Can the Wind Energy Industry Survive with Governments Tightening Purse Strings?
By Milind Phadke and Garbriel Tarle
June 11, 2020
Wind energy has emerged as one of the major alternate energy sources to address global warming and concerns about resource conservation. With government support, wind energy installations have grown exponentially in the last decade, creating a strong demand for lubricants used in wind turbines. Although a small fraction of the global lubricants market, wind turbine lubricants is an important market segment due to its severe performance requirements, rapid growth, and high penetration of synthetic lubricants.
Wind energy: a fast-maturing industry
Electricity produced by wind energy does not use any non-renewable resource and does not produce carbon emissions. Governments around the world have supported the wind energy industry through tax holidays, mandatory usage requirements, pricing support, and subsidies. Driven by this support, wind energy has grown rapidly since 2000. As the industry matures, governments are phasing out monetary incentives and emphasizing supporting legislation like renewable energy targets, grid priority, and land allocations. In the aftermath of the COVID-19 pandemic, government policies to jumpstart economies will put more pressure on finances; this may accelerate the phasing out of monetary incentives. The industry will have to learn to stand on its own.
Currently, OEMs are experiencing tough market conditions due to the phase-out of subsidies. Senvion, a German wind turbine manufacturer, filed for bankruptcy in April 2019. The company sold its European onshore wind services and operations and maintenance fleet for EUR 200 million (USD 222 million) to larger turbine company, OEM Siemens Gamesa Renewable Energy. This sale represents around 9,000 MW of operating capacity. In 2017, Siemens concluded the merger of its wind power business with Gamesa. This is part of a larger spin-off done by Siemens for its struggling energy division. Nordex recently announced a merger with the Spanish renewable energy company, Acciona Windpower. It is said that Enercon is facing similar market pressures, and further consolidation might occur. In emerging markets, Suzlon—the largest OEM in terms of cumulative capacity installed in India— was in financial distress but has recently concluded debt restructuring in alignment with all lenders. The capital expenditure of wind power projects has also dropped by 10% to 15% after the transition from feed-in tariffs to reverse auctions.
Despite the reduction in government support, the wind energy sector continues to receive some help. Germany is likely to support local OEMs—Siemens Gamesa, Enercon and Nordex—which have a strong global footprint. Governments are unlikely to withdraw complete support for the wind energy industry, as this will be difficult politically. However, they may reduce their support by decreasing the quantum of subsidies that they currently provide. Subsidies will be replaced with favorable legislation (like in Germany), such as renewable energy targets, grid priority, and land allocations.
Fading support in the form of subsidies may harm the market in the short run, but it would lead to better-managed wind farms in the long run. Operators are seeking improved solutions with lower maintenance costs. Growth in this industry also spurs innovation and manufacturing activities and generates employment, all of which are stated goals for several governments. In the pursuit of most of these goals, lubricants and lubricant suppliers have a role to play.
Lubricants for wind turbines
Lubricant needs in wind turbines are extremely different from other industrial applications. Wind turbines are subject to extreme climatic conditions, with ambient conditions that can vary from sandy deserts to offshore marine installations. Based on wind conditions, the main gear box can face sudden changes in rotational speed and torque. All of this presents significant challenges for the stability of the lubricants. In a typical wind turbine, three types of lubricants are mainly used. These include gear oils for the main gear box and yaw and pitch gears, grease for lubricating various bearings, and hydraulic fluids for hydraulic actuation and control systems.
A single gearbox failure has been shown to result in a 52% loss in annual energy production and a 55% increase in unscheduled wind turbine downtime associated with that turbine. Up to 40% of the unplanned downtime on windfarms is caused by gearbox failure. Bearing failures are the most important issue in wind turbine gearbox maintenance, accounting for 70% of gearbox failures, which can lead to losses of up to USD 200,000 per event and drastic increases to the average cost of energy. The resulting emergency repairs and emergency maintenance also require personnel to climb over 100 meters (300 feet) up the wind turbine tower, which poses a significant safety risk. As a result, the performance of lubricants used is crucial for the financial performance of a wind turbine. This has contributed to the increased usage of synthetic lubricants.
