Wind Watch
Wind Watch is published every Monday and Friday.
In the meantime, here is the latest in a regular series of Q&As profiling our members. Interested in being profiled in future? Please contact Richard Heap, editor or Joe Gulliver, membership manager.
Name: Dominic Szanto
Job: Director, Renewable Energy Capital
Company: JLL
How long have you worked in renewables?
I began my career in energy storage and moved into wind in 2006 when I joined the commercial team of RWE Innogy in their dedicated renewables division. Subsequently, I moved on to head up all of RWE Innogy’s UK and offshore wind M&A activities. In April 2015 I moved to JLL to head up a new offshore wind advisory function.
In ten words or fewer, what does your firm do?
M&A, debt and equity fundraising and financial advisory across renewables.
In which markets do you see the biggest opportunities?
Given sufficient clarity and support, offshore wind in the UK is still a potentially huge market. Even if future growth is limited, there will still be opportunities for consolidation of assets to the ‘lowest cost of capital’, as we have seen in the onshore market, with utilities and developers looking to take more of an asset management role.
Away from the UK, the Dutch auctions are well-structured and will be highly competed and if the USA market takes off, it could provide huge opportunity.
What is the biggest challenge for wind? How would you fix it?
It’s hard to get away from the fact that UK onshore faces challenges both to the levels of subsidy and the success of planning.
Offshore, the challenge is whether developers and investors can trust the Government not to make further retrospective changes which affect the sector: Levy Exemption Certificates have already been removed and projects like Galloper and Rampion would not be immune from changes to the Renewables Obligation.
DECC urgently needs to provide a clear long-term vision for the sector and provide clarity on Contracts for Difference timetables and budgets. It would also be nice to see the same level of planning support for wind as fracking will allegedly receive.
What do you enjoy most about working in wind?
Because of my focus on offshore wind, I have witnessed the many challenges associated with that sector: supply chain shortages, technical problems and lack of finance, all of which the industry has solved, mainly by those companies that believed offshore wind had a strong future. I have been delighted to see offshore wind emerge as a true mature asset class.
There will doubtless be new challenges to come, but I am now confident that they will be solvable.
Why did you join A Word About Wind?
I was told the drinks evenings are unmissable!
Article search
When investors with assets worth £45bn talk, other firms listen.
And when they write it has much the same effect. That is why were interested to read a series of letters written by a coalition of 25 institutional investors last week that urge nine publicly-listed firms to leave lobbying groups that are undermining European climate policy. London-based responsible investment organisation Share Action organised the campaign.
The investors who signed the letters come from three continents and include AP4 Swedish National Pension Fund, Boston Common Asset Management, The Pensions Trust, Sarasin & Partners and Walden Asset Management; and their targets include some of the world’s largest energy companies: BP, EDF, Statoil and Total. These letters said that these groups are members of lobbying organisations that directly contradict their stated ‘green’ policies.
This is relevant for two reasons. First, because the likes of EDF and Statoil are investors in renewable energy, including wind, alongside their investments in other types of energy. This means that any effort to weaken renewable energy laws looks like hypocrisy.
And second, because the European Union cannot help but be influenced by lobbying on behalf of giant multinational corporations. These lobby groups will affect, however subtly, new EU laws that are pro-renewables, and that will harm investment prospects in sectors like wind. If this letter-writing campaign can encourage these multinationals to cut their ties with these anti-renewables lobbyists then it must be a benefit to those who work in wind.
This is the latest salvo in a movement by investors in recent years to pressure corporates to exit anti-renewables lobbying groups, with high-profile successes including Unilever leaving Business Europe. Corporates must take a long-term view on the climate.
That does not mean they will do so.
We are sceptical about whether these letters will actually achieve their main goal because, despite all the big-name signatories, they cannot actually force those in charge of other companies to exit anti-renewables lobbying groups; and they have little more behind them than the weight of liberal opinion. If a company like BP has faced years of global anger for the Deepwater Horizon oil spill then it should have no trouble ignoring a letter like this one.
But this week’s campaign has at least helped raise public awareness of the world of anti-renewables lobbying. In particular, the letters quoted the Policy Studies Institute, which has said the groups Business Europe, Cefic, Fuels Europe and the Association of Oil & Gas Producers “contributed to obstructive lobbying” on the EU’s 2030 framework for climate and energy policies, and on options to strengthen the EU Emissions Trading System.
