Asia Wind: Breezing To The Top

BMI View : Wind energy is increasingly important in Asia, with the region being the fastest growing market in the world. We identify some of the countries in the region that are driving this growth, and look at the key opportunities in these respective markets.

Asia will remain the fastest growing region for wind energy in the world, having overtaken the European market in terms of capacity additions per year in 2009. Some factors that have helped propel the region to the forefront of wind energy development include the rapidly growing power demand; the costs of procuring fuel for thermal generation; and a lack of institutional and private sector capacity to undertake traditional power projects. Growing concerns over pollution levels have also been a factor driving growth in wind energy.

Within Asia, China has been the main driver of growth in wind capacity over the past decade. Wind capacity in the country tripled between 2009 and 2012, making it the largest market for wind power in the world in terms of installed capacity and rate of new installations. Even though China is the dominant market in Asia, there are a number of smaller Asian markets with sizeable growth opportunities for wind energy development. In this analysis, we identify the major markets for wind energy in Asia such as Japan and Thailand, and discuss the key fundamentals supporting these opportunities.

The Asian Tiger
Global - Wind Capacity By Region, GW (LHS) and 2023 Wind Market Share By Region, % (RHS)

Asia Wind: Breezing To The Top

BMI View : Wind energy is increasingly important in Asia, with the region being the fastest growing market in the world. We identify some of the countries in the region that are driving this growth, and look at the key opportunities in these respective markets.

Asia will remain the fastest growing region for wind energy in the world, having overtaken the European market in terms of capacity additions per year in 2009. Some factors that have helped propel the region to the forefront of wind energy development include the rapidly growing power demand; the costs of procuring fuel for thermal generation; and a lack of institutional and private sector capacity to undertake traditional power projects. Growing concerns over pollution levels have also been a factor driving growth in wind energy.

The Asian Tiger
Global - Wind Capacity By Region, GW (LHS) and 2023 Wind Market Share By Region, % (RHS)

Within Asia, China has been the main driver of growth in wind capacity over the past decade. Wind capacity in the country tripled between 2009 and 2012, making it the largest market for wind power in the world in terms of installed capacity and rate of new installations. Even though China is the dominant market in Asia, there are a number of smaller Asian markets with sizeable growth opportunities for wind energy development. In this analysis, we identify the major markets for wind energy in Asia such as Japan and Thailand, and discuss the key fundamentals supporting these opportunities.

Diverse Levels of Market Development
Asia - Wind Capacity By Country (2013), MW

China: Unbeatable In Size and Pace 

We expect China to maintain its position as the largest market for wind energy in the world over the next decade. Air pollution has reached dangerous levels in many of the country's urban areas, and it is becoming a significant challenge for the government to meet the country's growing power needs while reducing pollution. Besides taking serious steps to reduce emissions from thermal sources, such as banning the development of new coal-fired plants ( see 'Pollution In China: Clean Coal The Key', May 16 2013), the government has helped to establish a clear framework for investments in renewable energy through numerous legislation, including policy mechanisms such as the feed-in tariff (FiT).

While there has been growth in most types of renewable energy, wind and solar energy have stood out as clear leaders in the sector in terms of capacity additions. Between wind and solar, we highlight that wind power remains cheaper than solar at the time of writing. This is extremely important as the affordability of electricity remains a key objective for the Chinese government, and we expect wind capacity to continue growing at an aggressive pace. In particular, we expect the country to install an average of 11.5GW of new wind capacity per annum over the next 10 years, with considerable growth in both onshore and offshore capacity.

King of The Hill
China - Wind Capacity And Real GDP Growth, % y-o-y (LHS) and Wind Capacity, MW (RHS)

The size of the Chinese wind market has allowed several domestic wind turbine producers to emerge as some of the world's largest manufacturers. Chinese manufacturers such as Goldwind, Guodian, Sinovel, and Ming Yang have significant market shares in their domestic market. We estimate that Goldwind and Sinovel have supplied around 20% and 16% of all turbines installed in China to date respectively, while the largest foreign competitors such as Danish Vestas and Spanish  Gamesa have supplied around 5% and 4% of turbines respectively.

Asia ex-China: Numerous Opportunities

However, we see significant growth potential for wind energy in Asian countries besides China. There are numerous pockets of growth in both developed and developing Asian markets. Some of the key markets that we have identified outside of China are:

India: Runner Up, But No Light Weight

India has the second largest installed base for wind capacity in Asia after China, and we expect this to remain unchanged for the foreseeable future. The country has installed an average of 2.1GW of wind capacity per annum over the past five years, and we expect the rate of new installations to accelerate to around 3GW per annum over the decade. We are bullish on the Indian wind market as it shares many similar characteristics with the Chinese market; both countries not only have large populations and low per-capita electricity consumption, but are also facing a pollution problem.

We believe that the risks to our forecasts are weighted to the upside. The new Prime Minister, Narendra Modi, is markedly pro-renewables, and is likely to push for growth in wind energy alongside solar energy, which is his main focus ( see 'Power Sector To Be Modi-Fied', May 22). While Modi's administration has yet to pass any legislation for the wind energy sector, statements by Energy Minister Piyush Goyal allude to ambitious plans for wind energy. On August 12, Goyal suggested that India could install 10GW of new wind power capacity each year (as cited by the Economic Times).

