It may be Halloween on Saturday but, for those in wind, it feels a little like Christmas. In a little over one month, two of the wind industry’s political bogeymen have been shown the door.
On 14 September, Tony Abbott was ousted as leader of Australia’s Liberal Party — and therefore as prime minister — by his long-time rival Malcolm Turnbull; and then, on 21 October, the nine-year rule of Canada’s prime minister, Stephen Harper, ended. He has been replaced as prime minister by the Liberal Party’s Justin Trudeau.
There is plenty of similarities between Abbott and Harper. They are both sceptical about climate change and in thrall to the oil and gas sector, which has resulted in fossil fuels being favoured over green energy. Abbott became the bigger villain for the wind industry after taking Australia from a world leader to a laughing stock within two years. To his credit, Harper did not do that.
Indeed, under Harper’s tenure, wind capacity in Canada grew from 1.5GW at the end of 2006 to 9.7GW at the end of 2014, which is a more-than-sixfold increase. This is faster than the growth in the US over the same period. However, it does not tell the full story.
During Harper’s nine years in charge, Canada became the only country to withdraw from the Kyoto Protocol on climate change; and he also banned federal scientists from talking publicly about climate change without permission.
He also focused energy policy on making Canada a “superpower” in fossil fuels, rather than diversifying its energy mix away from hydropower, in which Canada is a world leader, and fossil fuels.
As a result, the oil price crash of the last 16 months has hit hard and pushed Canada into the second recession of Harper’s tenure, making his position unviable. The election of Harper’s Liberal rival Trudeau has sense a bolt of excitement through the wind sector.
The Canadian Council on Renewable Energy has highlighted some of Trudeau’s key policies that it now wants to see delivered. These including a new framework to address climate change; working with Canada’s ten provinces on a new renewables-focused power strategy; investing an extra $100m a year in the cleantech sectors; shifting subsidies from fossil fuels to renewables; and introducing green bond for community renewable projects.
And Robert Hornung, president of the Canadian Wind Energy Association, said Trudeau and his government could now build on the C$30bn ($23bn) invested in renewables in Canada over the last five years. He said the new government could “make Canada a leader in the global shift to a clean energy economy”, and that is what those in Canadian wind will be hoping.
But we should always be cautious about getting too excited about a new political regime, as the day-to-day business of politics can kill even the most promising election pledges.
For every political leader that delivers their green energy promises, like India’s Narendra Modi, there are others like the UK’s David Cameron that only end disappoint.
But, this Halloween, Trudeau looks rather more angel than devil.
Article search
Wind Watch
Wind Watch is published every Monday and Friday.
We heard lots of interesting views about wind energy investment on Thursday, but there is one comment that stuck with us.
“Our corporate leaders would rather cave in to political pressure that is based on pop science and emotion than focus on creating shareholder value? How sad,” said David Herro, partner at US-based fund manager Harris Associates.
Herro manages the $29bn Oakmark International Fund. He went on to say that “shareholders should seriously question executives who appease such environmental extremism and zealotry”.
Unsurprisingly, this criticism of eco-conscious companies was not made at our Financing Wind 2015 conference, but in the Financial Times. Herro was criticising the 81 US firms that have backed the US government’s American Business Act on Climate Pledge, in support of a deal at United Nations climate talks next month.
This is in stark contrast to the views expressed at our conference, which is understandable given that our attendees are fully-paid-up members of the wind sector. Importantly, though, it shows that we cannot rest when it comes to convincing companies and their shareholders of the benefits of wind, and other renewables. We cannot let up when it comes to shouting about the benefits of wind.
That is not to say we need to accept Herro’s view. Far from it. The “pop science” he refers to is the climate science, even though 97% of scientific papers that state a position on the issue of humans on climate change back the idea that people are responsible.
He also dismissively talks about emotion. You would likely feel sad and angry if your much-loved family home was being destroyed, so why is the planet different? The science shows what is happening and so getting emotional is one entirely appropriate reaction.
And there is his focus on creating shareholder value. Of course it is vital for firms to create value for their shareholders, but that does not mean it has to be to the exclusion of moral obligations such as protecting the planet. There must be a balance.
In any case, the companies at the conference on Thursday showed it is possible to operate in the wind sector and also create value for shareholders. We need only look at Allianz Capital Partners, which has invested €600m in the renewable energy sector this year in assets that will deliver stable financial returns to its shareholders.
There is Google, which is entering power purchase agreements with wind farms to protect it from wildly fluctuating energy prices that could be to the detriment of shareholders.
And there are the likes of Augusta & Co., Denham Capital, EKF, Marubeni and MUFG, as well as our sponsors SgurrEnergy, who are all finding different ways to make wind pay. These firms show that supporting renewables can co-exist with delivering returns.
It should go without saying, but we need to keep saying it. If the likes of Herro continue to enjoy a platform in the international media then there will be doubts about climate change within boardrooms and the minds of shareholders; and about the business benefits that can follow on from taking action against it.
If this attitude becomes more pervasive then wind will suffer.
Those in the wind industry must keep talking about how financial returns can co-exist with renewable energy. It is easy for firms to pledge to do something, but more difficult to get them to act.
We may think the argument about renewables and climate change has been won. In fact, it has not and will carry on — whether firms in the wind sector think it is worth arguing or not.
Chinese president Xi Jinping has been in the UK this week on a state visit that UK leaders say will unlock trade deals worth an estimated £30bn between the countries.
This is the first state visit to the UK by a Chinese president in ten years, and has attracted criticism from a wide range of sources. There are those who claim UK leaders should stop any moves to allow Chinese firms to invest in UK nuclear; those who want UK leaders to challenge Jinping over China’s impacts on UK steel; and those who want them to take him to task on human rights.
But European offshore wind is one sector that should be glad for the chance of deepening relationships between the UK and China. Chinese investors have shown they are keen to put money into infrastructure around the world, and offshore wind is no different.
We have now seen the first big investment in European offshore by a Chinese company. This week, Portuguese energy firm EDP Renovaveis announced that state-owned Chinese firm China Three Gorges Corporation is set to buy a stake of up to 30% in
its proposed up-to-1.1GW Moray development in UK waters.
This is subject to the scheme winning support under the UK’s Contracts for Difference subsidy regime. UK leaders are yet to confirm details of second CfD auctions, following the first round of auctions that concluded in February. Perhaps the chance to secure this deal will force it into action on offshore CfDs. We can hope.