It said: “These associations gain legitimacy by being able to say that they speak on behalf of major industry players… [and your] withdrawal would help to undermine this claim.”
If these letters encourage some of these global giants to cut their ties with anti-renewables lobbyists then it would help strip away some legitimacy from those groups, and benefit the companies that have invested — and continue to invest — in wind farms in Europe.
And, if they don’t, at least they highlight the murky lobbying around key EU ‘green’ policies.
Brazil has slumped into recession. Unemployment is rising, inflation is close to 10%, and this week the government revealed that it expects to run a budget deficit in the next year. The country is now looking at ways to cut spending or raise taxes to fill the hole.
It is with this backdrop that wind professionals in the South American nation attended the Brazil Windpower 2015 conference in Rio de Janeiro this week. And, despite wider gloom, there is still optimism about Brazilian wind. The nation is on the cusp of becoming one of the world’s ten largest wind markets. It is currently eleventh with around 6GW of installed capacity, included 2.5GW added in 2014, and this could rise to 9GW by the end of 2015.
If developers build the projects they are expected to then we could see an extra 13GW by the end of this decade, including 500MW of projects that won consent at a government auction last month. The next Brazilian capacity auction is due to happen in November.
But this optimism may be short-lived.
Investors with an interest in this market would be well advised to take advantage of these auctions soon. If the economic gloom in the country takes hold then the government could look to cut subsidy support for renewables. It is a response that we have seen in other recent recessions, in countries such as Spain and Greece.
The other side of this is that investors need to exercise caution. There is no hint yet that the Brazilian government could make the same damaging retrospective cuts to subsidies that the Spanish government did, but businesses must be aware of the danger.
At present, however, Brazilian energy minister Eduardo Braga is talking positively about wind. He has called on manufacturers to produce bigger turbines in Brazil; and also wants developers to look at the potential to develop offshore wind farms in its waters.
But Braga also accepted that firms still faced logistical problems.
The key problems include delays linking new wind farms to the grid; challenges operating and maintaining projects, which is in part due to a substandard supply chain; and issues with transporting turbine parts. Each of these alone would be enough to give a developer a headache, but taken together they represent a serious battle.
In our view, it would be worth Braga focusing on those problems before encouraging firms to over-extend themselves. We see little sense in building wind farms off Brazil’s coast if there are already big obstacles to connecting and maintaining onshore projects. If a major recession takes hold then the government would likely see offshore wind as a costly option and enthusiasm would dampen.
Meanwhile, if manufacturers produced larger turbines then it would exacerbate problems with transport, at a time when the government has less money to spend on the roads.
One opportunity in Brazil that should remain even in a recession is in the maintenance market, which industry experts have said could grow from being worth $150m annually now to over $500m within the next decade. Lenders are keen to back low-risk projects, which means that developers need good O&M contractors to manage their wind farms.
This opportunity should grow even in a recession as lenders get more risk-averse. It is a bright spot in a country where the economic storm clouds are brewing.
Wind Watch
Wind Watch is published every Monday and Friday.
In the meantime, here is the latest in a regular series of Q&As profiling our members. Interested in being profiled in future? Please contact Richard Heap, editor or Joe Gulliver, membership manager.
Name: Nicola Riley
Job: Head of Wind Energy - UK
Company: Fichtner
How long have you worked in renewables?
I started my career in renewables in 2002, working for Npower in microgeneration including small-scale solar and wind installations. I subsequently consented over 100MW of onshore wind schemes for Airtricity in Scotland; and led M&A activities for Infinis in the wind sector managing due diligence and transactions on several wind portfolios, including operational and development assets.
I now lead the UK wind activities in Fichtner, including onshore and offshore, and offshore transmission technical advisory services. I have been responsible for the delivery of over 1GW of wind due diligence since joining Fichtner.
In ten words or fewer, what does your firm do?
Leading independent engineering consultancy, delivering technical advisory in renewable energy.
In which markets do you see the biggest opportunities?
Offshore wind and offshore transmission, both in the UK and Germany. Fichtner has a strong presence in both jurisdictions and can bring significant lessons learned from deeper-water, HVDC-connected wind farms in Germany to offshore wind projects in the UK, particularly Round 3.
We are also engaged on strategic opportunities in emerging sectors such as marine power and energy storage.
What is the biggest challenge facing wind and how would you solve it?
