Global wind additions accelerate in 2020, but challenges to scale remain

While 2020 was a year of unprecedented disruptions, wind power newbuild activity proved resilient, with wind turbine capacity additions accelerating across the globe.

S&P Global Platts Analytics estimates that about 115 GW of wind capacity was installed, twice as much as in 2019, with capacity surging in China and the US, while Europe's additions slowed.

China drivers remain positive

Wind additions over the past year have been boosted by China's strong construction activity, with December 2020 installations reported to be over 47 GW. To put that into context, the amount installed during the month of December is equivalent to the total installed over the past two years.

The number was also surprising as the availability of grid connection has been cited as a bottleneck for wind development, even as grid curtailments have declined further and were at 4% in the first half of 2020.

There has clearly been a rush to bring wind installations online to meet the end-of-year deadline for the final batch of subsidies, although there is the possibility that the installed numbers published by China's National Energy Administration include plants that have qualified for the subsidies, even if they were not fully operational by the end of 2020.

Although there are some statistical uncertainties around the actual operational wind capacity, large investments in wind are being made by the country's utilities. Chinese wind developer Goldwind reported that utilities and wind farm developers' capex plans have been quite aggressive, in line with expectations of annual wind additions of up to 50 GW/year.

Additional policy momentum will further boost these investments, given the carbon neutrality ambition announced last September. More recently, China's President Xi Jinping has also committed the country to a goal of 1,200 GW of wind and solar installed by 2030, which is more than double the capacity currently installed, currently standing at 540 GW.

While the goals announced in the 14^th Energy Plan remain supportive for clean energy, new targets for 2030 are also under discussion, which could put renewable energy's share in power at 40%, with non-hydro renewable's share at 25.9%. This proposed new target could offer an even larger upside for renewables growth in China, since it is built on bullish total power demand assumptions—about 11,000 TWh versus 7,500 TWh in 2020.

The flipside is that these bullish demand assumptions may imply potential for even further growth in thermal generation (including coal). As China has been installing a record number of renewables, China's thermal generation also reached a new all-time high in 2020, with coal-fired capacity increasing by 38 GW in 2020, the largest yearly increase since 2016.

US wind additions soar

The US also installed a record amount of wind capacity in 2020—over 14 GW, according to recently published EIA figures. Most of this growth came in the fourth quarter, with a number of additional projects approaching commissioning. US wind capacity at the end of 2020 stood at around 120 GW.

Texas continued to lead wind additions within the US, accounting for a quarter of total 2020 US installations. Although some 18 GW of wind capacity was unavailable to operate during the recent blackouts in ERCOT, unplanned outages at thermal capacity were significantly higher, with 28 GW offline, mainly gas-fired plant.

ERCOT does not currently mandate "winterization" of generation and, at any rate, temperatures were below design day conditions. It is unlikely the recent blackouts crisis will hurt appetite for renewables investments. It will certainly be more costly to equip wind turbines to operate under frigid weather, especially given how infrequently these conditions occur in Texas and the fact that wind speed variability will still be a limiting factor in capacity value. "Winterization" mandates are more likely to be mandated for thermal units.

As federal tax incentives have been extended, aggressive state mandates and strong corporate demand will continue to play roles in wind development. In 2020, corporate procurements were estimated at 10.6 GW, led by Amazon, Google, and Verizon, according to Renewable Energy Buyers Alliance. These corporate procurements account for about a third of the total annual installed utility-scale renewables additions in the US over the same year.

Shift to offshore continues

Offshore development, in particular, looks like a bright spot for the wind industry globally, with significant additions planned in the US and Europe, and interest growing in Asia.

In the US, a 30% investment tax credit for offshore wind projects was extended through 2025, while President Biden's executive order that boosts the level of federal leases could further expand US offshore capacity potential. A detailed view of US offshore wind development can be found in S&P Global Platts Atlas of Energy Transition.

States along the east coast have already targeted roughly 30 GW of capacity to be built, but the timing of these developments remains a big uncertainty. Platts Analytics assumes only 10 GW will be commissioned through 2030, while the remaining capacity would be built in the upcoming decade.

Globally, offshore plants remain a small portion of the total wind installed capacity, with only 5 GW coming online in 2020, bringing to the total to around 33 GW. The vast majority of this (75%) is in Europe.

The UK remains the hottest market within Europe, with around 11 GW installed by the end of 2020 and an ambitious target of 40 GW by 2030. The UK's Crown Estate recently awarded seabed leases to six offshore wind projects under the Round 4 leasing process, representing 7.98 GW of potential capacity, with companies submitting bids for an option fee that is paid annually until they finalize their plans to build the wind farms, up to a maximum of 10 years.

BP, one of the successful bidders, has been saying that the near-shore locations will allow for lower cost development, expressing confidence they will deliver at least 8-10% returns on investment, but the additional capital expenditures have raised concerns that projects returns may not be in line with expectations.

This remains a more general concern in the renewables space, as investors' appetite for scale has led to ultra-low bids in government renewables auctions, which appear consistent with aggressive power price assumptions, particularly for the period of the plant operation not covered by the government support.

Despite the availability of capital and decreasing capital costs, red tape in various forms continues to challenge the further scaling of the wind industry. Permitting delays remain the most important obstacle. As noted by the European Wind Association, rules and procedures are too complex and permit applications processing too slow. Additionally, permit decisions are being challenged in court, which adds risks and costs to the commissioning process.

In Germany, Platts Analytics data shows that bringing wind plants online has been taking up to nine years. There have been signs of an acceleration of late, with installations trending above 100 MW/month since August and even touching 200 MW in December 2020, which compares with less than 100 MW in March to July last year. Auctions during 2020 also attracted more subscribers than in prior years.

More generally, further development of the grid and cross-border interconnection are needed, to mitigate the growing system intermittency and cope with reliability risks. Over 14 GW of interconnectors are being developed across the major Western European countries through 2025 and the UK, France and Germany lead the way, with over 6 GW each.

These limits to wind, and renewables growth more generally, make carbon neutrality ambitions particularly challenging, not only in Europe. Global power demand during 2020 declined by about 0.4% year on year due to extended lockdowns, but to put this into perspective, power demand is set to almost double by 2050 versus current levels, as a result of growing electrification. This will require the deployment of significantly larger amounts of non-emitting generation to prevent a further increase in CO₂ emissions.