This is not a deal that UK Prime Minister David Cameron can take credit for, though.
In 2011, EDPR and Three Gorges agreed a strategic partnership in which Three Gorges was set to invest €2bn in EDPR projects by 2015; and also led to Three Gorges buying a 21% stake in EDPR. This deal follows on from that rather than new diplomatic ties.
This is also not the first time Three Gorges has followed EDPR into new wind markets. It started 2015 by buying a 49% stake in EDPR’s 321MW Brazilian portfolio for €111m.
Three Gorges is also expanding in emerging markets without EDPR, including opening the first wind farm in Pakistan, totalling 49.5MW, in March. It is growing its reach in global wind.
But it is still an exciting deal, and the most interesting aspect is how it raises the profile of the European offshore sector to investors in China. We expect them to like what they see.
We have already seen large Japanese and Korean conglomerates putting their money into European offshore, including Bank of Tokyo Mitsubishi, Marubeni and Sumitomo.
These firms are not just after the reliable government-backed returns, although of course those are attractive. They have also been looking to grow their confidence and experience of the offshore wind sector that they can then take back to Japan and South Korea, where their governments are keen to develop wind farms offshore. Chinese investors can do likewise.
In fact, in two years we might see this Moray deal as a trailblazer for the involvement of Chinese investors in European offshore.
Three Gorges has already been looking at the sector, and in June it signed a deal with Goldwind to set up an offshore wind test centre in its home country. Moray could be another key part of that offshore learning process.
And this is where Jinping comes in. China is the world’s largest onshore wind market, and the UK is the largest offshore. If Jinping’s visit leads to stronger ties between the two then it would make it easier for Chinese conglomerates to follow the lead of Three Gorges into investing in UK offshore.
That would be to the benefit of the UK and Europe as a whole.
Wind Watch
Wind Watch is published every Monday and Friday.
It has been a year in the planning and caused many sleepless nights, but it is almost here.
On Thursday, we will host our fourth-annual conference, called Financing Wind 2015, in London. Sponsored by SgurrEnergy the conference will bring together some of the biggest hitters working on the financial side of the wind industry to discuss key issues for next year and beyond.
Speakers include David Jones, managing director of renewable energy at Allianz Capital Partners; Paul Battelle, director of infrastructure and energy finance at Deutsche Bank; and Marc Oman, head of energy procurement for Google’s data centres in Europe. We also expect more than 100 attendees so there will be networking opportunities aplenty.
You can find the full list of speakers here as well as details of how to book your ticket. But that is enough of the sales pitch!
This conference will also give us a great chance to tackle the most important issues for wind investors in the next year, including the sluggish economic growth in established markets in Europe; the role of blue-chip firms in supporting wind with power purchase deals as governments seek to rein in subsidies; and the challenges and opportunities for investors of growing in emerging markets.
These three trends demonstrate how wind investors in Europe are grappling with a period of transition.
Of course, it is true to say that markets never stand still and so are always in a period of transition, but at the moment we are seeing a big shift in how governments give support to wind. We can see this in the way that governments such as Germany are moving away from centrally-set feed-in tariffs and towards competitive auctions.
The reason for this change is simple. Governments say the wind sector does not need as much support as it has had historically because it is an established technology. That ignores the huge subsidies still paid to sectors including coal, oil, gas and nuclear.
However, in our view, the real reason for this shift is that political leaders are worried about the thing they fear most: being voted out.
If feed-in tariff payments keep growing then governments worry
that they look weak and that green energy companies are taking advantage. They are also concerned about the scaremongering stories that over-reliance on wind will lead to the lights going out which, even if untrue, worry voters.
Both of these situations are highly undesirable for political leaders, and so they bring in competitive tendering instead of fixed feed-in tariffs. This introduces more competition into wind, which is a good thing for improving the quality of developers and their schemes.
But there’s a catch. Because it also means fewer projects are financially viable, and so fewer get built. We saw last month how EWEA has scaled back its 2030 forecasts in the light of this trend.
Despite this, the move to competitive auctions should be good for wind investors. On one hand, it means fewer schemes get built, and so investors have fewer projects to put money into. This risks driving the price of wind farms to unsustainably high levels.
And yet this risk is already a reality. As a result of low interest rates, wind farms look more attractive than other types of investments, such as government bonds. We see high prices being paid for even average projects and, in some cases, investors are over-paying.
There will almost certainly be a hit to wind farm prices when interest rates rise and make deals for rival asset classes look more attractive. Investors must be aware of this.
On the other hand, competitive auctions should force developers to improve returns from their projects; and only build those that make most financial sense. Even if the quantity of projects reduces with auctions, we should also see the quality of projects improve.
And that must be in wind’s long-term interests. Interest rates will have to rise sometime, but there will always be investors who want to buy reliable assets at the right price.
It is 18 months since Mexico’s president, Enrique Pena Nieto, fired the starting pistol in the race for overseas wind companies to get involved in this Central American nation.
Back then, Nieto said there would be no limits on inbound investors
in renewable energy in the nation, which had just opened energy to private investment after 76 years in state control.
It has taken a little while for major deals to materialise but this week one did. Now, it is no surprise to use that a big deal has been done in Mexico. The surprising bit is who did it.
On Wednesday, Chinese manufacturer Envision Energy announced that it has bought a controlling stake in a 600MW portfolio of wind development projects from Mexican firm ViveEnergia. Envision is aiming to commission the first of these projects in 2016. The pair have also signed a deal to build projects totalling 1.5GW by 2020.
The reason this deal took the market by surprise is that Envision had previously made no indication of ambitions in South or Central America. It has been focusing on Europe.
For instance, in July, it bought a 25MW wind farm in in Sweden that it said would enable the company to establish itself as one of the top five turbine makers in Europe. It was a small deal but important.
However, it would not be easy for any new entrant to establish itself as a top five manufacturer in Europe even if, like Envision, it claims that it has technology ’smarter’ than its rivals. In fact, you can make a strong case that achieving this ambition will be even more difficult if the Envision introduces more challenges, like growth in Mexico.
But, in our view, this Mexico deal looks like a good pragmatic move.
