Asia Wind Market Takes Flight

This has given rise to a flood of indigenous manufacturing investments in China, India and South Korea, both by aspiring domestic players and by entrenched global vendors seeking to cushion impacts of the economic downturn. All of these trends are evolving against the backdrop of a rapidly growing Asian wind market which is forecast to lead the world in new and cumulative wind capacity installed through to 2025.

While global economic turmoil has stalled recent wind market activity across Europe and other Western regions, Asia has sustained a record demand for wind power. After claiming less than 1.9 GW of installed capacity in 2000 — representing approximately 10 percent of the global total — the region has rapidly fed its appetite for wind energy. Over the past two years, Asia has emerged as the world's second-largest regional player in terms of total installed wind capacity, capturing 25 percent of cumulative installations in 2009 and 29 percent in 2010, up from 13 percent in 2005. It has also become the fastest-growing wind market worldwide, accounting for 47 percent of global annual wind additions in 2010, up from 21 percent in 2005.

The Asia-Pacific accounted for nearly half of global wind capacity additions in both 2009 and 2010, driven largely by burgeoning wind power demand in China and India. While rampant local industry build-out has paved the way for much of this growth, it has also yielded vastly overheated supply market conditions in markets such as China.

In response to intense local competition, many of the region's OEMs have been seeking to broaden their reach into foreign markets to defend market share.

Among key markets Asian suppliers are seeking to penetrate, the US and Europe are at the forefront, followed by several Latin and South American countries. To date, only Suzlon and Mitsubishi have been able to carve out a substantive sales footprint abroad. A host of Chinese and Korean industrial players eagerly seek to follow in their footsteps, particularly North America's high-growth market.

Asia captured 89 percent of locally manufactured wind turbine deliveries in 2009, with China procuring the lion's share, trailed by India and more distantly by Australia. As China already boasts the largest project pipeline and the fastest-growing wind market in the world, it should continue to feature prominently in Asian OEM order book portfolios, particularly among China's top tier of vendors.

Driven primarily by the emergence of China and India as major demand centres for energy and renewable power, the Asia-Pacific onshore wind market expanded at a compound annual growth rate (CAGR) of 39 percent from 2005 to 2010.

China's explosive wind growth has assumed a central focus in Asia to date — particularly after nearly doubling its installed capacity year-on-year since 2005. Within just six years, China's contribution to annual wind turbine deliveries has risen from 20 percent to 84 percent within Asia, and from 4 percent to a record 41 percent worldwide.

India's aggressive renewable energy plans have also helped to sustain regional wind growth. Despite its relative decline in market share compared with China, India still accounted for 12% of Asian wind power additions in 2010, as well as 23 percent of the region's total installed capacity that year.

While also increasingly eclipsed by China, Japan and Australia represent the second tier of Asian wind markets, with each country capturing 4 percent of the region's total wind installations by year-end 2010. As Japan's onshore market approaches saturation, however, Australia will be better-positioned for growth - provided that its government can restore profitable Renewable Energy Credit (REC) pricing levels for wind projects in the near term.

Asia-Pacific annual onshore wind growth is expected to continue scaling rapidly throughout the forecast period — increasing from just 400 MW in 2000 to over 22 GW by 2015 — to become the largest onshore wind growth region in the world. Consequently, Asia's cumulative installed onshore wind base should surpass 278 GW by 2020 and 412 GW by 2025. Overall, IHS EER expects a CAGR of nearly 13 percent from 2011 to 2025, after which the region should account for approximately 44 percent of the global cumulative installed wind base by 2025.

While Asia lags significantly behind Europe in offshore wind development, China, Japan and Korea have all installed offshore pilot projects to date, positioning the region several strides ahead of North America. Asia-Pacific offshore wind growth should gain strong momentum post-2013, as annual additions rise from an estimated 530 MW in 2013 to over 2.4 GW by 2025. The region's total installed offshore wind base is expected to reach over 20 GW by 2025, representing approximately 18 percent of the global installed wind base by this time.

In 2010, the growth of the Chinese market enabled Asia to post a record year, with over 16.5 GW of new wind capacity installed and grid-connected. As a result, a host of players have been scrambling to roll out new turbines and expand manufacturing operations in this key growth centre. Amid profound global supply-demand fluctuations, many entrenched foreign vendors have followed a similar trajectory in recent years, gravitating toward Asia in an attempt to diversify away from financial turmoil in Europe and the US. At the same time, these Western-owned players continue to suffer significant market share erosion, in relative terms, in this region amid the flood of aggressive local OEMs.

Key elements impacting Asia wind turbine OEMs going forward include value chain flexibility, multi-megawatt-scale supply chain build-out, customer differentiation, and lasting product portfolio development.

As explosive local industry growth gives rise to a competitive market environment, Asian wind turbine OEMs face increasing pressure to realign their strategies with changing threats and opportunities. Due to the predominance of licensed technology deployed in China, Korea and select other regional markets, many new and established players have been unable to provide differentiation or niche advantages to shore up greater market share.

At the same time, Asia-based foreign OEMs are finding it increasingly difficult to grow profitably, particularly in light of the growing capacity of state-owned players especially in China to internalize large portions of their supply chain and costs, and consequently offer lower market prices.

In general, Asian OEMs are responding to these demand and supply shifts by incorporating new demand for higher capacity turbines into their technology procurement, whether through licensing, co-development or independent innovation, while also continuing to focus on reliable, core models.

In anticipation of specific supply chain constraints, some are opting to hone in-house manufacturing capabilities for components such as blades and gearboxes. Circumventing these potential bottlenecks is tantamount to long-term competitive advantage in the high-growth Asian wind market.

