Renewable Energy World - magazine

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18 RENEWABLE ENERGY WORLD MAY–JUNE 2011

NEWS ANALYSIS

AMERICAS AND ASIA SNAP AT

EUROPE’S HEELS

WIND TURBINE BLADE MARKET

he growth of the wind energy sector

in the rst decade of the 21st century

has been phenomenal. The key catalyst

for rising installations in the wind market has

been government initiatives to reduce carbon

emissions and dependence on fossil fuels.

This has led to the emergence of the renewable

industry, and wind power in particular.

Along with increasing wind power

generation, manufacturing of wind turbines

and their components has also received

a signicant push. European nations such

as Denmark, Germany and Spain have

pioneered the global turbine and component

manufacturing industry and are home to the

largest turbine and component manufacturers

in the world.

In the wind turbine value chain, European

companies dominated and most of the

components were supplied by them.

With the passage of time, the Americas and the

Asia-Pacic regions have emerged as hotspots

for turbine and component manufacturing.

BLADE MARKET VALUE

In 2009, the global rotor blade market had grown

to US$7.787 billion, up from the 2006 gure of

$2.556 billion, at a compound annual growth rate

(CAGR) of 33%.

Key supports for the market’s growth included

increasing installations and rising prices of rotor

blades during the period. Despite a decline in

rotor blade prices during 2009, the market value

continued to expand as climbing demand for

installations more than compensated for the

price drop. The global rotor blade market value

is expected to maintain this upward momentum,

largely due to the continuing health of rotor blade

installations.

The North American market’s growth is

expected to be robust in the ve-year period to

2015, largely driven by enhanced installations in

both the US and Canada. The Asia-Pacic region

is expected to emerge as a major market for

blades because of the strong demand from the

Chinese market. The European market for rotor

blades will receive a push during the forecast

period largely on repowering and offshore

markets. GlobalData projects the global rotor

blade market value will grow at a CAGR of 15%

to 2015. By 2015, the value of the rotor blade

market value is expected to reach $16.027

billion, up from $7.998 billion in 2010.

Financial incentives offered by governments

across the globe to encourage wind power

generation have been crucial to the wind market.

Incentives in terms of FiTs or preferential pricing

will lure power producers towards wind from

fossil fuels.

In light of the increasing focus of governments

to reduce carbon emissions, the demand for

wind power installations is likely to receive a

signicant push, strengthening the demand side

of the rotor blade market.

The importance of FiTs can be witnessed

by the fact that wind power installations in

Denmark started to decline when they were

stopped. Most European countries now have

a FiT system. They have also been critical in

the development of wind power in Germany,

European companies have been the pioneers in the

global turbine and component manufacturing industry

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RENEWABLE ENERGY WORLD MAY–JUNE 2011 19

NEWS ANALYSIS

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which provides an onshore feed-in

tariff of 9.02 euro cents/kWh and

13 euro cents/kWh for offshore

production. Wind power capacity

in Germany grew at a CAGR of

15.44% between 2001 and 2008.

LOCAL CONTENT

In order to develop and strengthen

the wind market value chain,

governments across the globe

prefer to foster the domestic

production of turbines and other

components.

The local content requirement

law is one of the mechanisms

that support the domestic

manufacturing of turbine and

components such as wind rotor

blades.

The implementation of this

mechanism in some countries is

mandatory, as seen in Brazil, China

and in the provinces of Quebec and

Ontario in Canada.

The Quebec government is

increasingly focusing on raising

the share of domestic content in

turbine installations and requires

60% of wind projects to use locally

produced components.

Such state or provincial

governments provide lucrative

incentives to wind turbine and

turbine component manufacturers

in the country. As a result, rotor

blade production and installations

have also received a push for

domestic manufacture.

In order to support growing

demand, the Chinese government

has increasingly focused on

expanding the manufacturing

base for rotor blades and other

components.

The Chinese government

mandated the production of nearly

70% of turbine components,

including rotor blades, from

domestic manufacturers.

