Wind sector challenges are blowing over

Wind growth set to accelerate as obstacles are tackled

Wind capacity additions have been held back in the last few years by a combination of global macroeconomic challenges and domestic policy barriers. However, wind remains cost competitive with fossil power, and recent policy changes are starting to show results, with turbine orders, auction volumes and permitting rates all increasing.

Wind generation grew by 7 TWh year-on-year in 2024 to reach 477 TWh. This growth is lower than the average 30 TWh year-on-year increase seen between 2019 and 2023. While capacity additions continued in 2024, wind conditions were less favourable than in 2023, leading to lower than expected generation.

Several factors suggest that wind generation is likely to resume its rising trend. Annual capacity additions are expected to increase over the next five years, rising from an estimated 13 GW in 2024 to nearly 30 GW by 2030. Furthermore, offshore wind, which produces more electricity per GW than onshore installations, is expected to make up a progressively larger share of new capacity.

Globally, high inflation and supply chain problems – caused primarily by the Covid-19 pandemic and Russian aggression in Ukraine – have created challenges for the wind industry. These factors have disproportionately impacted wind due to long project lead times and relatively high upfront investment needs. It is partly for this reason that wind capacity additions have remained similar year-on-year, rather than accelerating quickly like solar.

Macroeconomic challenges have interrupted cost declines in wind power

The levelised costs of onshore and offshore wind power in Europe fell by 68% and 60% respectively between 2010 and 2021. The challenging economic environment of recent years interrupted this trend, with costs broadly plateauing since 2021.

In Europe, the price of wind turbines has increased by approximately 10% since 2021 (based on Vestas and Nordex average turbine prices) but the majority of this occurred between 2021 and 2022, with prices remaining flat in 2024 compared to 2023. Additionally, the cost of capital in the energy sector increased in 2024 (to 6.6% WACC from 6% in 2022/23), but by less than the previous annual rise (5.1% to 6%). These cost increases have counteracted the economic benefits of continued technological improvements. In Germany, for example, the levelised cost of energy (LCOE) for onshore wind rose slightly from €39-83/MWh in 2021 to €43-92/MWh in 2024. Onshore wind auction prices have also increased, with the EU average rising from €47.6/MWh (2024€ 55.7/MWh) in 2021 to €76/MWh in 2024.

By contrast, in the offshore sector, a steeper learning curve and continued improvements in capacity factors have allowed cost declines to continue. The latest LCOE estimate for Germany in 2024 is €55-103/MWh, lower than the pre-crisis level of €73-121/MWh (2021).

Wind is still cheaper than fossil power

Despite this mixed picture for deployment costs, wind remains competitive against fossil gas generation, the typical price-setter on European wholesale power markets. The price of gas on European markets (Dutch Title Transfer Facility) has grown steadily throughout 2024, starting the year at around €30/MWh and ending at around €50/MWh, well above the pre-crisis norm of €20/MWh. Accordingly, the average short-run marginal cost of EU gas power across 2024 was an estimated €96/MWh, reaching a high of around €125/MWh in December. This remains above the typical cost of both onshore and offshore wind in the EU in 2024.

Continued deployment of wind power would, therefore, have an important role to play in reducing electricity prices in the EU even in the absence of further cost reductions. However, after a disruptive few years, the cost of wind is expected to start falling again as supply chains recover, inflation eases and technology advancements continue. Some indicators of recovery are already visible. Turbine prices were raised after most European wind manufacturers posted losses in 2022, but their financial positions have significantly recovered since. This recovery, plus increased competition from Chinese suppliers, is likely to put downward pressure on prices. Furthermore, the price of steel – the single biggest material costs for a wind turbine – has fallen from its record high in 2022.

Forecasts of LCOE confirm falling cost expectations, with onshore and offshore wind (in Germany) expected to fall to €39-84/MWh and €53-98/MWh respectively by 2035.

In addition to macroeconomic issues, some of wind’s problems are made in Europe. It has become clear that processes at EU and national level for developing grids, permitting new projects and managing grid connections were inadequate for the pace of the energy transition.

Suboptimal support schemes and restrictive planning rules at the national level have also limited opportunities for growth. Offshore wind auctions in Lithuania and Denmark failed due to poor design. Sweden refused offshore wind developments on security grounds. Barriers exist onshore as well, with countries such as Poland continuing to enforce excessive minimum distance rules.

In recognition of such challenges in the wind sector, many policy actions have been taken at the EU level to accelerate deployment, especially since the gas crisis. For example, permitting times in the EU for onshore wind in 2022 averaged 6 years, while new rules aim to reduce them to 2 years. These interventions will take time to achieve their full impact, but there are already some signs of improvement.

A strengthening project pipeline

Compared to previous years, 2024 saw increased levels of wind farm permitting, more turbine orders and record levels of capacity up for auction.

Permitting rates were higher in H1 2024 compared to H1 2023 in most markets with available data. While the vast majority of Member States have yet to fully implement EU permitting reforms, Germany has made more progress than most. Consequently, approvals reached 12 GW in 2024, up by 60% compared with 2023, and more than the rest of the EU combined.

Wind turbine orders also recovered across the EU in 2024, totalling 13.1 GW from January to September, 40% higher than the same period in 2023, and the second highest ever.

Auctions awarded a record 28 GW of capacity across the EU in 2024, with Germany alone awarding 19 GW. Auctions already announced for 2025 amount to a potential 71 GW. If the average success rate of auctions in 2024 was repeated, auctions in 2025 would deliver 65 GW of new capacity. This means auctions in 2024 and 2025 could cover 45% of the further additions needed for a REPowerEU target of 440 GW (see Methodology).

While higher growth is on the horizon, the delays in recent years have created a widening delivery gap between market forecasts and EU ambition. Current outlooks from WindEurope and the IEA predict average annual wind additions of 19-22 GW (net) between 2025 and 2030. However, an average of 34 GW is required to hit EU targets and deliver Member State plans for 2030. The delivery gap is biggest in the offshore sector, where several governments have lowered their 2030 ambitions and forecasts due to project delays.

Timely implementation and enforcement of the existing policy framework is the first step to closing the delivery gap. For onshore wind, permitting reforms and updated grid connection processes will be key. For offshore wind, it is critical to have auction designs that provide attractive incentives, and an overall approach that maximises supply chain certainty.

Several files promised by the incoming European Commission could further improve the prospects for wind power. The Electrification Action Plan should outline a vision for smart electricity demand growth, boosting the investment case for clean power. Both the pathway to get off Russian energy, and the 2040 climate target, should clearly signal a strong future role for wind power.