrade of 5GW for 2020 global installations resulting in net 73GW of installations per latest forecasts. Turbine OEMs and suppliers can mitigate the impact by increasing manufacturing during the latter part of the year and relocating supply into other markets like India and Mexico. However, in wake of lockdown in India for 21days will adversely impact the production volumes
Blade core material balsa shortages has prompted turbine OEMs and blade manufacturers to switch to PET and hybrid designs with Balsa and PET. Wood Mackenzie forecasts the share of PET to increase from 20% in 2018 to more than 55% by 2023. Offshore blade market reaches critical mass for dual-sourcing. Turbine OEMs contemplate increased out-sourcing to independent suppliers. The longer commercial product life cycles of offshore blades compared to onshore will alleviative EBITDA margin erosion concerns for blade suppliers.
India emerges as “Next-China” contender for wind supply chain
India has been beneficial due to the ongoing US-China trade tussle, emerging to play a more prominent role in the global wind turbine supply chain, where manufacturing costs are lower and local engineering skills will result in a unique combination to expedite this transition. Turbine OEMs and component suppliers have made investments in the market intending to establish India as a strategic manufacturing hub. During 2019 Vestas announced plans for a new nacelle manufacturing facility in 2019, intending to make it a global renewable manufacturing hub and quadrupling its manufacturing jobs in India. Recently SGRE has announced similar plans to develop India as a global production hub to reduce its dependency on China. India’s favourable trade relationships with many key wind markets strengthens the case for new investments
Despite a 45% decline in annual gearbox unit demand, the addressable global market value of gearboxes will remain flat at around USD 7 billion. Increases in gearbox size, torque density, product platform approach, and digital enhancements will empower suppliers with a bargaining edge. Gearbox demand continues to remain high in AMER and EMEARC, while DD is still a preferred technology in APAC and Offshore. However, the best-cost APAC markets dominate two-thirds of the global gearbox production in 2020.
Turbine OEMs continue to develop in-house software for control systems, while the cabinets are outsourced to independent suppliers with best-cost country footprint. Turbine OEMs’ migration to platform strategy will offer large volumes with an economies of scale advantage. Chinese turbine OEMs follow Western peers, ramping up in-house converter supply and increasing share to 33% in 2019, driven by Goldwind, Envision and MingYang . Transition to larger rated turbines and adoption of full power converter technologies will increase market potential by 30% in 2028 vs 2019.
Chinese turbine OEMs shift to synchronous permanent magnet generators (SPMG) for both onshore and offshore turbines due to the lower costs and plentiful supply of rare earth elements (China controls more than 60% of global rare earth elements supply). Due to mature technology and a well-established industrial supply chain, generator suppliers face additional cost out pressures. The next wave of cost reduction should be focused on process optimisation, upscaling of existing technologies and shorter time to market
Large-scale investments in China by Western main bearing suppliers have occurred to meet increased demand in the Chinese offshore sector, while domestic Chinese companies are investing in pitch and yaw bearing capacity expansion. China’s transition to large- rated 3.X/4.XMW turbines has resulted in longer lead-times in gearbox bearings. In a few cases, the lead times have increased to more than 70 weeks
To counter the price erosion in the mid-term, suppliers are focusing on a plethora of cost-out initiatives spanning from new designs, investments in new machine tools, automation and quality management.
The insights above feature in the Global wind turbine supply chain trends report.
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