As a result, competition in the

domestic component market

emerged with the increasing

number of small and medium-sized

players.

In 2004 China had fewer than

10 turbine manufacturers, but by

2009 this gure had increased to

nearly 100. This rise in domestic

manufacturing facilities in China

encouraged the government to

ease the local content requirement

and this restriction was removed in

2009.

Chinese manufacturers are

now among the top wind market

players and the success story of

the Chinese wind market reveals

the importance of the local content

requirement.

A GEOGRAPHICAL SHIFT

Rotor blade manufacturing has

undergone a major geographical

shift from Germany, Denmark and

Spain towards the Asia-Pacic

region, and particularly to China

and India.

The rapid growth in the demand

for blades from the American and

the Asia-Pacic region has led to

the increasing need to diversify

the production base beyond

Europe.

The key drivers for the

diversication of the production

base from the European regions

to Asia-Pacic and North America

include availability of cheap labour

and government support for local

manufacturers of turbines and their

components.

The labour cost differential

between the European region and

the Asia-Pacic region favours

the shift of the production bases

too. Moreover, China and India are

the emerging wind markets of the

future.

China has established itself as

a manufacturing hub in the Pacic

region, with strong demand in the

domestic market backed by the

local content requirement law.

This has led to the emergence of

Chinese rotor blade manufacturers

in the international market.

Although the increasing focus

of governments across the globe

on the renewable energy sector,

especially wind, has led to rising

demand for turbines, manufacturers

have been constrained by limited

capacity.

As a consequence, the

outsourcing of component

manufacturing, particularly of rotor

blades, has grown signicantly. The

major turbine suppliers are vertically

integrating through consolidation

of rotor blade manufacturing by

outsourcing to vendors.

Outsourcing also allows turbine

manufacturers to concentrate their

investments in core competencies.

Furthermore, it can ensure

constant and reliable supply to

manufacturers.

Independent suppliers have

increased their share of the

rotor blade market to turbine

manufacturers. The key driver

of this trend is the demand-

supply imbalance in the turbine

market while the share of in-

house production of rotor blades

declined to 54% of the overall

rotor blade production in 2009

from 62% in 2006.

A. Thilak

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RENEWABLE ENERGY WORLD MAY–JUNE 2011 21

BALANCING

ON THE EDGE

PHOTOVOLTAICS: ITALY'S INCENTIVE OVERHAUL

The outlook of one of the PV industry’s success stories looks precarious as

Italy’s government seeks to shield its consumers from the escalating cost

of a surge in renewables. Is the sector on the brink? By Jackie Jones

ITALY REVIEWS ITS SUPPORT

FOR SOLAR ENERGY

A 400 kWp industrial installation at Poggio Rusco in northern Italy

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PHOTOVOLTAICS: ITALY'S INCENTIVE OVERHAUL

22 RENEWABLE ENERGY WORLD MAY–JUNE 2011

n 2010, Europe’s PV market entered a new dimension, and Italy

played a key part in that. Figures released by industry association

EPIA this spring indicate that new PV installations across Europe

totalled 12.5 GW, for the rst time overtaking installations of new

wind. Indeed, PV accounted for 21% of all new power generating

capacity, according to EPIA. Yet as Italy’s numbers for 2010 continue

to be processed, it appears that across Europe this gure may need

to be updated to something nearer 14 GW.

The solar industry, and Italy, have shown what they can deliver.

Yet it’s been clear for many months that Italy’s market incentives

have stayed too high to be sustainable. During the rst three months

of 2011, the government has been looking for solutions, some of

which have horried the solar industry, which justiably fears an

abrupt downturn of the kind that Spain experienced. A cap that

would have meant the almost immediate end to feed-in tariffs

has been avoided, but even though the nal details are due to be

revealed as REW goes to press, some of the information trickling out

is keeping the industry in a state of alarm.