Proposed policy and subsidy changes, which impact on investor confidence for projects. The UK has the opportunity to become a world-leader in sectors such as offshore wind and tidal energy, and long-term investment is key to support these technologies and secure a stable jobs market. More must be done to engage with politicians, business leaders and local communities to achieve future energy solutions, including continued support for those technologies that are delivering the current targets and are commercially proven, in order to attract financing for the sector.
What do you enjoy most about working in wind?
The daily variety and challenge of wind energy projects and the ability to share projects and knowledge with our wind colleagues across Europe.
Why did you join A Word About Wind?
To stay connected to the leading industry participants and to keep updated on the weekly news stories that are impacting the sector.
Name: Nicola Riley
Job: Head of Wind Energy - UK
Company: Fichtner
How long have you worked in renewables?
I started my career in renewables in 2002, working for Npower in microgeneration including small-scale solar and wind installations. I subsequently consented over 100MW of onshore wind schemes for Airtricity in Scotland; and led M&A activities for Infinis in the wind sector managing due diligence and transactions on several wind portfolios, including operational and development assets.
I now lead the UK wind activities in Fichtner, including onshore and offshore, and offshore transmission technical advisory services. I have been responsible for the delivery of over 1GW of wind due diligence since joining Fichtner.
In ten words or fewer, what does your firm do?
Leading independent engineering consultancy, delivering technical advisory in renewable energy.
In which markets do you see the biggest opportunities?
Offshore wind and offshore transmission, both in the UK and Germany. Fichtner has a strong presence in both jurisdictions and can bring significant lessons learned from deeper-water, HVDC-connected wind farms in Germany to offshore wind projects in the UK, particularly Round 3.
We are also engaged on strategic opportunities in emerging sectors such as marine power and energy storage.
What is the biggest challenge facing wind and how would you solve it?
Proposed policy and subsidy changes, which impact on investor confidence for projects. The UK has the opportunity to become a world-leader in sectors such as offshore wind and tidal energy, and long-term investment is key to support these technologies and secure a stable jobs market. More must be done to engage with politicians, business leaders and local communities to achieve future energy solutions, including continued support for those technologies that are delivering the current targets and are commercially proven, in order to attract financing for the sector.
What do you enjoy most about working in wind?
The daily variety and challenge of wind energy projects and the ability to share projects and knowledge with our wind colleagues across Europe.
Why did you join A Word About Wind?
To stay connected to the leading industry participants and to keep updated on the weekly news stories that are impacting the sector.
It was not easy for the UK government to get MHI Vestas and Siemens to invest in new factories for offshore blades in the Isle of Wight and Hull respectively. However, both did.
But the government’s silence on further support for offshore wind will likely have both of them privately questioning their decisions. UK leaders have talked about supporting offshore wind for the long-term, but have not yet confirmed if a second auction under the Contracts for Difference regime will start as planned on 21 October. That is just seven weeks away.
On the face of it both Vestas and Siemens should be pretty happy.
Dong is set to use MHI Vestas turbines in the 330MW first phase of the extension of Walney offshore wind farm; and in the 256MW extension of the 90MW Burbo Bank. It has also ordered the firm’s turbines for the 450MW Borkum Riffgrund 2 in German waters.
Meanwhile, Dong has also taken full control of the 4GW Hornsea offshore wind zone, and it is looking at projects totalling 3GW at Hornsea 2 and 3. It is already using Siemens turbines at 1.2GW Hornsea 1, and people in Hull feel this new Hornsea deal will result in work for the Siemens factory at Green Port Hull. This plant is due to be operational next year.
There is also the comparatively strong performance of offshore wind despite a punishing slump in North Sea oil and gas.
Indeed, at Global Offshore Wind 2015 in London in May, UK energy and climate change minister Amber Rudd said that UK offshore wind was “one of the 21st century’s biggest industrial success stories”. This helped improve confidence.
But those working in UK offshore wind are getting increasingly concerned about the lack of communication from the government on future CfD plans. If this support is not forthcoming then it will hit those in the supply chain who are investing in their operations.
The current situation has not moved on — at least not publicly — since the government’s Low Carbon Contracts Company said in March that the second CfD auction would be “at the discretion” of the new government. If such support is not forthcoming then developers will find it hard to build new schemes, and work will dry up for those in the supply chain.