Enjoying A Tailwind
India - Wind Capacity and Real GDP Growth, % y-o-y (LHS) and Wind Capacity, MW (RHS)

This is significantly more ambitious than the goal of a total of 18.5GW of installations between 2012 and 2017 set by the former government. To achieve this new target, we believe the Modi administration might introduce new legislation to try and accelerate growth in the wind power sector. This could come in the form of an increase in the Generation-Based Incentive (GBI) which was re-introduced in August 2013, or a revival of the accelerated depreciation (AD) scheme for wind farms. We also note that Modi's government has proposed a 10-year tax holiday in the FY2014/15 (April-March) budget for utilities that start operations by March 31 2017 ( see 'Budget FY2014/15: Right Direction, But Lacking Bite', July 11).

South Korea: Ambitious Offshore Plans

South Korea has a relatively small installed base compared to other wind markets in Asia, with around 560MW of wind capacity at the end of 2013. However, the country's wind sector is set to undergo a period of impressive growth as the country is under pressure to reduce its emissions. The government has already introduced legislation favourable for the development of renewable energy such as renewable portfolio standards and a carbon trading scheme. We believe these policies would encourage utilities to develop renewables capacity ( see 'Obstacles Remain Despite Greater Clarity On Carbon Trading', August 4).

We expect an average of 250MW of wind capacity to be installed each year from 2014 to 2023, with growth driven mainly by the offshore sector. Many developers have taken on offshore projects in recent years - such as the 200MW Saemangeum project and the 196MW Ulsan project - likely in preparation for a 2.5GW offshore project planned by the government. Companies such as Hyundai Heavy Industries (HHI) are already conducting pilot studies on offshore wind turbine prototypes in anticipation of the 2.5GW South-Western offshore project in Jeolla province.

Japan: A Second Wind For Offshore

We expect the Japanese wind sector to grow modestly over the next decade as the Japanese power sector adapts to a reduced reliance on nuclear energy and high fuel prices ( see 'Nuclear Proves Critical, Coal Remains In The Mix', April 15). We are forecasting around 200MW of new wind capacity per annum over the decade, with growth in both the onshore and offshore sector.

We note that the government introduced a separate, and more favourable, tariff for offshore wind in April. This tariff of JPY36/kWh poses an upside risk to our forecasts ( see 'FY2014/15 Renewables Tariffs: Predictions On Target', March 10). Prior to this, the government did not distinguish between onshore and offshore wind energy, and awarded both sectors at the same tariff. We had said that this was a problem for the offshore sector as it experiences higher development and maintenance costs ( see 'Fukushima Offshore: Progress Made, But Problems Remain', January 21 and 'Fukushima Offshore Wind Project Not A Sign Of Things To Come', March 22 2012). At present, we are unsure how attractive the new offshore FiT will be to investors, and might look to revise our forecasts based on commercial interest going forward ( see 'Possible Second Wind For Japan Offshore Renewables', November 5 2013).

Fact Box: FiTs for Wind Energy, Japan
Technology Scale Tariff, JPY/kWh Payment period, years
Onshore <20kW 57.75 20
Onshore >20kW 23.1 20
Offshore   36 20
Source: METI

Thailand: Energy Mix To Change

Growth in the Thai wind energy sector is starting to accelerate, and our outlook for the market is positive despite its low starting base. We expect the country to install approximately 180MW of wind capacity per annum over the decade, with growth primarily in the onshore sector.

Our bullish outlook for wind energy - and renewable energy as a whole - can be attributed to the unsustainable nature of the country's current energy mix over the long-term, in terms of both costs and availability of fuel. There is limited scope for growth in gas-fired generation, which currently accounts for 70% of the electricity mix. This is because the country's gas reserves will be insufficient to meet its needs over the long-term and imports are becoming increasingly costly ( see 'Bullish Renewables Outlook Driven By Regulatory Changes', August 6). The Thai government has already said it is likely to implement several regulatory changes aimed at improving returns for renewable energy projects ( see 'Market-Oriented Reforms To Bring Sector Relief', July 21). Indeed, we have already seen strong interest from developers such as Thailand's Wind Energy Holding. We note that the level of political risk remains elevated in Thailand, but highlight that recent pro-market reforms for the renewables sector by the government should come as a relief for the sector.

Rounding Up The Table
Asia ex China and India - Average Per Annum Capacity Growth For 2014-2023, MW

Australia: Guarded On Regulatory Uncertainty

Australia has the largest installed base for wind energy after China and India, but our outlook for the market is less optimistic. While wind energy is competitive in South Australia and in other southern areas, commercialisation of wind potential in these areas is being held back by the unstable political and regulatory environment.

Policy uncertainty for the renewables sector has risen considerably since the Liberal-National coalition ousted the Australian Labor Party (ALP) in the federal elections in September 2013. Since assuming office, Prime Minister Tony Abbott and the Liberal-National coalition have taken steps to scale back the costs - both private and social - of emissions reduction and climate-friendly policies. The coalition managed to repeal the carbon tax ( see 'Limited Ramifications From Carbon Tax Repeal', July 22) and made several attempts to dismantle policies and institutions supporting the renewable energy sector.

However, the biggest threat to the sector is the ongoing review of the renewable energy target (RET) which requires utilities to source 20% of electricity from renewables by 2020. We see a strong possibility for the RET to be reduced to 5-10% or even abolished altogether. A more aggressive reduction or the abolishment of the RET poses a significant downside risk to our forecasts, and we would revise them down accordingly should this occur. At present, our base-case scenario is for a reduction to a 10% target.

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