Italy’s PV sector appears poised precariously on the brink of

a cliff. What’s more, a new support mechanism is unsettling the

prospects for wind power, while biomass support is also under

review. For investors in Italian renewables, this is a difcult moment.

Both the solar PV and wind sectors have ourished in Italy over

recent years. Wind power has been propelled by a green certicate

system introduced in 2002, after which installations grew steadily,

reaching about 1 GW/year for 2006 to 2009.

In 2009 Italy installed over 1 GW of new wind, and in 2010

almost a gigawatt, although the gure slipped by about 15%,

reecting uncertainty over prospective changes to the country’s

regulatory framework as well as a bleaker nancial outlook. In the

EU as a whole, new wind dropped 10% in 2010 from 2009 gures.

By early 2011, Italy’s installed wind capacity was estimated to have

hit 5.8 GW, giving the country a third-place ranking in Europe, albeit

well behind Germany and Spain, each with over 20 GW. The target

for 2020 is 12.68 GW, although the Italian Wind Energy Association

believes improved transmission and simplied administration make

16 GW a realistic objective.

Solar PV has beneted from a feed-in tariff since 2005.

Installations have since soared from 60 MW in 2007 to as much as

6 GW in 2010 – the total is still being counted – way in excess of

industry and government expectations.

The government is not alone in now having concerns about the

affordability of renewables incentives. In February this year, Italy’s

energy regulator was reported by newspaper Corriere della Sera

as saying renewables incentives could cost as much as €5.7 billion

during 2011.

The cost of Italy’s FiTs, as in many countries, is passed on to

electricity consumers via their regular bills. The government is

concerned over the impact on consumers of higher-than-planned

FiT charges – if tariffs are set so that the market grows faster than

anticipated, then consumers have to start bearing the cost sooner

too. Italy’s PV tariffs have also stayed high even though technology

prices have fallen, and the country has certainly shot well ahead of its

planned growth trajectory.

In a brieng to investors, Barclays Capital PV analyst Vishal

Shah recently wrote that Italy is increasingly likely to have to pay

for 6 GW worth of subsidies at the 2010 FiT rate. This would

mean the subsidy would cost Italy €44 billion over the next

20 years. This translates into an increase for Italian consumers

from 0.25 euro cents/kWh in 2009 to 1.42 euro cents/kWh in

2010, representing 6% of the electricity bill, according to Barclays’

calculations. By comparison, Germany’s subsidy burden is

€25 billion, while Spain’s stands at €17 billion, said Shah.

The percentage contribution

of each kWp of photovoltaics to

electricity consumption is also

higher in Italy than in Germany.

Italy’s electricity market is less

than 60% the size of Germany’s

– Italy consumed some

309 TWh of electricity in 2008

against Germany’s 526 TWh,

according to IEA gures – and

Italy’s PV output is also greater

due to its latitude. Enhanced

performance, in turn, brings

ITALY’S ENERGY

BACKGROUND

Italy depends on imports for most of its fossil fuels. It now

produces only 10% of the natural gas it consumes, compared

with 90% in the early 1970s. Production has fallen steadily while

demand has increased, driven largely by growing demand for

electric power: 40% of Italy’s natural gas consumption is for

power generation. Russia and Algeria now supply two thirds

of Italy’s gas, by pipelines via Austria and Tunisia–Sicily.

In 2007 natural gas was responsible for just over half

of generation, coal 16% and oil 12%. A further 12% came

from hydro power, with geothermal and other renewables

supplying the remaining 7%, a number now closer to 10%.

Following a 1987 referendum Italy banned nuclear power, but

the government reversed this decision in 2008. This spring,

following the events at Fukushima, a one-year moratorium on

nuclear has suspended new nuclear developments.

Power prices are high in Italy. This means the more

expensive forms of renewable electricity can attain the sought-

after ‘grid parity’ more easily than in many other markets – and

this is already close for solar PV in the south.