Gear oils used, especially in offshore installations, are almost entirely synthetic products. Synthetic gear oils are required due to the long drain interval. The lubricant service intervals for wind turbines using synthetic gear oils range between a low of three years to a high of 10 years. This depends on the condition of the gear box and wind profile of the geography where the wind turbine is located. Very high drain intervals are made possible by condition monitoring. Among onshore installations, Europe and North America have very high usage of synthetic lubricants, typically 95% to 97% of the total. Even markets in Asia and other parts of the world have a high penetration of synthetics, generally above 90% of the total. The penetration of new machines has led to a substantial increase in the use of synthetics.
The use of synthetic grease depends on the criticality of the application. The bearings on the main rotor shaft are lubricated with synthetic greases. On the other hand, in pitch and yaw bearings, mineral greases may be used. Since grease is constantly applied by means of automatic grease applicators, there is less need for synthetics. Penetration of synthetic greases shows similar trends as gear oils: highest penetration in offshore installations, followed by decreasing penetration in Europe, North America, Asia, and the rest of the world.
Key lubricant suppliers
The supplier base for lubricants used in wind turbines is largely consolidated in the hands of a few key companies. Suppliers like global majors BP (Castrol), ExxonMobil, and Shell are present in almost all markets. While BP and ExxonMobil have a strong position in Europe, North America, and India, Shell has a strong position in China. In Spain, Gamesa is dominant, and BP is trying to build commercial tie-ups with it after its merger with Siemens. Other suppliers to this market include Fuchs, Chevron, Total, Amsoil and specialist grease suppliers such as Kluber, Dow, SKF, and FAG.
The leading suppliers, and in particular the global majors, have a strong relationship with wind turbine OEMs that enables them to cater to their initial fill and warranty business. BP has a strong presence in Europe due to tie-ups with Vestas and Siemens Gamesa. In 2019, GE approved ExxonMobil’s Mobil SHC Gear 320 WT turbine gear oil for use in all of its wind turbines worldwide. Fuchs has a worldwide partnership in place with Nordex for the supply of wind turbine lubricants.
New suppliers face several entry barriers, including a rigorous approval process, a good track record as a supplier, and a performance history of new product development. The industry is risk-averse, and this results in an extension of warranties and the use of the same products outside the warranty period.
Global Lubricant Market In Wind Energy By Key Suppliers, 2019
As per the GWEC Outlook for Spring 2020, new installations should grow at a CAGR of 4.1%, from 60.4 GW in 2019 to 73.4 GW in 2024. As a result, total installed wind energy capacity is estimated to grow at a CAGR of 9.1% over the forecast period to reach 1,005.0 GW by 2024 from 650.1 GW in 2019. While as not as strong as in previous years, the growth in new installations will continue to drive growth in the lubricant market. Besides the growth, other factors attract lubricant suppliers. They include:
Green image: The purpose of wind energy is its environmentally friendly nature. Wind turbines do not use any non-renewable natural resource and provide carbon-free energy, at least in their operations. With increased awareness and acceptance of global warming, governments around the world are promoting wind energy in their energy mix. Both China and India have seen rapid growth in wind energy in the last 15 years. Over the next five years, China will account for nearly 40% of all new wind turbine capacity. Certain countries such as Germany plan to phase out nuclear power following the accident at the Fukushima Daiichi nuclear power plant in Japan. Wind energy will have a significant role to play as the replacement energy source.
High margin business for lubricant marketers: The wind energy business is a high-margin business for lubricant marketers. The share of synthetics in overall demand exceeds 80%, surpassing any other industry. The cost of lubricants is not significant in the overall maintenance cost, and sales are driven more by product performance guarantees and track records. Thus, there is minimal downward pressure on product prices.
On the other hand, the COVID-19 epidemic is expected to stall much of the activity and perhaps postpone some of the scheduled projects. In terms of a potential economic stimulus, the wind energy sector might not be on most governments’ agendas since the sector employs rather few people. In the future, it may have to fend for itself.
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The information is sourced from our just published study Lubricants for Wind Turbines: Global Market Analysis and Opportunities. Request more info.