The global wind market is in a state of transition due to potential energy oversupply in the U.S. and a move to auctions elsewhere.

The Q2 Global Wind Power Market Outlook Update published by MAKE Consulting, owned by GTM’s parent company Wood Mackenzie, shows the worldwide market for wind is booming, with 62 gigawatts a year due to come on-line from 2018 to 2020.

Standout markets include India, where a policy transformation supports a 6-gigawatt upgrade; Spain, which is scheduled to bring on more than 5.5 gigawatts of capacity; France, with 2.9 gigawatts; and Germany, with 1.9 gigawatts. 

The growth will more than compensate for a slowdown in demand this year in China, which is still by far the world’s largest market. 

But with much of the new capacity being developed through ultra-low-price auctions, industry reductions in levelized cost of energy (LCOE) “are imperative," according to the report.

Auctions now taking place across Europe, India and Latin America have been “transformative,” said Luke Lewandowski, research manager at MAKE. But the trend “carries some risk because these auctions are at a price level that hasn’t been proven yet.”

There is pressure on the industry to slash costs over the coming months and years, he said. Earlier this year, German developers placed bids for offshore projects that were so low in price they did not need direct subsidies

Offshore wind is set to grow significantly in the coming years, with 7 gigawatts of projects slated for China alone through 2026. 

However, in Europe, the ultra-low-cost offshore projects are not due to come on-line for three or four more years, so original equipment manufacturers (OEMs) and plant owners still have some time to figure out how to make the financials work. 

“Onshore is a little bit more challenging,” Lewandowski warned, citing the shorter timescales involved. 

This is even the case in the U.S., which has yet to move to an auction-based market. Instead, the main driver for market growth is the federal Production Tax Credit (PTC), which requires most projects to be up and running by 2019 or 2020.

Most of the projects will also use next-generation equipment -- components such as heavier rotors or bigger towers -- with which many developers may not yet be fully comfortable. This adds to the risk of missing PTC deadlines.

“You’re slamming everything into a one-, maybe two-year period where any kind of delay with this new technology is going to have a domino effect on availability of services and equipment,” Lewandowski said.

The implication is that the U.S. wind sector faces a huge potential for cost overruns at a time when it is betting on exactly the opposite. 

Wind OEMs and developers have a pretty good track record on cost reduction, but there's still a question about how far these reductions can go.   

U.S. wind supply-chain players face an additional concern: They must decide whether to prepare for a boom in bigger, better turbines that might only last a couple of years. If they don’t, they may miss out on the upcoming build-out bonanza. 

But if they do, the frenzy of activity may be over before they have fully amortized the purchase of new equipment. “There is some investment anxiety in how to move forward responsibly,” noted Lewandowski.

The U.S. is increasingly starting to look like a market that will have a significant energy overcapacity. 

Wind is booming under the PTC, solar capacity is expected to triple over the next five years, and gas will continue its surge.

At the same time, “consumption projections are very flat,” Lewandowski said. “If there’s overcapacity in terms of generation assets, then it doesn’t matter what your cost level is. It can be a dollar, but if nobody needs it, then nobody’s going to buy it.”