TABLE 1. GROWTH IN ITALY’S PV MARKET

Year Cumulative installed capacity PV at year end (MW)

2006 9.4

2007 79.5

2008 418

2009 1135

2010 2903*

*GSE estimates that an additional 4000 MW in PV capacity was installed in 2010 and is due to be

connected to the grid by end of May 2011 to qualify for the 2010 FiT

SOURCE: GESORE DEI SERVIZI ENERGETICI (GSE)

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PHOTOVOLTAICS: ITALY'S INCENTIVE OVERHAUL

24 RENEWABLE ENERGY WORLD MAY–JUNE 2011

system owners a higher return from their investment. Internal Rates

of Return (IRRs) in the range of 20% are apparently not uncommon.

THE PATH TO 2020

Given Italy’s rapid growth in wind and PV over the past few years,

alongside its existing hydro and geothermal capacity, it may be

surprising to hear that Italy is one of just two EU Member States

that currently expect to fall short – albeit only slightly – of their

2020 binding targets for renewable energy production (targets

encompassing electric power, heating/cooling and transport).

Italy does not expect to reach its 2020

renewable energy target

Italy’s target, set in 2009, is for 17% of total energy

consumption to be met by renewables by 2020. But the national

renewable energy action plan (NREAP) for 2020, submitted to the

European Commission at the end of 2010, anticipates reaching

16.2%. Italy plans to meet the shortfall by co-operating with

neighbouring countries.

In formulating its NREAP, Italy has set a much gentler growth

curve for renewable electricity than for renewable heating and

cooling. Renewables generated 16.9% of electricity consumed in

Italy in 2005, a gure anticipated to top 19% this year and to hit

26.4% by 2020. Meanwhile, Germany is aiming for 38.6% of its

electricity from renewables by 2020, while Italy’s small neighbour

Slovenia targets 39.3%, and Greece 39.8%.

HEATING AND COOLING – A BIG VISION FOR 2020

Italy is one of only a handful of EU Member States to focus heavily

on the heating and cooling sector to attain its renewable energy

target. In 2005 renewables accounted for only 2.8% of the country’s

energy consumption for heating and cooling, but the gure is

expected to reach 7.09% this year and to grow to 17.09% in 2020.

By comparison, Germany is expecting to raise the contribution of

renewables to heating and cooling from 9.4% to 15.5% by 2020,

while Greece aims to raise its already high base of over 16% to

19.7%. Different market sizes and starting points limit the value of

comparing national plans, but they provide some context – and

reveal the steep hill that Italy must climb.

In solar heating and cooling, Italy’s 2020 NREAP sets Europe’s

most ambitious growth plan: a 16-fold rise from 100 ktoe (kilotonnes

of oil equivalent) today to almost 1600 ktoe by 2020. By contrast,

Germany is targeting a three-fold increase from just over 400 ktoe

to just over 1200 ktoe, and Greece an expansion from 200 ktoe to

about 350 ktoe.

Will Italy grow its solar heating sector 16-fold

by 2020 as set out in national action plan?

Is such acceleration achievable in just 10 years? Italy’s solar

heating sector is already well established. It installed 294 MWth

of new capacity in 2008 and a further 280 MWth (400,000 m

collector area) in 2009 to become Europe’s second-largest market

in terms of new installations. Solar thermal growth has been

spurred on by the introduction of 55% tax rebates for a range of

energy-efciency measures in the existing building stock, including

installation of solar thermal. Originally due to expire at the end of

2010, this tax break was extended for a further year. Upcoming

legislation under the NREAP will require new or refurbished buildings

to heat at least 50% of their hot water using renewables, although

NREAP appears to lack other specic solar thermal measures.

