Season 3, Post 7: What’s new in the world of wind

The renewable power industry is currently enjoying some strong tailwinds (apologies for the obvious pun) given not only the European Commission’s Green Deal but also President Biden’s proposed $1.9tr stimulus plan for the US. Countries in both the developed and developing world are increasingly decarbonising their economies. When you look at the data, what surprises us is not just how far the renewable industry – and wind in particular – has come, but also how much further there still is to go.

Information recently shared by Vestas, the world’s largest manufacturer of wind turbines, show that more than 700GW of wind power had been installed globally by the end of 2020. This figure is impressive when compared to the 185GW installed at the end of 2010 and the number of just 12GW in place at the turn of the Millennium. In other words, installations have enjoyed a compound annual growth rate of 23% since 2000. The main reason behind this is that the levelized cost of energy (i.e. the like-for-like cost of a unit of wind energy relative to other sources; also known as LCOE) has become increasingly competitive. Indeed, owing to scale and industrialisation, the LCOE of onshore wind has fallen by 63% in the last decade.

While this data is impressive, it is also sobering to be reminded that wind accounts for just 1% of all energy consumption globally (even if its share of the electricity end-market is substantially higher). The good news, however, is that the runway ahead is significant. A clear case for increased deployment of renewable energy, replacing fossil fuels in industry, heat and transport can be made.

We (and others) expect much of the future growth to occur in the offshore wind industry; it is a younger market, where bigger projects can be developed with fewer public objections. Turbine sizes are getting larger all the time, with the latest prototype from Vestas set to see at least a 60% increase in capacity and annual energy production. This can only be considered good news. More interestingly, there is also a growing school of thought which suggests that excess wind power from offshore plants could be put to alternative uses, most particularly the generation of hydrogen. Several businesses are currently working to develop turbines with built-in electrolysers, which could make this conception a reality by the middle of the decade. The future is not only exciting, but also increasingly green.

22 February 2021

The above does not constitute investment advice and is the sole opinion of the author at the time of publication. Heptagon Capital is an investor in Vestas. The author of this piece has no personal direct investment in the business. Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.

Alex Gunz, Fund Manager