And Diana Johnson, the MP for Hull North, last week raised concerns that she has not heard more from the government about its pledge in December to form a National College for Wind Energy. The idea of this college is to train thousands of young people in the skills they need to work in the UK offshore wind industry. If it does not happen then it gives more weight to the idea that the UK government is not backing offshore wind for the long-term.
With such uncertainty we can see why Siemens would want to invest €200m in a factory for offshore turbine nacelles in Cuxhaven in Germany, announced this month, rather than the UK. There will be other strategic reasons for this but UK uncertainty cannot help.
Now, perhaps the government is simply taking longer than expected to work out its plans. Perhaps, but a CfD second auction is only be a continuation of what the ruling Conservative Party was doing under the previous government, when it was in coalition with
the Liberal Democrats. This is not new ground.
UK leaders may also point to the fact that they are supporting UK offshore wind, and only this month gave consent to the Forewind
consortium to build 2.4GW in two schemes in the Dogger Bank zone. Crucially, though, it is not the same as financial support.
In the next two months, the government can either let uncertainty fester, or spell out its plans for CfDs. We prefer the latter.
For those of us based in western Europe there are few places as remote as New Zealand. It is one of those holiday-of-a-lifetime destinations that few of us will get round to actually visiting.
With a journey time of a day or more, it would be a big commitment for most wind investors to make the trip too. But New Zealand has a growing wind market and potential investment opportunities, so is it worth digging out your best plane socks and jumping on a flight?
The raw numbers show New Zealand is taking renewables more seriously than Australia is under the destructive regime of Prime Minister Tony Abbott — though it could hardly be doing any worse.
The 2015 version of the New Zealand government’s annual ‘Energy in New Zealand’ report shows that renewables made up an impressive 40% of the country’s primary energy supply in 2014.
It gets less impressive when we look at the figures for wind, though. Less than 1% of the total energy supply came from wind farms. The 690MW of capacity in 19 projects means wind lags far behind three other renewable sources: geothermal, hydro and bioenergy.
There are growth plans, though. The New Zealand Wind Energy Association says there are 2.5GW of wind farms consented in the country, and that developers are on the lookout for sites for new schemes. These projects will need to be funded somehow.
Again, this is unlikely to be enough to attract investors that have not previously looked at that part of the world. There are other markets with bigger ambitions for wind — Brazil, India, South Africa and Turkey to name just four — that are easier for European investors to get to. There are also opportunities in other nations within the European Union. Against that backdrop, New Zealand is a long way to go for a relatively small emerging market.
But it will be of interest to some, and this is where the relationship with Australia is key. As Abbott continues with his ‘anti-wind’ assault in Australia, we would expect investors that have been looking at schemes in Australia to cast their eyes across the Tasman Sea.
For example, Meridian Energy has said it plans to avoid investing in Australia while Abbott is in charge. Meridian is New Zealand’s largest electricity firm and co-developed Australia’s largest wind farm, the 420MW Macarthur project, but has chosen not to pursue any of the 100 projects it has looked at in Australia over the last year. It is now looking to build wind in New Zealand as the nation gets set to close its last large coal-fired power stations in 2018.
Overseas investors who are considering investing in New Zealand will undoubtedly see more competition in the country from the firms that are being pushed out of Australia.
European investors could see that as a negative, but there is a positive side. If experienced developers bring forward new projects in New Zealand then that should mean opportunities for overseas investors to link up with those who really know the market. This can help to de-risk investments by taking advantage of local knowledge.
It will not be for everyone of course, but no emerging market is.
Wind Watch
Wind Watch is published every Monday and Friday.
Twenty-five years ago, some of the earliest European wind farms were being developed and built.
Soon after, the wind industry starting operating at the first real semblance of scale, with important first projects demonstrating some promising ambition.
Now scroll forwards to the present day.
The industry of 2015 is a far cry from that which was only really starting to be understood in 1990. And as such it is not surprising that, with many of those early projects now starting to hit the end of their consented terms, a crossroads has been reached.
Take for instance, E.On’s Ovenden Moor Wind Farm, in West Yorkshire. When built, this was one of just five projects to benefit from the UK’s Non Fossil Fuel Obligation.
Coming online in 1993, the project performed well and, as a result, in 2012 it made sense for its owners to look at repowering options.
Soon, the park will begin a much-anticipated upgrade programme that will see the existing infrastructure removed and replaced with half as many turbines generating more than twice as much power.
