FTI Consulting, Inc., the global business advisory firm, released latest renewable energy publication, Global Wind Supply Chain Update 2015.
This report is part of a series of data-driven publications evaluating competitive markets, policy, finance, technology and business models across the energy spectrum.
The report, Global Wind Supply Chain Update 2015, examines the supply chain situation for 12 key components (350+ suppliers) and three key materials (150+ suppliers), which account for more than 95 percent of a wind turbine’s total cost. In addition to the specific components and materials, it also includes an assessment of offshore wind farm balance of plants, a summary of supply chain strategies for the world’s top 15 turbine OEMs and FTI-CL Energy experts’ demand forecast for global wind market growth through 2018. The report is authored by members of the FTI-CL Energy practice, a cross-practice team of energy experts from both FTI Consulting and its subsidiary, Compass Lexecon.
The key findings of the report include:
- More than 120 suppliers have collapsed or stayed out of the wind business in the past two years, including 88 from Asia, 23 from Europe and 18 from North America.
- A prolonged market contraction has forced major turbine OEMs to divest in-house non-core production assets and opt for extensive outsourcing in order to insulate from market fluctuations while remaining profitable.
- Most key components and materials are still facing overcapacity, but the regional distribution for key materials such as rare earth elements and forgings is extremely uneven and bottlenecks are expected on ultra-large tapered roller bearings (“TRB”) as these have gained popularity in China with almost all direct drive designs.
- Competition is now taking place not only on product quality and price, but also requires suppliers to provide value-added products and services to assist turbine OEMs and the end users to bring down the LCOE in order to compete with conventional energy sources.
- The uncertainty around the PTC leads FTI-CL Energy’s experts to conclude that the industry setback is most likely to retain in the U.S., and more Tier 2 and Tier 3 suppliers are likely to disappear in the next two to three years due to the expected collapse of Tier 3 turbine OEMs in China.
- There is a delicate balance in the offshore wind supply chain at present, but challenges remain in the medium-term.
- One third of the cost reduction of offshore wind energy partially relies on supply chain industrialization for disruptive technologies and key elements including the offshore wind balance of plant. This ambitious target is, however, unlikely to be achieved without long-term market stability.
- The O&M market provides relatively clear market visibility going forward and many key components suppliers are entering into this segment, so heightened competition is expected.
“The wind industry has been in the process of transformation since 2011 and the global wind supply chain is not matured yet,” explained Feng Zhao, Director at FTI Consulting and Head of Wind Energy within the FTI-CL Energy practice. “The exit/non-participation of so many suppliers delivers a dangerous signal to governments. To bring wind towards a position where it can compete head-to-head with conventional energy sources, it is imperative to find a balance between maintaining attractive and certain policy and reducing the burden on governments and consumers caused by paying renewable energy subsidy.”
“The challenging economic and political climate has forced large wind turbine vendors to shed low value assets and to opt for outsourcing” says Aris Karcanias, Managing Director at FTI Consulting and Co-Lead of the Company’s FTI-CL Clean Tech practice in Europe. “Large turbine OEMs have adopted lean organization models from other industries to deal with market instability and increase flexibility and capacity utilization.”
Press release; Image: e.on