Wind Turbine Prices Fall – Analysis

Wind turbine prices, which account for some 70%-80% of total installation costs of a wind farm, have dropped by 18% for contracts signed in late 2008 and 2009 for delivery in the first half of 2010, according to the inaugural Wind Turbine Price Index, launched this week by analysts New Energy Finance.

Turbine prices are the single most important factor affecting wind generation costs, since the overwhelming part of the cost of this type of energy is the up-front capital expense. New Energy Finance analysis shows that supply bottlenecks led to a steady increase in turbine prices, which peaked at EUR 1.26m/MW for contracts signed in 2008 for delivery in 2009. Nevertheless, an easing of turbine demand in 2009–mainly due to financing issues–coupled with a rapidly expanding supply chain, has led to an over-supply in the global market this year.

The New Energy Finance Wind Turbine Price Index is based on confidential data provided by 12 turbine buyers–amongst them utilities and independent power producers, project developers and financial investors. The sample included more than 60 individual contracts totaling nearly 3 gigawatts (GW) of contracted capacity–or 15% of the annual wind market–signed in 2008-09. The sample includes contracts in 22 different markets with 11 manufacturers represented in the analysis. Key findings include:

• Over-supply in the global wind market has meant that prices for contracts signed in late 2008 and 2009 for delivery in H1 2010 decreased by 18%, down to EUR 1.03m/MW. Contract prices include the towers, and transport to site (overland and marine). VAT is excluded, as are site works and other construction and commissioning costs.
• The Index also shows a slight recovery in pricing for contracts signed in 2009 for delivery in H2 2010. 
• The destination market for turbines proves to be a strong determinant of pricing. Contract prices in the Americas and Eastern Europe for delivery in 2008 and 2009 were 15%-25% higher than West European contracts–though contracts for delivery in 2010 have seen a significant decrease. 
• West European markets underpinned by feed-in tariffs display stable pricing throughout the whole period. Contract prices in the Americas for delivery in H1 2010 displayed the largest decrease, reflecting mainly contracts for Latin America and Canada, rather than the US.
• Index participants, however, expect further turbine price increases as early as 2011 as demand recovers in the main wind markets.

Michael Liebreich, chairman and CEO of New Energy Finance, said: “This pioneering analysis shows that the credit crunch and recession are biting into wind turbine prices in the same way, although to a rather lesser extent, as they are impacting solar module prices. Lower wind turbine costs in the short term will improve the potential returns for wind project developers–if, and it is a big ‘if’, they can secure debt finance from the banks.”

In the years up to 2008, wind turbine prices were pushed upwards despite improving technology. The reasons were rising prices of raw materials such as steel, and bottlenecks in the supply of turbines and key components as demand accelerated.

Liebreich added: “The softening in turbine prices represents an unwinding of previous excesses caused by supply bottlenecks. It is not a crash brought about by slumping demand.”