Chinese manufacturers like Goldwind have struggled to establish themselves in Europe when going head-to-head with the likes of Siemens, Vestas, Enercon, Gamesa, Nordex and others. It makes sense, therefore, for Envision to look for quick wins in markets such as the Americas — where Goldwind has also been successful.
By establishing a presence in the fast-growing Mexican market, Envision has other options for its business if its European venture falters. It does not have all its eggs in one basket.
Meanwhile, if the foray in Mexico is a success, that can only bolster the firm’s financial firepower for what would surely be a protracted fight to gain market share in Europe. Gaining a strong position among turbine manufacturers in Europe takes deep pockets as well as innovative technology — and, even if Envision were to break into the top five, it would then face the challenge of staying there. Success in Mexico would help with that core mission.
But why Mexico?
Felix Zhang, executive director at Envision, said the nation was one of the most promising wind markets in the Americas over the next ten years. This is partly due to the recent energy reforms, but also its untapped sites and availability of finance and energy buyers.
Mexico’s wind energy association Amdee said installed capacity in the country is set to grow by around 30% this year to over 3.2GW with the commissioning of six wind farms totalling 730MW.
One of these is the 155MW Sierra Juarez by InterGen and IEnova that was commissioned in June, though this is now facing a legal challenge due to its impacts on wildlife. By 2022, Mexico is aiming to have total wind capacity of 15GW, which is set to require total investment of $30bn — of which $5bn has already been invested.
And how much of that $30bn will come from Envision? That all depends on the success of this 600MW tie-up with ViveEnergia.
In the last week, three solar firms delivering the UK’s defunct Green Deal have gone into administration.
In the last week, three solar firms delivering the UK’s defunct Green Deal have gone into administration.
Mark Group, one of the UK’s largest solar panel installers, and Climate Energy, a smaller rival, announced their demise within 24 hours of each other last week. Meanwhile, Southern Solar’s announcement came a few hours ago. All three of the companies claimed that dramatic subsidy cuts had driven them out of business —and there is a good basis for the claims.
The companies have been hit hard by recent government policy, which has ended all subsidies for large solar farms and reduced funding for smaller installations by 87%. The Green Deal, which provided loans for energy saving measures in households, and which supported these companies, was also scrapped by the government at the end of July.
Understandably, renewables firms and environment activists alike are enraged about these casualties, none more so than Mark Group’s former parent, US solar giant SunEdison: “We are extremely disappointed that the draconian policy proposals…will essentially eliminate the solar PV market in the UK and have made our plan unviable”, a spokesman from SunEdison said.
SunEdison acquired Mark Group in July, as part of a push to grow its UK presence. But on 7 October, Mark Group managers confirmed that they had repurchased the business from SunEdison, putting it into administration.
Worryingly for those working in renewables, solar companies are not the only ones at risk in the midst of dwindling government support for the green energy. Subsidies for new onshore wind farms are set to end on 1 April 2016, which is a year earlier than previously legislated; and a further cut to the feed-in tariffhappened at the beginning of this month. These decisions have put hundreds of projects, across wind and solar, in jeopardy.
This situation is particularly depressing given the continued financial support given to the oil, gas and nuclear industries. Lord Oxburgh, a former chairman of the Shell, recently made this comparison directly, arguing that ministers should remember the North Sea oil industry, which required consistent Treasury support to get off the ground.
Yet UK energy and climate secretary Amber Rudd seems convinced that renewables have been given sufficient support, and must now go ahead with minimal further aid. She said: “Our support has driven down the cost of renewable energy significantly. As costs continue to fall it becomes easier for parts of the renewables industry to survive without subsidies.”
Reading between the lines, it seems likely that all state-backed aid will soon be gone for renewables. A top civil servant said on Tuesday that he expected this happen within ten years. But, as frustrating and unfair as these cuts may seem, complaining will not get firms very far. Renewables companies must also adapt to the reality of the new market.
Of course, many firms in wind are already doing what they can to prepare. The ‘draconian policy’ is compromising and frustrating, but it does not have to ‘eliminate’ UK renewables.
Wind Watch
Wind Watch is published every Monday and Friday.
In the meantime, have you got the details of the next Quarterly Drinks networking evening in your diary? If not, then you’ll want
to ‘remember remember the 5th of November’.
On behalf of A Word About Wind and our sponsors, Greensolver, we’re pleased to invite you to Q4’s Quarterly Drinks this Bonfire Night. If you’re a member, please RSVP here.
Now in its third year, this must-attend series of invitation-only events brings together senior wind industry decision makers working in global finance, investment and development. The last of 2015 takes place at The Anthologist on Gresham Street in the City of London on Thursday 5 November, from 5.30pm to 9.30pm.
This year, every Quarterly Drinks has included a 20-minute Q&A session with a special guest who provides insight into investment and financing strategies, and this time will be no exception.
At our most recent Quarterly Drinks in September, Bryan Grinham, managing director of northern Europe for manufacturer Nordex, gave some forthright views on the wind market in the UK and Europe — and there are sure to be fireworks this time too!
We will reveal the identity of this guest speaker very soon.
As mentioned, our official event sponsor throughout 2015 is Greensolver — and Guy Auger and his team look forward to meeting both familiar and new faces at the event.
If you couldn't make our last event, or perhaps haven't attended a Quarterly Drinks before, then we'd love it if you'd join us. Secure your place early as there is limited availability — and if you can't make it, feel free to request a place for a colleague.
So will we see you there? Click here to RSVP
What connects the Chinese economy, a balloon and the fall of the Roman empire?
The answer is that they are three examples of the principle that nothing keeps growing forever, and last week we saw another. US renewables giant SunEdison has reversed growth plans after its share price dropped by more than 70% in the last three months.
It is a major turnaround. In the last 10 months, SunEdison has been growing thanks to a huge period of acquisitions. Indeed, even as recently as June, we wrote that SunEdison would stay acquisitive — and it did, with buyouts of Mark Group and Vivint Solar in July. Last week, Mark went into administration, which the company attributed to reasons including UK solar policies.
These two acquisitions followed takeovers of firms including First Wind and Continuum Wind, and other portfolio deals.
Now that period of acquisitions looks to be at an end. Last week, SunEdison announced plans to cut 1,000 jobs, which equates to 15% of its workforce, and stop selling completed wind and solar projects to its yieldco TerraForm. Like SunEdison, TerraForm’s share price has fallen, meaning it does not have the money to buy completed schemes.
