Wind is progressing – but we can’t be blind to the threats

The wind industry needs €239bn more investment between 2016 and 2030 if Europe is to hit a target of using wind to supply 30% of its energy by 2030.

That’s according to research published by industry association WindEurope in September.

But achieving that target requires nations to build systems that give investors the confidence they need to invest. That was one of the big talking points at the Council of European Energy Regulators annual conference in Brussels on Tuesday. Wind companies are ready to play by market rules – but these rules must give vital support to investors. If they don’t, the transition to using low-carbon energy sources will be a hell of a lot harder.

In one respect, the credentials of the wind sector are getting stronger. Manufacturers and developers are showing that wind projects can work at low prices, even with the pain of job cuts that this unfortunately entails. However, wind companies are also at risk of being victims of their own success, as a result of price ‘cannibalisation’.

In the wind sector, this price ‘cannibalisation’ happens if the weather is particularly windy. It means that more wind farms are seeking to send energy to the grid at the same time, and so they can end up charging less for it – or, in some cases, pay to transmit the electricity they produce to the grid. It’s a supply-demand imbalance.

In Germany, low and negative prices are already a fact of life for wind energy investors; and, with governments looking to take less risk on the fluctuating cost of wind power by pulling away from the use of subsidies, investors will have to take more risk. For example, the UK is not planning further rounds of its Contracts for Difference system after 2019, and, in the US, key tax credits are running out too. Wind will have to compete on the open market.

That's fine, but how can wind and solar cope in an environment where government support will be more political than financial; and in countries where the energy mix is changing?

For WindEurope, one of the biggest concerns revolved around the use of priority dispatch, whereby renewable energy projects get priority access to the electricity grid. This is no longer a reality in countries such as Denmark, Sweden and the UK; and this trend will spread to other markets too. This will make it tougher for countries to attract the investment they need to add more wind farms to their electricity grids.

As a result, the organisation has called for five policy changes that would help put renewables on a more even footing with traditional fossil fuel generators:
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• Transparent curtailment rules that don’t discriminate against renewables;
• The reduction of ‘must-run’ behaviour where fossil fuels get priority grid access when electricity demand is low;
• More cooperation between grid operators, governments and regulators to resolve grid bottlenecks, and get wind power to where it is most needed;
• The use of market-friendly revenue stabilisation methods like Contracts for Difference of Feed-in Premium, to give investors more long-term certainty;
• And a focus from governments on ‘smart electrification’, so that wind is seen as a complement to other major changes such as a move to electric vehicles.

Finally, it is also calling for an end to retroactive policy changes that harm both the confidence of investors, and their existing business models.

For instance, we know the damage such changes have done in markets including Spain, Poland and, to a lesser extent, South Africa. WindEurope says that wind farms that were given their consent based on priority dispatch or the need to provide grid balancing services should be able to retain these benefits. The alternative is damage or chaos.

In the last five years, companies in the wind industry have come a long way to cut costs, and governments have been equally tough on pushing the wind industry to be more competitive. There’s a lot for us to be positive about – but that relationship must now evolve to fit the new commercial realities. Better to happen now before it’s too late.