However, while repowering sites presents significant long-term revenue gains, it must be set against the upfront capital spend. In the UK, with the Renewable Obligations Certificates ending and with Contracts for Differences providing no support to the onshore wind market, extending the life of a project has become an increasingly attractive option.
That is precisely why we are starting to see an increasing focus on independent asset managers, like Greensolver, to drive greater efficiencies through the latter years of a project’s life.
Here, by maximising operational availability and by searching for incremental performance gains, while limiting any further capital expenditure, investors can generate greater long-term returns from the asset class.
However, there is arguably a more important net result that has become apparent as developers and investors apply greater focus on those projects that they back – either through repowering or through extending a project out beyond its initial anticipated life. Namely, that this self-selection is having a positive impact on the strength and quality of the remaining asset class.
In other words, in the future only those projects of significant operational and performance merit will warrant additional time and capital expenditure.
Sure, there is no doubt that the political blood-letting currently being experienced in the UK is causing significant long-term market concern. But there is also no denying that in pursuing such deep cuts, the asset base that remains will, in the long-term, be all the stronger for it.
It is 200 years since Switzerland became neutral following the Treaty of Paris in 1815.
The country’s stance on wind power has been similarly neutral. Though its neighbours are Germany (39.2GW wind capacity at the end of 2014), France (9.3GW), Italy (8.7GW) and Austria (2.1GW), this enthusiasm has not rubbed off on Switzerland. The landlocked nation has just 60MW, with only 34 large turbines installed.
As a result it has quickly slipped behind most of Europe in terms of wind power installed per capita.
Now, finally, it appears to be waking up to the potential of wind.
The Swiss Federal Council is looking to make the country more open to wind investors. It decided in May to raise surcharges that consumers pay to promote renewables, including wind, by 18% to 1.3 Swiss cents/kWh (1.1 euro cents) from the start of 2016.
This gives it a larger pot of money to pay feed-in tariffs to new projects, and thus enables the country to grow wind capacity from its current low level.
The goal of expanding wind energy has also won support of Switzerland’s National Council and an advisory commission of the Swiss Federal Council, which effectively gives wind an ‘official’ status in Swiss energy policy for the first time. Practicalities pending, this should be a boost to investors.
These are only small steps and will make little difference if the government is not keen to push for the development of more wind farms. This is the great unknown. Those involved in the Swiss energy market have defended the government’s record thus far.
Let us consider the view of the Swiss Federal Office of Energy, which says that the growth of wind has not been curtailed because of lack of enthusiasm from Switzerland’s leaders. Rather, it says that few turbines have been built because of the slow process of planning and gaining authorisation for schemes. These are, of course, both roles of government.
The federal office also said investors tend to find their schemes hamstrung by locals who are concerned about how projects look; how they might be affected by noise from turbines; and concerns about the effects that projects will have on the environment and wildlife. Any developer with a track record, will know the problems.
And it said that Swiss leaders had approved projects with 600 turbines, with a further 325 on a waiting list. With only 34 turbines built, these projects are getting stuck somewhere.
This should make investors wary. Developers in most countries face issues from problems with local bureaucracy and hostile locals, but governments can make schemes happen if they are serious enough about backing renewables. The fact this has not happened so far in Switzerland should make investors question the realities of such matters.
Raising wind surcharges is a step in the right direction but tackling the Swiss track record requires more than just a quick fix.
Wind Watch
JP Morgan plans Leap Green stake sale
JP Morgan plans to sell around half of its stake in Indian investor Leap Green Energy for an estimated $225m.
The investment arm of JP Morgan currently holds a 75% stake in the Chennai-based company, which is valued at $550m-$600m.
According to local media, JP Morgan has started initial discussions with foreign renewable energy producers and private equity funds.
NTR spins out European wind business
Renewable energy investor NTR is set to transfer its European wind business into new holding company NTR Plc.
Following the demerger, the Irish conglomerate plans to leave its existing toll roads business with separate holding company Altas Investments. NTR's current chief executive Rosheen McGuckian is set to transfer to the new wind business.
NTR targets small- and medium-sized projects in pre-construction, with an active portfolio of over 20 single-turbine projects in Northern Ireland. The plan is due to be confirmed on 9 September.
Vattenfall drops decade-old UK project
Vattenfall has scrapped plans for an 11-turbine wind farm in north Wales after ten years in development.