This will force SunEdison to find outside buyers for its schemes and is another warning sign for US yieldcos, where many investors are questioning the sector’s long-term stability.
SunEdison has also announced it would stop investing in nations such as the UK in favour of the higher margins on offer in the US. Outside the US it is focusing on India, China and South America, which potentially offer higher returns. And it plans to scale back 20% of the projects in its development pipeline.
Finally, it plans to simplify its structure, to remove the duplication of back-office services that is inevitable after such a large number of acquisitions. The company hopes that this revised strategy would help to win back investors, and its share price has rallied.
However, it is early days and getting onto a stable financial footing could take years — although SunEdison will hope to do it sooner.
The main reason for this strategy shift is that SunEdison has not reported a profit since 2013, and investors are now clearly expressing doubts about the company’s long-term strategy.
The principle of diversifying into wind makes sense so that the company is not over-exposed to solar, but the way it has gone about this expansion looks rushed. It has made a series of major acquisitions, but investors are now asking whether there is a solid plan underpinning this growth; and what impact adding so many new firms will have on existing operations.
The developer is also suffering from wider problems with yieldcos.
NRG Yield chief executive David Crane said in August that competition from yieldcos had driven the cost of these assets to unreasonably high levels. This in turn makes investors worry about whether they will get the returns they expect if they invest in yieldcos, and less people now see this as an attractive option. Less money into yieldcos means less chance for developers like SunEdison to sell their completed projects into these yieldcos.
But the problems surrounding yieldcos should not gloss over the concerns about the firm’s huge buying spree. Growth by acquisition can be a great way of growing quickly, but it also brings a lot of upheaval — and that is what SunEdison must now cope with.
German manufacturer Nordex this week surprised us by revealing a €785m takeover of the wind arm of Spain’s Acciona. And, if conversations at this week’s RenewableUK conference are anything to go by, the announcement was a surprise to top people in the firms too.
It is not the idea of consolidation among manufacturers that surprises us. Indeed, we said in our 2015 predictions that it would be a big trend this year as firms pool resources in the face of a tough economic climate. We have already seen major deals in the last couple of years from GE and Alstom; Areva and Gamesa; and Mitsubishi Heavy Industries and Vestas.
No, what surprises us is the speed with which this deal seems to have been done. It is rare for such a deal to pass unnoticed through senior management, but this one has. We have a couple of ideas of why that might be but, first, let’s go over the details of the deal.
Nordex has said it would pay €366m in cash to Acciona for the arm, and make up the rest of the transaction cost through the issue to Acciona of Nordex shares worth €419m. The takeover is set to give Acciona a 29.9% stake in the German company.
The deal is subject to approval from competition authorities and is due to complete in the first half of next year. We do not anticipate any competition concerns as there are few markets in which Nordex and Acciona compete head-to-head.
Nordex is active in around 20 countries, but its main interests are in Europe where it has a 10% market share. Globally, however, it has a 3% market share with disparate operations in the likes of South Africa, Turkey and Uruguay.
Meanwhile, Acciona has factories in Brazil, Spain and the US, and is also opening in India. The company has been forced to expand globally after retrospective changes to wind farm subsidies in Spain, which pushed it to a €2bn loss in 2013. This expansion has so far been successful and appears to have put the company on a more stable financial footing.
And it is this focus on stability that may hold the key to this deal.
Nordex has also been through four years where stable growth has been the order of the day. It reported operating losses in 2011 and 2012, but has now grown to an operating profit of €78m in 2014 on sales of €1.7bn. This means that sales and operating profits are almost double where they were in 2010, which shows solid growth but nothing spectacular.
Now Nordex wants more and this deal with Acciona shows that it is looking to put its foot more firmly on the accelerator.
There will not be fast growth in Nordex’s core European markets in the next five years, so the tie-up with Acciona bolsters its overseas operations. Remember, Acciona brought in US private equity firm KKR to invest in its global arm last October, so growth is definitely in its sights. Meanwhile, in Nordex, it looks like Acciona regains a stable base in Europe.
And yet, we still wonder about the speed of the deal. Why so fast?
For that, we have three theories. First, it was not actually a quickly-put-together deal at all. Both management teams are just very good at keeping secrets.
Second, it was a quick deal but the firms are very entrepreneurial and so were able to respond speedily to a deal that is in their mutual interests.
Or third, the pair of them were desperate to achieve their business aims and they jumped at this deal quickly because they thought it was the only one in town.
At this stage it is impossible to be completely sure. We know that Nordex and Acciona are both well-run, and so either the first or second option is most likely. However, if the third is right and they jumped in too quickly then doubtless we will see the cracks emerge over the next couple of years. As with most deals, we will only be able to tell if it worked out with the benefit of hindsight.
Wind Watch
Wind Watch is published every Monday and Friday.
Are we seeing a change in how people think about the energy performance of technology?
Many parts of the world, including the European Union, have had energy rating labels for cars, homes and household appliances for some time, but whether that affects consumer decisions is another matter. If two products are equal in every other way then a consumer would probably pick the one with a better energy rating, but that is about as far as it goes.
Or, at least, that is what we thought before the Volkswagen scandal blew up. It now seems people are becoming more demanding that companies can replicate their lab results in the real world.
This means that tech firms, including turbine manufacturers, must be able to back up claims they make about the ‘green’ performance of their machines. If they cannot do so then the impact on a firm’s reputation and financial performance can be disastrous. Likewise, developers must be able to prove their schemes are generating the energy they promised.
Now, you don’t need to be an avid news reader to know that Volkswagen is in trouble, and has been forced to recall 11million vehicles worldwide. It is alleged that the business has fitted software to some of its cars to enable them to put out lower emissions when they are being tested. Outside of test conditions these cars pump out far more emissions.
This does not mean that Volkswagen is suddenly producing bad cars. It is not. However, it does show the strength of feeling when consumers feel they have been duped.
Firms in all sectors should be aware that they will not just be judged on whether their product passes official tests, but whether they are doing the right things morally when not being tested.
Of course, this is tricky to manage because people have different moral codes. Broadly, though, if it looks like you are trying to con the system then that is what people will think.
