Will Europe Give In To Rising Dominance of China in Global Wind Energy?

Will Europe Give in to China's Rising Dominance in Global Wind Energy?

Wind energy is arguably the second most impactful industry in the global renewable world, after solar. The sector continued its impressive growth in 2023, setting a new record for global new wind turbine installations, 34 per cent higher than in 2022. The world installed added over 116 Gigawatt (GW) of new wind capacity during the year, taking the global cumulative wind power capacity beyond 1,047 GW, as per the World Wind Energy Association (WWEA) Annual Report 2023. An even more impressive trend is the clear domination of China in the expanding wind sector.

China alone added around 75 GW of wind power in 2023 alone, accounting for 65% of the total global capacity addition for the sector, clocking a Compound Annual Growth Rate (CAGR) of 19.2. On the contrary, Europe, as a continent has seen a weak market performance in the recent years. While, the region is still doing good, it lags behind in terms of growth rates. Countries such as Germany, Netherlands, France, Sweden, UK, Poland, and Finland lead the region’s wind market.

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Can EU Protect its Offshore Wind Industry?

Besides addressing climate change, the desire to eliminate reliance on imported fossil fuels has become a significant driver for the region’s push towards domestic renewable energy. The European Union (EU) aims to increase its wind energy capacity from the current 220 GW to 425 GW by 2030 and 1,300 GW by 2050. Currently, nearly all wind turbines built in Europe are produced and assembled by European manufacturers. However, with the growing presence of Chinese wind turbines in the market, there is a real risk that the EU’s planned wind energy expansion could be dominated by the Chinese players, rather than their European counterparts.

The offshore wind sector experienced a record-breaking investment in 2023, reaching USD 76.7 billion, a remarkable 79% increase from the previous year. This surge compensated for the 17% year-on-year decline in the onshore segment. Despite a slower year, China remained the largest offshore wind market, followed by the United Kingdom (UK) and the United States (US).

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EU’s Made-in-Europe Stance

The EU has been working to shield the European turbine industry from competition with Chinese wind turbines, which are sold in Europe at prices up to 50% lower than those of European turbines. As per Wind Europe, the Chinese manufacturers provide deferred payment options, allowing wind farm operators to use the turbines for free until they generate three years’ worth of revenue.

To bolster the region’s energy security and reduce reliance on China, the European Commission recently adopted a Wind Power Package containing 15 immediate actions to strengthen Europe’s wind industry. This initiative was endorsed by 26 EU Member States, who committed to action by signing a ‘European Wind Charter’.

In response to Chinese wind turbine manufacturers making significant inroads and securing orders in Europe, the EU Commission launched an inquiry in April 2024 into Chinese suppliers of wind turbines under the new Foreign Subsidies Regulation. The primary concern has been the pricing of turbines and their components.

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As it Stands…

In 2020, the European Union accounted for 80 per cent of global offshore wind capacity, around five times more than China’s 4.6 GW capacity at the time. China’s rapidly increasing build-up across the offshore wind supply chain propelled it toward developing the world’s biggest wind turbine production capacity, or 60 per cent of global 163 GW by the end of 2023. Interestingly, China exported about USD 1.42 billion worth of turbines and components to the EU last year.

Currently, wind project developers from China are starting to venture into European market. Recently, a German offshore wind project developer announced a preferred supplier agreement with Ming Yang, a Chinese manufacturer, for 16 out of 18.5 MW wind turbines. This represents the first time when a Chinese turbine maker has secured a contract to supply an offshore wind project in the EU, a scenario Europe had aimed to prevent.

Despite facing challenges such as high inflation and commodity prices, which raised the cost of European turbines, leading to a decline in turbine orders and new investments in wind projects, Europe experienced setbacks. Earlier this year, GE scrapped its 18 MW Wind Turbine Generator (WTG) rollout, causing three project developers with a 4 GW offering to be unable to finalize contract terms with NYSERDA. However, Chinese wind turbine manufacturers continued to develop larger WTGs.

Expectedly, the promise of lower Levelized Cost of Energy (LCOEs) from larger WTGs was always likely to create an opportunity for Chinese wind turbine manufacturers to break into the Western Offshore WTG market. While Vestas voiced and GE Vernova accepted the arguments around the need to industrialize the supply chain to drive costs down and increase profitability, this gave Chinese new entrants an obvious opportunity to differentiate themselves by offering a WTG that promised a lower LCOE.

EU faced a dilemma of whether to prioritise the need for offshore wind development to reach its green energy targets or the protection of its own offshore wind industry. The recent chain of events are giving mixed signals. However, the former situation seems more likely to occur than the latter one. The recent entry of Chinese developers in Europe is a significant event, the effects of which will be felt in the years to come.

Why Are Chinese Turbine Prices So Low?

The situation in China’s wind turbine sector is similar to that in the solar sector, with massive domestic capacity escalation underpinned by extensive government support. Cheap raw materials and fierce competition have also pushed down the prices. Prices of Chinese turbines dropped by more than 45 per cent in 2024, thanks to technological advancements and economies of scale. Notably, prices for Chinese turbines are about a fifth below rival US and European products.

China’s Onshore Game is Strong Too

In 2023, the global onshore wind energy faced significant challenges. Excluding China, onshore wind markets worldwide contracted by 11 per cent due to fluctuating policies, rising equipment costs, high-interest rates, permitting hurdles, and delays in transmission. Despite these setbacks, China’s onshore wind sector thrived. However, the upcoming year holds promising prospects for the industry’s recovery. Key drivers include record wind turbine order backlogs, unprecedented policy momentum globally and a renewed commitment from governments to expedite wind energy deployment to meet climate goals, as per one Wood Mackenzie report. It anticipates growth particularly notable in Europe, with Spain expected to reach record levels of annual installations in 2024.

This upward trend is supported by expedited permitting processes and advancements driven by initiatives such as the European Wind Action Plan. Moreover, substantial growth is expected in the Middle East and Africa regions, particularly in countries like Egypt, Saudi Arabia, and South Africa.

Chinese wind turbine manufacturers maintained their dominant position in the global wind energy market, dominating both onshore and offshore equipment leaders worldwide. Given the current trends in the wind energy sector, it seems inevitable that China will extend its influence into European markets, mirroring its successful expansion in global solar markets.