The Swedish utility said that changing market conditions in the UK meant that the 22MW Nant Bach wind farm, which gained planning consent in 2011, was no longer financially viable.
It has been suggested that, in order to improve its plan for the site, Vattenfall would have had to build larger turbines and re-file for planning permission. This would have been difficult given changes to UK planning rules for new onshore wind developments.
EU set to back €12.4bn GE-Alstom deal
General Electric is expected to secure EU approval next month for its proposed €12.4bn purchase of Alstom’s power assets.
The US multinational offered concessions last month to address competition concerns from the European Commission, and improved its package last week. The Commission is due to make a decision on 11 September, and sources close to the deal said they were confident it would now go ahead following the revised offer.
GE’s acquisition of French peer Alstom has the backing of the French government, which is set to buy up to 20% of Alstom from construction group Bouygues once the GE bid is cleared.
Terrorism is a constant threat in Pakistan, but it is not the only factor that is holding back the Asian nation. Pakistan is also in the grips of a worsening energy crisis.
The country’s infrastructure is crumbling, and this frequently causes blackouts. One of the most disruptive happened in January, when 80% of the country was plunged into darkness after a power line broke down, and this is far from an isolated incident. In some cases the public anger about these blackouts can spill over into rioting, especially in the hot summer where power is needed to make it bearable to work during the day and sleep at night.
US research organisation Wilson Center has attempted to put some numbers to this crisis. In late June, it published a report called ‘Pakistan’s Interminable Energy Crisis’, which said that energy shortfalls in Pakistan have been around 50% of the country’s total demand. In day-to-day life, these energy shortages can be every bit as disruptive as terrorist attacks.
This report also said that peak power demand in Pakistan is set to exceed current installed capacity by 10GW in the next few years; and that the country’s total energy demand is set to double by 2025. This opens an opportunity for wind energy investors to get involved in the Pakistani energy market, but those investors would be wise to exercise some caution.
Pakistan’s leaders are looking for solutions to their energy problems, and they see foreign investment as a way to help fix them, with particular interest from China, Iran and Russia. There are projects being planned in the country’s established energy sectors — oil (37% of its energy mix), hydro (31%) and gas (28%) — but wind and solar are also in its plans.
Earlier this year, Chinese power firm China Three Gorges Power Corporation completed a 49.5MW wind farm that is its first in Pakistan; and, in total, the government said last month that it has approved some 500MW of wind farms since Prime Minister Nawaz Sharif came to power in June 2013. Pakistan had wind capacity of 256MW at the end of 2014.
The country’s Alternative Energy Board is also in talks for projects totalling 774MW in wind and 771MW in solar; and is estimating that Pakistan could add as much as 50GW of wind capacity to its current generation capacity of 22GW. It is looking to renewables as a way to fill power shortfalls that the government estimates are costing the economy $2bn a year.
Lenders including International Finance Corporation, Asian Development Bank, Overseas Private Investment Corporation and Habib Bank are among those financing wind projects in the country. Other overseas investors, however, should exercise caution.
This is not only about terrorism, which is a constant risk that drives away potential foreign investors in the country. However, investors must also be wary about the lack of joined-up-thinking on energy policy that can guide the country’s approach to renewables.
Currently, energy policy is formulated by federal and local institutions, with the relevant bodies including the Ministry of Water & Power; Ministry of Planning & Development; and the Alternative Energy Board. If the country is serious about addressing its problems with energy policy then an overarching energy ministry to guide its plans would be a big help.
And then there is the lack of a reliable transmission grid, which led to the 80% blackout in January. This is a significant financial risk for operators exporting energy from wind farms.
Investors looking at Pakistan should go in with their eyes open. But then again, if you are looking to put money into this part of the world, booming India would be a better bet.
The High Court in London last month ruled against German manufacturer Enercon in a claim of patent infringement against Siemens, Dong Energy and A2Sea. It is a judgment that could have significant impacts on those investing in wind innovations.
The German manufacturer, which brought the action via subsidiary Wobben, said the trio used Enercon’s patented technology in turbines used at UK offshore wind farms including the 630MW London Array, 210MW Westermost Rough and 172MW Gunfleet Sands. It has valued its legal action at around £13m.