Following this, we have also seen accusations that Samsung TVs perform less effectively in terms of energy efficiency in the real world than in lab tests. The company has strongly denied claims
that its ‘motion lighting’ feature is set up to fool official tests.
This should be a concern for those who work in wind.
It is not enough to simply measure how well a new piece of technology works in a lab. Developers, investors and consumers are increasingly demanding that this tech can work at a similar level in real life situations, where there can be a wide variability in wind speeds, weather and other conditions.
The lesson applies to whole wind farms too. Those in the industry acknowledge that, in the past, there have been some questionable wind farms built in good locations. That meant a quick buck and often a lucrative subsidy but, in the long run, schemes like that do nothing for the reputation of the market. Now that some projects are starting to reach the end of their life cycle, there is a chance to repower these schemes to deliver on their potential.
If firms build ineffective projects then they cannot complain if they receive public hostility, but it also harms their peers in the industry.
So, back to the original question.
Yes, we do see a shift in how people think about the real-world performance of technology, and the Volkswagen scandal shows no company is immune from examination. Most wind companies are highly reputable and we have not yet seen a serious ‘cheating’ scandal in the sector, but we would not be surprised if we did.
That is the tricky bit about public outrage: it is unpredictable and can hit companies that do not think they are doing anything wrong.
We are now officially in post-summer deal season.
This week, Enel Green Power has signalled it is exiting Portugal with the disposal of its Portuguese subsidiary Finerge for €900m to a wind-focused division of the global asset manager First State. The deal is due to close by the end of this year, at which time First State is set to own Finerge and its wind portfolio totalling 642MW.
The exact composition of Finerge’s portfolio is somewhat complex, and there are aspects to be ironed out before the deal can close. For example, Finerge owns a 36% stake in the Eolicas de Portugal (ENEOP) consortium, which owns wind farms totalling 1.3GW.
ENEOP is in the process of separating its assets into a series of special purpose vehicles, and the Finerge disposal relies on that process going smoothly. However, if it does — as we expect it will — then Finerge would own four special purpose vehicles with total wind capacity of 445MW. When you combine this with Finerge’s other interests, its total assets are 642MW in wind farms of 863MW.
The reason Enel is selling Finerge is a lot more straightforward.
Enel Green Power has set out a five-year plan targeting fast-growth in emerging markets. In May it announced that by 2019 it would invest €9bn adding 7.1GW of new capacity in markets including Brazil, Chile and Mexico, as well as Africa and parts of Asia. This transaction is crucial if Enel Green Power is to realise this strategy.
This week, for example, it has signalled its intention to step up its activities in Morocco in North Africa. It is bidding in an 850MW wind tender run by national utility ONEE, where the results are expected next month. If it wins then growth in North Africa could be fast.
And last week it entered India by buying a majority stake in Indian developer BLP Energy.
By contrast, Portugal is anything but a fast-growth market. The country is now just 400MW short of its 2020 target of 5.3GW installed wind capacity, which means that on average it is only going to add 100MW a year over the next four years. There is stable support for wind, which means it is fine for an investor like First State that wants to own reliable assets.
However, the Portuguese government has given no indication that it is going to raise its wind target. Therefore, for a growth-focused firm like Enel Green Power, it is far better to take the cash out of this established market and re-invest. If it is going to deliver on its plan to invest €9bn over the next five years then it needs to raise capital, and the €900m here makes a dent in that target.
Our only question now is whether the company is going to spread itself too thin. There is no harm in being ambitious, but it is not easy to crack Africa, Asia, North America or South America separately. Clearly, the challenge is magnified if trying to do them all at once, and it is a challenge Enel will grapple with over the next five years.
The company has made raising €900m look easy, but investing it wisely will be less straightforward.
Wind Watch
Wind Watch is published every Monday and Friday.
A farmer in France is suing a wind developer for making his cows sick. That sounds like the start of a joke, but is actually a French court case that could have big ramifications for investors.
Here is the background. French dairy farmer Yann Joly is suing developer CSO Energy over a 24-turbine project installed in 2011 near his family farm in northern France. Joly says that, since the turbines were installed, his 120 cows have been drinking much less water and this has led to a large drop in milk production that has financially ruined him.
The upshot is Joly wants €359,000 (£260,000) and wants CSO to remove the turbines. The case is being heard in the French courts and a judgment is due in early 2016.
So far, so bizarre. But claims of wind farms damaging the health of humans and animals are an occupational risk for investors in this sector, so why single out this one?
The reason is that Joly’s case is based on evidence from Christiane Nansot, agricultural and land expert at the Amiens Court of Appeal, that gives us cause for concern. Nansot has written a report on the dispute saying there is a geographical fault under the site that could be amplifying vibrations from the turbines, and making the cows drink less. If the cows drink less then they also produce less milk.
Our problem is that there is confusion over Nansot’s conclusion.
On one hand, she did not conclusively blame CSO’s turbines and said there would need to be more research into similar projects.
But, on the other, she said that all other causes for the cows drinking less than expected had been ruled out. That lays the blame squarely on CSO when, by her own admission, she could not show a direct link between the turbines and the cows.
This should concern investors because of fairness. Wind developers are not monsters who are happy to ride roughshod over the health, wealth and happiness of their neighbours.
The vast majority of companies in this sector want to mitigate the impact of schemes on others, for the simple reason that it is then easier to gain consent and community support. They take time when designing projects to ensure that others are not unduly affected and, if there is a legitimate complaint, most would take reasonable steps to try to rectify it.
But it is not fair that a firm should be held responsible for a problem just because investigators have run out of other things to blame.
If the prosecution can prove that CSO did, in fact, destroy this farmer’s livelihood the farmer should get compensation. If it cannot prove this there is no reason why CSO should pay for something it has not done. And that brings us to why this case worries us.
If the French courts rule against CSO on the basis of questionable evidence then it puts other firms at risk from similarly shaky claims. It would set a dangerous precedent and put projects around the world at risk of dodgy legal action. And that is no joke.
In two months, the United Nations climate change conference is due to start in Paris.
This gives world leaders and others the chance to discuss global action on climate change and, in theory, commit to a binding global deal on cutting emissions. We can only hope.
If the 193 member states of the UN were able to reach such a deal then it would be a big boost for the wind sector and renewables generally. However, as we said in June, we take a similar view as French president Francois Hollande, who said that agreeing such a deal would take a “miracle”. Hardly the optimistic approach you would expect from the leader of a country hosting such momentous talks but, pragmatically, we think he is spot on.
