Inflation Reduction Act Boosts Global Wind Outlook, Woodmac Says
The Inflation Reduction Act (IRA) and other global policy drivers yield a 25.6 GW quarter-on-quarter upgrade to the wind outlook with APAC being the only region with a downgrade, Wood Mackenzie says.
Policy-driven adjustments – from the passage of the IRA in the US to Europe’s ongoing campaign for greater energy security – have led to a 1.9 percent upgrade in Woodmac’s latest quarterly outlook. However, it’s not a universal trend as Asia Pacific – excluding China – stands as the only sub-region to receive a significant downgrade this quarter.
IRA delivers policy certainty in the US
Woodmac believes that the flagship IRA legislation is set to make climate history in the US – and has spurred the global outlook upgrade.
The IRA’s unprecedented support for decarbonization initiatives signals long-term investment stability and sparked headlines around the world. This adds to the positive momentum we’ve been seeing across many Western markets. Many are responding to calls for action on climate as concerns over energy security and the negative impact of increasingly destructive storm events rise, and pressure to meet targets increases. Adjustments across the Americas and Europe alone have resulted in a net upgrade of 21 GW this quarter.
Overall, North America has seen the largest sub-region uplift this quarter. The newfound policy certainty in the US is supported by aggressive utility-level targets in Canada. Procurement activity in Quebec and a robust pipeline in Alberta triggered a 2.5 GW upgrade and strengthened Canada’s position as a top 20 global market.
Europe’s campaign for energy security bolsters the global wind outlook
Energy security is firmly in the spotlight in Europe. The war in Ukraine has sparked the most significant shock to energy markets since the 1970s and forced a rapid revaluation of Russia’s role as an energy supplier. Many countries in the region have accelerated plans to stimulate wind installations, providing a 10 GW capacity outlook upgrade this quarter.
New and strengthened policies in Germany, France, and Greece have played a significant role. Germany’s Onshore Wind Energy Act will streamline permitting and help reduce the current lead times of 7-10 years. This has yielded a 5.5 percent quarter-on-quarter upgrade to the 10-year wind market outlook for Western Europe.
Meanwhile, project concessions and awards in Finland, Denmark, and the UK further support the outlook. The UK awarded about 8.5 GW of wind capacity in July – 7 GW offshore and 1.5 GW onshore – under round four of the Contracts for Difference. The exception is Eastern Europe, where Russia’s war with Ukraine has negatively impacted its domestic market.
APAC’s mixed picture
The outlook for the region excluding China has been downgraded by 1.9 GW. This is due to slow market development in Japan, project adjustments in South Korea, and policy uncertainty in Vietnam. There, the state utility monopoly EVN is reluctant to add more renewables due to concerns over grid stability in major power demand areas. So far in 2022, no new wind capacity has been recognized in Vietnam.
In China, it’s been a tough year for offshore wind project installations, due to Covid lockdowns in coastal provinces and the impact of typhoons. However, China’s mid-term outlook is supported by ambitious renewables targets from the provincial governments in their 14th Five Year Plan, which require 60-70 GW of new wind capacity additions annually by 2025.
Overall, the forecast for Asia Pacific has increased by 2.9 GW from Woodmac’s second quarter outlook. Upgrades in China’s onshore and offshore sectors are proving more than enough to offset downgrades in the rest of the region.
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