Global wind & solar project delivery to outperform while coal plants languish: Fitch Solutions

By Fitch Solutions

• Analysis of global project development success in our Key Projects Database highlights that India suffers from having the highest number of power projects which are cancelled or suspended, which translates into our weaker capacity growth forecasts for the market.

• We see a potential for redirection of public funds as large-scale government sponsored projects are halted at a time when renewable power sources are increasingly cost competitive.

• The most prolific market for project development is the US, while the onshore wind sector has emerged as the most often completed technology type globally, signaling the maturing of the sector.

Across global power markets, India stands out in its poor performance for project development success, with the highest number of projects and largest capacity of cancelled and suspended projects, ultimately weakening our outlook for growth. Utilising our Key Projects Database (KPD), a comprehensive catalogue of the largest construction projects around the world, we have recorded 363 cancelled projects globally amounting to 326 gigawatt (GW) of unrealised capacity. India by far is the most prolific in halting projects, cancelling over 100GW across 73 projects, with coal and hydropower being the most halted developments numbering 35 and 20 respectively. Projects in India face frequent cancellations owing to issues with land acquisition, approvals and licensing and the realisation of purchase agreements. We note these factors are reflected in our project risk index where India scores very low. As such we believe that power capacity additions in India will fall short of government set targets and highlight that in our latest forecast we expect the market to add 262GW of capacity. Utilising our Key Projects Database (KPD), a comprehensive catalogue of the largest construction projects around the world, we have recorded 363 cancelled projects globally amounting to 326 gigawatt (GW) of unrealised capacity.

We see that the most cancelled projects by technology type in our KPD are large scale base load power projects including coal, nuclear and hydro power installations. While we highlight that the trend of phasing out coal is picking up pace in regions such as Western Europe, our outlook for the world’s largest power growth region, Asia, will see an uptick in coal generation adding over 900TWh with total power capacity additions of 1500GW between 2019 and 2029. That being said, financing requirements for such large projects are becoming increasingly challenging as more banks and institutions, particularly Japanese and South Korean, move away from financing environmentally damaging projects, which could over the long term erode Asia’s coal growth. More broadly, the elevated levels of project delivery stoppages of coal, nuclear and hydropower projects are due to their size, which adds to complexity and cost which in turn require substantial levels of investment and development security, prolonging lead times. We also highlight that these projects are most likely to be developed through public financing.

“..the most cancelled projects by technology type in our KPD are large scale base load power projects including coal, nuclear and hydro power installations”

We note that nuclear power projects are the second most cancelled technology type by capacity after coal totaling 80GW and 110GW, respectively. The United States (US) has cancelled the most nuclear projects with capacity and generation set to decline over the next decade, with its share of total electricity generation to decrease from 19.5% in 2020 to 17.3% in 2029. Increasing economic pressures on existing plants, primarily due to low wholesale electricity prices, will lead to early retirements. In addition, the high cost of nuclear development will limit new plants coming online.

Given our expectation that such trends in project cancellation are likely set to continue, we note the potential for an increasing amount of public funding to be diverted away from large-scale projects towards other, more realizable projects. Owing to the level of cancelled projects we have seen a substantial level of public funding being withdrawn from developments, with the estimated total number of cancelled projects valued at USD300bn. We highlight nuclear power projects as one such key example where public funding models are being reassessed given projects often running over budget and time. Similarly to the US, the United Kingdom (UK) has been taking efforts to replace its nuclear fleet, with the development of its controversial Hinkley Point C, estimated to cost GBP22.5bn. As highlighted in our previous view we see that the UK’s current funding model for nuclear power has fallen out of touch with industry needs and new finance structures are required as the market aims to develop several more facilities over the coming decade. Given a continued focus on value for money from a consumer perspective and the continued reduction in renewable energy costs, we highlight the potential for government to increasingly shift their support mechanisms for capacity development towards sectors such as wind as solar, particularly in the context of decarbonisation efforts.

We highlight that the most prolific developer of projects is the US, while onshore wind is the most completed technology type globally, signaling the maturing of the sector. The three largest power markets globally by capacity namely, China (1st), the US(2nd) and India (3rd) are – as expected – the largest projects markets in our KPD. We see that the US is the market that has undergone the largest development of projects totaling 360, with onshore wind (156 project count), solar PV (112) and natural gas plants (75) capturing 95% of the market’s additions. Contrasting this we see India having developed the largest number of coal plants with the market looking to secure its rapidly growing power needs with low cost technology. In terms of China we note that our KPD under-represents the number of projects in development due to the difficulties in sourcing complete project information. That said, we forecast China will expand its wind power market by the largest volume globally over our 10-year forecast period – with total power capacity increasing from 2000GW in 2019 to 3000GW by 2029 with non-hydro power renewables capturing over half of net additions of 508GW.

We see from our KPD data that both in terms of project count onshore wind and solar PV are the most developed technology types in the power sector overall totaling 795 (83GW) and 584 (54GW) projects. When contrasting this growth to the combined growth of all other non-hydro power renewables at 32GW with 236 projects the maturity of the wind and solar sectors becomes clear. We highlight that such level of project delivery has led to significant de-risking in the wind sector with the technology becoming the largest by generation share in the global renewable segment, capturing 50% in 2019. Solar PV was the fastest growing, moving from an estimated 26% in 2019 to 33% by 2029, with solar PV captures 93% of the entire solar market.

“…such level of project delivery has led to significant de-risking in the wind sector with the technology becoming the largest by generation share in the global renewable segment, capturing 50% in 2019. Solar PV was the fastest growing, moving from an estimated 26% in 2019 to 33% by 2029, with solar PV captures 93% of the entire solar market.”

Comparing the two wind technology types, offshore and onshore wind we also see clear dominance of the market in terms of completed projects with the offshore segment accounting for 8% of total wind completion. We attribute this to the offshore industries relative nascency and as highlighted in our previous work that of the total project pipeline capacity in the KPD 40% are offshore projects. We also highlight that offshore wind projects are twice as likely to be cancelled or suspended in comparison with the onshore sector. This is due to the higher risk nature of developments and the operating conditions at sea. Offshore projects tend to have longer lead times and incur higher costs owing to these increased risks.

This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 (‘FSG’). FSG is an affiliate of Fitch Ratings Inc. (‘Fitch Ratings’). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.

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