However, wind developers and investors can still take hope that something worthwhile will come from these talks, even if there is no binding agreement. The focus on the Paris talks is encouraging blue-chip companies to make commitments to using renewable energy. That means it is a good time to start talking to those companies with a view to securing power purchase deals.
And we are not just talking small companies.
For instance, this week nine Fortune 500 firms — Goldman Sachs, Johnson & Johnson, Nike, Procter & Gamble, Salesforce, Starbucks, Steelcase, Voya Financial and Wal-Mart — pledged tosource 100% of their electricity needs from renewables. They did so to coincide with Climate Week NYC and the Paris talks.
This is part of the RE100 campaign led by not-for-profit body The Climate Group, which has now signed up 36 companies globally. Meanwhile, the likes of Apple and Coca-Cola have backed a $140bn US pledge to reduce greenhouse gas emissions.
We would expect more blue-chip companies to make similar commitments before Paris. This means that renewable energy is being discussed at board level, for a short time at least. And that makes it a perfect time for wind developers to start talking to these firms about renewables with a view to securing power purchase agreements at their projects. It is a good opportunity.
But wind farm developers cannot hang around. Renewable energy will be a big global talking point before, during and immediately after the Paris climate talks, but it will fade quickly afterwards. With it, current enthusiasm for ‘green’ energy will wane too.
Why so sceptical? Simply, because pledges made as part of RE100 are just words. They are not legally binding, which means a firm can turn away from them at a moment’s notice citing changes to corporate strategy. The only penalty is a short-term PR hit.
They also do not have deadlines or standard ways of measuring their energy use, although do have to provide progress reports.
There is now an opportunity for wind investors to get these ‘green’ converts to commit to something more tangible than a vague promise. If it leads to a power purchase agreement then it could make the difference between a development being viable or not.
Essentially, Paris has opened some doors for those looking to talk to these big firms. Now is the time to push on those doors.
Guest post by David Cunningham, cleantech and renewables analyst at SgurrEnergy.
Guest post by David Cunningham, cleantech and renewables analyst at SgurrEnergy.
You can also download our free report on wind farm optimisation, produced in association with SgurrEnergy. 'Wind farm optimisation' is available to download here.
The wind market is maturing, which means owners and operators are increasingly looking to enhance returns by managing their assets more effectively.
At the same time, we are also seeing projects built with higher hub heights and with larger swept areas, where the relationships between the wind and the turbine are not yet fully understood. As a result, there is a drive to mitigate risk and deliver optimal financial performance at both ends of the wind farm development life cycle.
And, if that was not challenging enough, developers are also under pressure to reduce the levelised cost of energy from new projects.
Over the design life of a wind farm, making minor adjustments to the operation of that asset can make a big difference to its financial performance. With that in mind, here are five methods to optimise wind farm operation and financial performance using a combination of modern technology and industry-leading analytical techniques
(1) Fix yaw misalignment: Turbines must directly face the wind to maximise the power they generate, but this often does not happen due to shortcomings of traditional wind direction measurement techniques. Owners can address this by using lidar to measure wind speed and direction across the whole rotor area to allow for optimal turbine positioning.
By implementing more effective measurements this can push up annual energy production (AEP) by 2%, and raise the absolute project internal rate of return (IRR) by 0.3%.
(2) Make aerodynamic improvements: Vortex generators are small fins that help to improve blade performance by reducing flow separation and improving lift. The use of effective scanning technology means owners can apply vortex generators in an optimum manner to match real site conditions. This can increase AEP by an estimated 2%-3%, with a boost of 0.3%-0.4% to IRR.
(3) Control and pitch optimisation: Effective individual blade control can be vital to ensure the wind turbines meet their design life in addition to improving energy output. Importantly, as wind turbines age and degrade, their optimum control set-points also change over time. By incorporating a more robust and adaptive turbine control system, we can assist in dealing with off-design wind characteristics and changes in blade surface conditions. This can increase AEP by 1%-4%, and project IRR by 0.1%-0.6%.
(4) Forestry restructuring: Locating a wind farm near a wooded area will clearly have an effect on turbine performance, but the exact effect is difficult to quantify. With the benefit of scanning lidar, developers can best understand the real effects of forestry on project performance — and use this to manage the environment around a wind farm more effectively through selective forestry felling and restructuring. This can boost AEP by up to 15%, delivering an increase in the project IRR of up to 3%.
(5) Wind farm control: We know that wakes from one turbine can have an impact on others, but too often developers monitor and manage each turbine separately. If developers can control the wind farm as a single unit then this would deal with wake effects in real time, and provide grid support to meet regulatory requirements. This can boost AEP by 1%-4%, and increase IRR by 0.1%-0.6%.
These optimisation results are based on client projects and verified by rigorous before and after tests and measurement. The individual improvements may seem incremental, but in combination these add up to a substantial improvement in the performance of projects.
We are already applying these five techniques to deliver increased returns on investment for wind farms globally. Further commercial gains are expected from a reduction in operating costs, particularly in the rotor blades, as well as the drive train and gearbox.
In our view, adopting optimisation activities enhances developer, investor and owner returns at every stage of the development cycle and should form a core part of M&A, design and operational activity.
SgurrEnergy is sponsoring Financing Wind 2015 in London. To find out more about their approach to asset management, you can talk to them at the conference or get in touch directly via email
by David Cunningham, cleantech and renewables analyst at SgurrEnergy
The wind market is maturing, which means owners and operators are increasingly looking to enhance returns by managing their assets more effectively.
At the same time, we are also seeing projects built with higher hub heights and with larger swept areas, where the relationships between the wind and the turbine are not yet fully understood. As a result, there is a drive to mitigate risk and deliver optimal financial performance at both ends of the wind farm development life cycle.
And, if that was not challenging enough, developers are also under pressure to reduce the levelised cost of energy from new projects.
Over the design life of a wind farm, making minor adjustments to the operation of that asset can make a big difference to its financial performance. With that in mind, here are five methods to optimise wind farm operation and financial performance using a combination of modern technology and industry-leading analytical techniques
(1) Fix yaw misalignment: Turbines must directly face the wind to maximise the power they generate, but this often does not happen due to shortcomings of traditional wind direction measurement techniques. Owners can address this by using lidar to measure wind speed and direction across the whole rotor area to allow for optimal turbine positioning.