Specifically, Enercon claims Siemens, Dong and A2Sea used a system similar to its ‘storm control’ technology, which shuts down turbines in high winds (over 25m/s) and does not re-start them until the wind is consistently slower. The German firm first filed a patent for this way of operating a turbine in September 1995, and this patent runs to August 2016.
However, the UK High Court ruled the patent was invalid and, even if it was valid, the other parties would not have breached it. The judge said that the idea pre-dated Enercon.
We do not expect this to be the end of the case. Enercon is able to appeal the ruling; and the judgment would need to be ratified by the European Patent Office if it is to be used in Europe more widely. Even so, this is a significant ruling because the judge ruled the idea did not show enough ‘inventiveness’ to make the patent applicable.
Put simply, innovators in the wind industry will need to show their ideas are sufficiently inventive if their patents are to stand up.
The case is also important because it shows how all firms in the development process, from the developers and investors to the manufacturers and contractors, are at risk from legal actions over patent infringements. It also shows how firms should arm themselves with information and projects and turbines in order to protect themselves in these cases.
We expect it to be more common for such cases to end up in court.
Spending on research and development by major manufacturers has fallen since the world financial crisis hit in 2008, and has not recovered. It is therefore natural for manufacturers to look to protect their inventions. They may only give marginal gains but, in an era where we are looking at how to bring down the cost of wind energy and increase their lifetime yield, technology that gives such marginal gains could make all the difference.
It is disappointing for the wind industry to spend money fighting legal battles when it could be developing innovative new products. Nevertheless, in an increasingly competitive market similar such cases will undoubtedly come to light in the future.
And for claimants like Enercon? We think there are two lessons.
First, defendants are not backing down and simply licensing the product to avoid a legal fight; and, second, these patents have to demonstrate a degree of ‘inventiveness’ that Enercon could not show this time.
Having a patent is fine, but it’s simply an expensive folly if it does not stand up in court.
Here is the first in a regular series of Q&As profiling our members.
Name: Kimberly E. Diamond
Job: Senior Attorney
Company: Drinker Biddle & Reath LLP
How long have you worked in renewables?
I’ve been active in renewables for seven years. Since 2012, I have co-chaired the American Bar Association’s (ABA’s) Renewable, Alternative & Distributed Energy Resources Committee in the Section of Environment, Energy & Resources (SEER); and I currently co-chair ABA SEER’s Special Committee on Congressional Relations. Additionally, I am chair of the New York/New Jersey chapter of Women of Wind Energy.
I regularly speak and publish articles on onshore wind, offshore wind, and other renewable energy topics. In addition to my energy and finance law practice, I am an adjunct energy law professor at Fordham Law School.
In ten words or fewer, what does your firm do?
Global law firm providing solutions for legal and business issues.
In which markets do you see the biggest opportunities at present?
First, the developing US offshore wind market, given the constraints of the US’s existing energy grid, particularly on the East Coast.
Second, the distributed wind market, particularly with respect to energy generated at remote locations, colleges/universities, and office parks that can be integrated into microgrids.
What is the biggest challenge facing wind, and how would you solve it?
Gaining wide-scale public buy-in from the American public for implementation of utility-scale offshore and onshore wind. To solve this issue, greater strides must be taken to showcase the benefits of onshore and offshore wind so that positive feelings toward wind energy development is at the forefront of public consciousness.
What do you enjoy most about working in wind?
How science, technology, and law all combine together to benefit the world.
Why did you join A Word About Wind?
To learn about the latest industry developments in the wind market, both domestically and abroad.
UK portfolio sale boosts PNE profits
German developer PNE Wind has reported second quarter profits of €30m, following the sale of its UK project pipeline.
In June, PNE Wind sold all shares in its UK subsidiary for £103m. Of this figure, PNE has already received £38.3m. The remaining amount is due in 2020 when the company anticipates that project development milestones would be met.
The sale has bolstered the company’s operating profit for the three months to June 2015, which amounts to €30m before interest and taxes. This is up from €3.6m in the corresponding quarter last year. The announcement comes amid a dispute over control of the firm.
GE agrees $427m Brazil deal
General Electric is set to supply 156 turbines to a Brazilian firm in a deal worth $427m, which is GE's largest contract in Latin America.
Developer Casa dos Ventos Energias Renovaveis SA plans to use the turbines from the US giant to build a 360MW farm in Brazil’s northeastern states of Piaui and Pemambuco.