Order intake strategies are rapidly transitioning toward large-scale frame agreements with provincial governments and core state power generators. While many of these customers have sought to secure turbine supply through 2012, smaller projects are being developed more rapidly, often requiring less than a year from planning through to commissioning. The Asian turbine vendors in various stages of development — currently totalling well over 100 — face intense pressure to scale up to capture these fleeting opportunities.

Select emerging Asian suppliers, particularly Koreans, have been offering extended warrantees for their products, internalizing risk in exchange for opportunity to build track record. O&M relationships between suppliers and project owners have also become subject to heightened scrutiny as inexperienced players seek to become entrenched, as quality concerns surface, and as third-party contractors gain market share.

In this capacity, both foreign players and joint ventures are relatively well-positioned along the learning curve.

Following Asia's unprecedented wind power capacity expansion, which accelerated at a CAGR of 39% from 2005 to 2010, key regional equipment suppliers have begun looking abroad in an effort to leverage newly acquired technology and lower-cost advantage. While Asia captured 89 percent of locally manufactured wind turbine deliveries in 2009 and 95 percent in 2010, export plans are becoming increasingly critical to the business strategies of top regional wind turbine OEMs. This is particularly pertinent for Chinese players, as the country's turbine assembly capacity continues to exceed local market demand levels by significantly greater proportions each year.

China Joins Global OEM Top Five

As previously outlined, Asia maintains a significant share of global wind market growth, accounting for 38 percent of total wind additions worldwide in 2009 and 49 percent in 2010. In 2009 alone, the region's top four vendors — Sinovel, Goldwind, Dongfang and Suzlon — accounted for 30 percent of all global wind additions, and over half of those in Asia.

At the same time, by virtue of their leading positions in China's burgeoning wind market, Sinovel and Goldwind were able to vault into the top five global turbine manufacturers by 2009, with Dongfang securing the number nine position. Suzlon also reported strong deliveries, fuelled by consistent demand in its Indian home market, and an increased presence in the US, Europe and Latin America.

Asia's expanding group of wind competitors clearly exerts strong pressure on entrenched global suppliers. Within this context, it is important to note that Asia-based Western manufacturers have been struggling to maintain their global positioning in recent years, particularly as they continue to fall short of capturing anticipated levels of Chinese demand. Exponential Asian assembly capacity growth, especially in China, coupled with declining global order intake levels, due to the financial crisis, is certain to result in intense market share battles worldwide in 2011 and beyond.

China's Overheated Market

The Chinese government's unrestrained encouragement of local industry build-out, as well as acute price-based competition, has caused nationwide assembly capacity to double year-on-year, rising from 10 GW in 2008 to 20 GW in 2009, and by another 50 percent to 30 GW in 2010. Despite select component bottlenecks that still constrain equipment supply utilization rates particularly in the control system, converter, and gearbox bearing segments, such momentum should continue - catapulting the market to 50 GW of projected assembly capacity in 2011. In light of the mere 30 percent utilization rate that may ensue in China within 2011, export should constitute a key avenue for absorbing excess domestic manufacturing capacity, particularly within the next two- to three-year period before the country's supply market begins to consolidate.

Asian Turbine Exports

While other entrenched global wind turbine OEMs such as Suzlon — and even Gamesa and Vestas on a smaller scale — have established dominant positions in their home markets before looking overseas, the intense local supply-side competition prevailing in China has already driven local players to aggressively solicit international sales and market share, even if prematurely, simply as a means of survival.

After diversifying into wind only recently, many nascent Korean vendors have been following a similar pattern of targeting international markets without a viable local track record. At the same time, their sense of urgency stems more from a need to cushion the impact of lagging shipbuilding and automobile sales worldwide, as well as a relatively low demand for wind power equipment in their home market.

Asian International Positioning

Asian players have pursued foreign wind market entry through a range of different strategies to date, many of which overlap with one another. For instance, some have targeted IPOs outside of their home markets to obtain global funding. At the same time, a small group of players have moved to acquire European wind turbine design firms or OEMs in order to differentiate their product offering. To compensate for track record shortfall, it is becoming increasingly prevalent for Asian suppliers to offer attractive project financing conditions for wind farms sourcing their turbines either via equity or debt. Finally, select pure-play OEMs have opted to expand their value chain positioning by offering turnkey development and/or pre-development technical services to interested customers.

Asia Hones in on Foreign Sales

In recognition of the need to diversify their regional customer base in order to secure longer-term market share, many Asian OEMs have been aggressively seeking entrance into high-growth foreign markets by establishing a local manufacturing and sales presence. Most have been prioritising North America.

At the same time, some have also been gradually moving into Europe and select other world regions such as Australia, Latin America (namely Brazil), and Africa (South Africa, Ethiopia). Manufacturing constitutes the logical next investment step for most, with timelines highly variable.

Latin America remains poised for large-scale foreign wind investment influx. Suzlon maintains the strongest Asian presence there. Sinovel (China), Unison (Korea), and Avantis (Germany/China) also plan to tap into demand in the region through a range of near-term strategies.

Europe meanwhile continues to serve as a core R&D and sales hub for large pool of vendors.

With several exceptions, building overseas assembly operations may be more of a longer-term play for Asian vendors.

And while Asian OEMs vary widely in their approach to foreign wind market entrance, Goldwind has found success, in part, through its recruitment policy.

Having tapped experienced American wind executives from leading players for its US team, it has leveraged local market knowledge and placed a strong emphasis on local content and domestic manufacturing plans.

South Africa is next in line as an attractive investment target. Recent policies and government commitments have inspired a rush of investor interest in the previously unexploited wind market there. To date Suzlon, Goldwind, Sinovel, and Guodian United Power all plan to establish a local sales presence there.