By implementing more effective measurements this can push up annual energy production (AEP) by 2%, and raise the absolute project internal rate of return (IRR) by 0.3%.
(2) Make aerodynamic improvements: Vortex generators are small fins that help to improve blade performance by reducing flow separation and improving lift. The use of effective scanning technology means owners can apply vortex generators in an optimum manner to match real site conditions. This can increase AEP by an estimated 2%-3%, with a boost of 0.3%-0.4% to IRR.
(3) Control and pitch optimisation: Effective individual blade control can be vital to ensure the wind turbines meet their design life in addition to improving energy output. Importantly, as wind turbines age and degrade, their optimum control set-points also change over time. By incorporating a more robust and adaptive turbine control system, we can assist in dealing with off-design wind characteristics and changes in blade surface conditions. This can increase AEP by 1%-4%, and project IRR by 0.1%-0.6%.
(4) Forestry restructuring: Locating a wind farm near a wooded area will clearly have an effect on turbine performance, but the exact effect is difficult to quantify. With the benefit of scanning lidar, developers can best understand the real effects of forestry on project performance — and use this to manage the environment around a wind farm more effectively through selective forestry felling and restructuring. This can boost AEP by up to 15%, delivering an increase in the project IRR of up to 3%.
(5) Wind farm control: We know that wakes from one turbine can have an impact on others, but too often developers monitor and manage each turbine separately. If developers can control the wind farm as a single unit then this would deal with wake effects in real time, and provide grid support to meet regulatory requirements. This can boost AEP by 1%-4%, and increase IRR by 0.1%-0.6%.
These optimisation results are based on client projects and verified by rigorous before and after tests and measurement. The individual improvements may seem incremental, but in combination these add up to a substantial improvement in the performance of projects.
We are already applying these five techniques to deliver increased returns on investment for wind farms globally. Further commercial gains are expected from a reduction in operating costs, particularly in the rotor blades, as well as the drive train and gearbox.
In our view, adopting optimisation activities enhances developer, investor and owner returns at every stage of the development cycle and should form a core part of M&A, design and operational activity.
SgurrEnergy is sponsoring Financing Wind 2015 in London. To find out more about their approach to asset management, you can talk to them at the conference or get in touch directly via email
What a difference a week makes.
Last Monday, Malcolm Turnbull was unseating Tony Abbott as Australia’s prime minister in a late-night ballot of the Liberal Party. He won a poll of his parliamentary colleagues by 54 votes to 44, and became prime minister on Tuesday.
The initial reaction from wind investors was near-euphoric.
Abbott is a high-profile critic of wind, even though he has only seen one turbine up close. He led a series of destructive cuts, including scaling back Australia’s renewables targets and appointing a committee in the Senate to carry out a hatchet job on the wind sector. In two years he has turned Australia from a global green leader into a laughing stock.
This is driving away green investors. This month, New Zealand’s Meridian Energy said it would avoid investing in Australia while Abbott was in charge. Meridian has a strong track record in Australia and co-developed the huge 420MW Macarthur wind farm.
Initially, we thought Turnbull may reverse some of Abbott’s policies. After all, he used to be the nation’s environment minister, and in 2009 he blasted Abbott’s anti-renewables policies as “bullshit”. But now a continuation of Abbott’s policies looks depressingly likely.
For example, Turnbull last week said he backed Abbott’s Direct Action policy despite being a critic previously. Under Direct Action, the government gave $660m in April to businesses for 107 projects that aim to cut greenhouse gas emissions. However, it turns out that three-quarters of the emissions saved came from projects that would have happened anyway.
There is a simple reason why he is now backing policies that he once scorned: politics.
Turnbull has to unite Liberals ahead of next year’s federal election and it makes no sense to get into battles over existing policies. Also, Abbott did not act alone in his eco-vandalism. He had the support of those in the party that Turnbull now has to work with.
Likewise, he is ambitious. It takes a lot to unseat an incumbent leader and, if he is to retain the role of prime minister, selling out on a few of his principles looks like the price he has to pay. It is very early to judge him on his record but, so far, things do not look good.
This means the prognosis for wind investors is also negative.
It will be tough for investors to gain support for projects and deals
will continue to be wracked by uncertainty.
The bright point is that we are seeing states fight back against central government anti-renewables policies, and it might be that Turnbull takes an open-minded approach to renewables in those battles. But it is remarkable how quickly the hope from last Monday has now given way to pessimism.
Developers and investors should not expect any quick turnaround in government policy, as these laws are notoriously hard to unpick. It now looks as though the best hope for change is if the Liberals are ousted as senior coalition partner in next year’s elections.
For those making business decisions now, that is a long way away.
International pressures are taking their toll on European wind.
The European Wind Energy Association has this week published its ‘Wind energy scenarios for 2030’ report, which gives EWEA's views on how wind will grow across Europe over the next 15 years.
This shows that increasing uncertainty over European Union policy and slow growth across the region are making investors more wary about doing deals; and means that, as a result, EWEA is markedly less optimistic about wind’s prospects than it was four years ago.
The figures in this report still, at first sight, tell a pretty good story.
EWEA says its new ‘central scenario’, which means that growth stays steady rather than being dramatically good or bad, shows that the EU would have an estimated 320GW of installed wind in 2030.
Of this, around 254GW would be onshore and 66GW offshore. It also means that the market in 15 years’ time would be two-and-a-half times larger than it is today, which cannot be a bad thing.
But it gets more interesting when we compare it to a similar report from EWEA back in 2011. Since then, EWEA’s forecast for total wind installations in the EU in 2030 has dropped by 20% to 400GW, with a 56% drop in the offshore target, from the previous 150GW.
It shows how far things have slipped when the current ‘high’ forecast — of 392GW in 2030 — is now below what EWEA thought was conservative four years ago.
EWEA has also cut its forecast for how much of electricity in the EU will come from wind in 2030, from 30% to 25%. All these slippages reflect the fact that wind investors are now facing more uncertainty than four years ago in both the wider economy and energy policy.
Economically, growth in the EU is slower than expected and, as we wrote in our Eurozone report last week, the chance of Greece exiting the eurozone is still a big threat. The economic storm that is brewing in China is likely to put a further dampener on growth.