Biomass heating is well established in Italy. Since 1999 end-

users have earned tax credits for connecting their properties to

biomass or geothermal-based district heating schemes. The industry

association AEBIOM has highlighted Italy, along with France, for a

commitment to biomass heating in 2020 planning. Pellet market

A 700 KW installation at Enna in Sicily

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PHOTOVOLTAICS: ITALY'S INCENTIVE OVERHAUL

26 RENEWABLE ENERGY WORLD MAY–JUNE 2011

gures for 2009 show Italy as a leading consumer. Italy also stands

out for the proportion of pellets burnt in stoves and small boilers,

rather than used for generating electricity, a characteristic of the

market that AEBIOM attributes to high taxes on heating oil. Italy had

a remarkable 740,000 pellet stoves in 2007, which compares with

only 20,000 in Austria in 2008. Italy also had 125,500 small pellet

boilers in 2004 (the last year for which national gures are available)

while Austria still had only 62,400 in 2008, and Germany 105,000.

AT NEXT FOR ITALY’S PV FIT?

In 2010, Italy installed at least 1800 MW of new PV, bringing

total installed capacity to 2903 MW across more than 144,000

installations, according to GSE (the national electricity service

agency, which administers the ‘Conto Energia’ FiT scheme). Once

new capacity installed over 2010 has been grid connected this year,

as much as 7 GW of installed PV may be eligible for FiTs at 2010

rates, GSE has also announced.

Italy’s PV FiT was introduced in 2005, replacing an earlier

incentive scheme that had been judged a moderate success. As

Dietmar Zischg and Alessandro Antonioli described in an earlier

issue of Renewable Energy World (September 2009), the scope of

the 2005 FiT was fairly limited: installations from 1 kW to 1 MW, and

only until Italy reached 100 MW in installed capacity.

Half a year later that cap was raised to 500 MW of installed

capacity, with a 360 MW cap for projects under 50 kW and a

140 MW limit for those between 50 kW and 1 MW. But to avoid

overheating, an annual cap was put in place: 60 MW for plants up to

50 kW and 25 MW for plants of between 50 kW and 1 MW. Between

the FiT’s introduction in 2005 and the end of 2007, Italy’s installed

PV capacity surged. At this point the government raised the national

target for 2015 to 1000 MW in PV installations, up from a goal of

300 MW set in 2005.

In 2008, the national target rose again – to 3000 MW by

2016 – and the restrictions of the rst three years were removed.

The maximum capacity of plants was no longer restricted to

1 MW, annual caps were removed, and plants became eligible for

payments for PV power consumed on-site as well as that fed into

the grid. Backdating enabled some existing plants to qualify for

the new conditions. Payments would continue to be for 20 years,

but with reductions from the 2008 rates for plants commissioned

in later years. Italy also set a 2020 target of 8 GW for PV.

The response in the eld-based, multimegawatt market was

immediate. Several of the world’s largest solar PV parks were soon

established, including the 84.2 MW Montalto di Castro, the 70 MW

Rovigo, the 43 MW Cellino San Marco, the 36.2 MW Alfonsine, and

the 34.63 Sant’Alberto.

Mid-2010, following a surge of activity in the PV sector, the

government announced another review, and the third Conto Energia

was introduced to apply from the start of 2011. This introduced a

range of tariff reductions during the rst four months of 2011 with

further cuts foreseen at four-monthly intervals during the year. For

eld-based systems, these averaged 9.3% for systems up to 5 MW,

and 14.2% for those of 5 MW and beyond. For rooftop installations,

the decreases ranged from 4.75% to 13.28%, depending on system

size, although integrated BIPV was treated more generously. A

further annual drop of 6% was planned for 2012 and 2013. A 3 GW

cap (plus 200 MW for integrated BIPV) was imposed, although a

transition phase would enable installations to qualify for up to 14

months after the cap had been reached.

But even before this third Conto Energia had taken effect, a

fresh review of renewables legislation to modify support for wind and

biomass as well as PV was under way. For PV, the many scares

include the fear that the FiT might be withdrawn altogether from

2013–2014, or that the rates would be reduced more drastically. For

a few weeks before 3 March it also seemed likely that the 2020 8 GW

The 70 MW Rovigo solar plant in northeast Italy

SUN EDISON

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Renewable Energy World - magazine - 5/6-2011

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