A new report, The Portfolio Hunters, by clean energy investment analysts New Energy Finance, predicts that wind power generation in established m
A new report, The Portfolio Hunters, by clean energy investment analysts New Energy Finance, predicts that wind power generation in established markets is poised for a wave of consolidation as the industry’s scale increases and growth rates ease.
Wind energy is the most mature of the new renewable energy sectors. It was the first modern clean energy technology to deliver meaningful volumes of power to the electricity grid and has become a meaningful contributor to world electricity supply. Installed wind power capacity has grown at more than 25% a year over the past five years, with much of the capacity being developed by small and medium-sized companies. Continuing rapid growth is all that is preventing consolidation in the industry.
As the rate of capacity addition slows from 27% in 2006 to 17% in 2010, the ownership of wind generating capacity will rapidly concentrate in the hands of smaller number of major players. Under its current growth scenario New Energy Finance expects the market share of the 20 leading global owners to increase from its current 32% to 37% within the next five years.
Michael Liebreich, CEO of New Energy Finance says: ‘We are seeing high levels of M&A activity already, with an average of 7% of all existing wind farm capacity changing hands each year. The only reason you are not already seeing rapid concentration is that there has been this huge bulge of new capacity coming on stream, developed by smaller players. As soon as growth slows, you are going to see the top 20 portfolio owners really pulling away from the pack.’
Growth will inevitably slow from its current extraordinary pace as the scale of the industry increases. Obtaining permits for wind projects continues to take time and effort; investment in transmission infrastructure is holding back development in key markets such as India, the UK, Eastern Europe and Latin America. Some countries – most notably Denmark, Germany and Spain – are reaching capacity in onshore wind, with fewer sites left that are economically viable or available.
Meanwhile, generators and utilities are under increasing regulatory pressure to add clean energy capacity. In the US, no fewer than 21 states now have Renewable Portfolio Standards, mandating the purchase of renewable electricity, and there is growing pressure for a Federal scheme. Financial investors are encouraged by the availability of cheap debt, stable long-term cash flows, and IRRs above 20%, and a liquid market for the sale of assets. A further driver of consolidation is the current constraints in turbine supply, resulting from component shortages, which favours developers large enough to win a place in suppliers’ order pipelines.
M&A activity will play a major role in the coming consolidation. Even larger wind power generators have limited in-house capacity to develop wind portfolios, so almost all of the top owners are expected to supplement their own activities with acquisitions of projects and developers, as well as a range of joint ventures and development partnerships.
By 2012, New Energy Finance predicts that the top 20 wind farm owners will have invested USD 43.2bn developing almost 31GW of wind capacity in-house, and a further USD 29.2bn on buying 21GW of capacity at various stages of development. The leading owners are already emerging in the more mature local markets, most notably Spain, where four companies – Iberdrola, Acciona, Endesa and EDP – control more than 70% of operating assets.
New Energy Finance’s report on the upcoming consolidation in wind farm ownership, The Portfolio Hunters, is available from [email protected]