But investors are also wary about changes to the European energy market that the EU is set to flesh out over the next two years.
These include an ‘energy union’ to boost the trade of renewable power between nations; reforms to the EU’s Emissions Trading Scheme; and other changes to the European power market. While the intention of these policies to boost the use of renewables is good, it also means that investors need to wait for further details about the policies before they can make their investment decisions.
And, as with most new laws, there are also likely to be unintended consequences that will concern businesses, and need to be ironed out to improve investor confidence. These big changes to Europe’s energy market could easily slow the pace of investment until 2020.
In fact, that leads us to our concern about this new EWEA forecast: 320GW by 2030 could prove to be too high.
It relies on the idea that changes to Europe’s energy market will recognise the potential of wind as a flexible energy source. It assumes the Emissions Trading Scheme will be reformed in an efficient way to give meaningful price signals. And it depends on the EU achieving greater interconnectivity with its ‘energy union’ plans.
In short, it means everything has to go smoothly on the policy front, which would be a rarity. If things do not happen that smoothly then investors will not have the stable long-term rules that they need.
If that does not happen then it could be a disaster for investment and mean that Europe does not tap into the full potential of wind.
That is not to say that we expect a disaster, but we do think it would be unwise to assume everything will all go according to EU plan.
Wind Watch
Wind Watch is published every Monday and Friday.
Imagine you are a shopping centre owner. You want to grow your business by building a new centre, but you are finding it impossible to secure government support. What now?
Most established landlords would redouble their efforts to generate extra revenue from existing centres. It could mean looking at new ways to retain tenants and attract new ones; or investing in a maintenance plan to keep customers shopping there. But whatever the approach, the idea is the same. If you cannot build anew then try to grow your returns from existing assets.
We expect wind investors to embrace this idea in the near future.
As it gets harder for developers to build new wind projects in some established markets, including the UK, the US and Australia, they will focus more on asset management, and especially repowering. Installing more efficient turbines is a good way to boost returns.
It is a topic that came up in a Q&A with Bryan Grinham, managing director of northern Europe for manufacturer Nordex, during our Quarterly Drinks evening on Thursday.
He said repowering was currently only a significant opportunity in Denmark and Germany as they have long-established wind markets, but it is a trend that will grow elsewhere too.
At present, Grinham said owners would look at repowering after a project has been running for 13 or 14 years, which assumes a typical life cycle of around 20 years.
However, in our view, it may also make sense for developers in countries with anti-wind governments to look at repowering earlier than that as part of their asset management strategies. If they are unable to gain support for building on new sites then it would make sense to look to increase energy from sites they already have.
For developers this will not be a substitute to building new schemes, maybe overseas and in emerging markets, but good asset management could help their bottom lines.
The challenge here is that replacing turbines only makes the best financial sense in cases where owners can win variations to existing planning consents.
He said: “Just to change a 90m rotor diameter turbine for another 90m rotor diameter turbine doesn’t do much to improve your electricity yield, but if permits change so you can swap that 90m diameter to 110m on a taller tower then repowering makes sense.”
Securing those changes relies on sympathetic politicians but, if a country is hostile to new builds, then it could well be hostile to revamps of schemes with taller turbines too.
In the UK, for example, the highest a turbine can go is 125 metres. If owners — and the country as a whole — are going to gain much from a repowering then they would need to go much higher than that. In Finland, turbines are allowed to go up to 220 metres, which means even on a slow wind day they produce far more power than a 125-metre rival.
Grinham estimated developers could gain 25%-30% more energy if they could install turbines 100 metres taller. That would make a big difference to the energy generated from wind farms and could be a vital part of a sensible long-term asset management strategy.
Whether governments allow such major changes is another matter.
Denmark is rightly known as among the most forward-thinking nations on green energy.
In fact, it is a point made again in the UK's Financial Times this week. Despite low oil prices, Danish wind pioneers including Henrik Stiesdal, former Siemens chief technology officer, have said Denmark would continue to focus on renewables, including wind. This is because energy from renewables is subject to less volatile price fluctuations than sources like oil, which has gone from $150 a barrel in 2008 to around $50 now, and could rocket again.
In this article, the Danish Energy Agency said that political consensus had “created a stable and consistent political framework, which is important for investor security”.
But there are now cracks appearing in this consensus, and the volatility in the oil market is one of the key reasons why.
Last week, Danish finance minister Claus Hjort Frederiksen, said the Liberal-run Danish government was looking to reverse some of the country’s most ambitious energy targets. These include dropping its plans to phase out coal-fired power stations and become fossil fuel-free by 2050; and make cuts of 340million kroner ($52m) in green funding initiatives over the next four years. The plans were initially reported in local newspaper Information.
The possible change of direction on renewables follows the election in June. The new government is looking for ways to fill a growing budget deficit, which is forecast to be 2.7% of GDP this year. This is more than double the 1.3% that was previously expected.
And the reasons for this deficit include falling returns from oil sales, as well as reductions in the amount of tax raised from Danish pension assets. Therefore, indirectly, the rout on oil prices caused by sluggish global demand and continued high production in the Middle East is having a destabilising effect on support for renewables in a leading green nation.
Frederiksen has said the changes represent a “microscopic adjustment” to the country’s approach to energy policy, and said Denmark was still a leader in renewable energy.
Now, we are aware that governments often need to change course when faced with major challenges in the global economy. However, these cuts look more ideological than they do financially-sound.
The plan does not seem to stack up financially. It may be true that every little helps, but a saving of 340million kroner ($52m) spread over four years will make next to no difference to Denmark’s budget deficit. It will, however, put the brakes on growth in renewables. We see little sense in the country undermining investor confidence for such a small saving.
And there is also the proposed reversal of Denmark’s 2050 targets which, as far as we can see, has no short-term benefit but will simply undermine confidence in the long term.
Denmark set a course early to pursue renewables, and is still seen as one of the world’s pioneering wind markets with some of its influential companies, including Vestas. It would take a lot more than these changes to wreck the market, but it could be an early indicator that worse is yet to happen. We need only look to Australia to see how quickly support for sectors including wind can ebb away in the face of a sustained assault from government.
Denmark's wind crown appears to be slipping. It would be a big shock if the government lets it fall off completely.