Demand for wind turbines is currently out-running supply as manufacturers struggle to meet the needs of a rapidly growing industry. The rapid global growth of the wind industry - exceeding even optimistic projections - has created a shortage of wind turbines as manufacturers try to meet demand.

Renewable energy project finance rose from US$10.8 billion in 2004 to $18.2 billion in 2005 and approximately 72% of these deals are for wind generation.

The Global Wind Energy Council's annual report shows the installation of 15,197 MW of capacity in 2006 taking the total global installed wind energy capacity to 74,233 MW with no sign of slowing down. The American Wind Energy Association reports US wind power generating capacity increased by 27% in 2006 with a further 26% expected in 2007 and India and China are planning to add 95,000 MW and 35,000 MW of wind generation capacity respectively by 2020.

Typically turbines are built in months rather than the years required for conventional power stations, and so the manufacturers rely on a network of first tier suppliers provide major components such as generators, gearboxes and transformers and second tier suppliers providing smaller components. Often the sub-contractors work for more than one manufacturer. The wind turbine manufacturers have become truly global companies with ten, soon to be nine, supplying almost all of the global demand. Most of the manufactures have full order books but only a few such as GE and Siemens have the working capital to be able to say "here's the money, we need the generator." and so real supply issues are arising for some turbine manufacturers, even large ones with some failing to meet delivery schedules.

The rise in demand and commodity prices has resulted in production capacity being sold out and the inevitable price increases. Year on year price increases were in the order of 15% in 2005 and 2006. All of this activity has resulted in a level of competition among turbine manufacturers and developers previously unseen in the industry.

A third of the world's wind capacity is now under the aegis of the top 20 wind farm owners and they are trying to lock-in turbine supply early, finding they can use it as a way to build market share. In July 2006 BP ordered 900 2 MW machines from Clipper for delivery over the next five years and PPM Energy recently placed an order with Suzlon for 200 2MW machines. The pressure is now on other large developers to make similar forward commitments.

The obvious solution is to build more production capacity, but in an industry that is heavily reliant on tax breaks and fiscal incentives, manufacturers are reluctant to make significant long term investment decisions.

The British Wind Energy Association stated in a 2006 consultation response that "the ability of the wind turbine manufacturer to supply the demand will remain constrained until long-term supply chain problems can be overcome, and there is a body of evidence gathering in that currently there are lead-times that are being quoted for deliveries of wind turbines as far out as 2008 and 2009 on most projects served by major suppliers. "

Higher prices change the financial structure for some planned wind farms, making them less cost-effective for investors. A long awaited and opposed wind farm in Australia finally received planning approval in February this year but the shortage of turbines means that the developers will have to wait another two years before generating any power (or income). Closer to home, E. ON postponed construction of it's 100MW offshore development at Scarweather Sands as escalating steel prices (steel takes up to 30% of Cappex for the offshore foundations) made the project uneconomic, and the BWEA has reported that as many as ten other projects may be currently stalled for similar reasons.

Add to that the governments recent review of the Renewables Obligation and it all makes challenging times for wind farm developers in the UK.

For more information contact:
RPS London (Cottons Centre) - Planning & Development
T: 020 7939 8000

RPS Oxford - Planning & Development Environment (Onshore Renewables)
T: 01235 821888

RPS Woking - Energy (Offshore Renewables)
T: 01483 746500

RPS Basingstoke - HSED (Safety and Planning)
T: 01256 381050