The Brazilian company was granted planning permission for the project in three separate auctions between 2013 and 2014. The wind farm is scheduled to begin commercial operation in April 2017.
Partnership to invest $2.5bn in Mexico
US energy company AES and Mexico’s Grupo Bal have agreed a five-year joint venture worth up to $2.5bn.
The partnership plans to invest $2bn-$2.5bn to build projects of at least 2GW, including wind farms, over the next five years. Three-quarters of the investment is set to be focused on electricity generation from conventional and renewable sources.
AES, which already operates three existing power plants in Mexico, is set to manage the new power plants built by the joint venture.
Report: US wind prices at 'all-time low'
The cost of energy from US wind farms has fallen by 66% since 2009, to an average of 2.5¢/kWh, according to a new study.
The US Department of Energy's '2014 Wind Technologies Market' report claimed that the drop in wind turbine prices and installed project costs have enabled this aggressive wind power pricing.
Lawrence Berkeley National Laboratory authored the research.
Turkey auctions 2GW ahead of 2020 plan
Turkey’s energy regulator, EPDK, plans to auction 2GW of wind capacity next year, which is four years ahead of schedule.
This Turkish government had been looking to auction this capacity by 2020, but it is now seeking to meet this goal earlier.
Turkey has 4,032MW of installed wind power from 101 sites as of July this year. However, the country wants to increase its capacity to at least 20GW by 2023.
Wind Watch
Wind Watch is published every Monday and Friday.
In the meantime, here is the first in a regular series of Q&As profiling our members. Interested in being profiled in future? Please contact Richard Heap, editor or Joe Gulliver, membership manager.
Name: Kimberly E. Diamond
Job: Senior Attorney
Company: Drinker Biddle & Reath LLP
How long have you worked in renewables?
I’ve been active in renewables for seven years. Since 2012, I have co-chaired the American Bar Association’s (ABA’s) Renewable, Alternative & Distributed Energy Resources Committee in the Section of Environment, Energy & Resources (SEER); and I currently co-chair ABA SEER’s Special Committee on Congressional Relations. Additionally, I am chair of the New York/New Jersey chapter of Women of Wind Energy.
I regularly speak and publish articles on onshore wind, offshore wind, and other renewable energy topics. In addition to my energy and finance law practice, I am an adjunct energy law professor at Fordham Law School.
In ten words or fewer, what does your firm do?
Global law firm providing solutions for legal and business issues.
In which markets do you see the biggest opportunities at present?
First, the developing US offshore wind market, given the constraints of the US’s existing energy grid, particularly on the East Coast.
Second, the distributed wind market, particularly with respect to energy generated at remote locations, colleges/universities, and office parks that can be integrated into microgrids.
What is the biggest challenge facing wind, and how would you solve it?
Gaining wide-scale public buy-in from the American public for implementation of utility-scale offshore and onshore wind. To solve this issue, greater strides must be taken to showcase the benefits of onshore and offshore wind so that positive feelings toward wind energy development is at the forefront of public consciousness.
What do you enjoy most about working in wind?
How science, technology, and law all combine together to benefit the world.
Why did you join A Word About Wind?
To learn about the latest industry developments in the wind market, both domestically and abroad.
Italy is the dark horse of European wind.
The southern European nation does not get the same attention as the likes of Germany, Spain, the UK or France, but is still Europe's
fifth-largest market, with installed capacity of 8.7GW. Between 2008 and 2012 it was growing at an average of 1GW a year.
But since then it has been through similar troubles as other nations.
The country was in the grips of the global financial crisis, and the government wanted to find a way to rein in subsidies to reduce the impact on consumer energy bills. In 2012, it switched to a regime whereby developers had to win their subsidy support through a feed-in tariff auction, but this added uncertainty to the system and made it financially unviable for many schemes to proceed.
The result is that annual installations dropped to 437MW in 2013, and then to just 108MW in 2014. Italy’s renewables association ANIE Rinnovabili released figures last month showing that 190MW of wind farms were completed in the first half of 2015, which is good progress from the previous year.
Even so, those regulatory changes are still causing problems.
It is not as bad as Spain, where nothing was installed in the first half of this year, but it is still not good. The Italian government has also sowed similar uncertainty among investors as Spain did, by making retrospective changes to the subsidies for solar farms.
Now, though, the Italian government appears to be recognising the problem and, later this year, it is poised to introduce a new ‘green act’ that promises to support sectors including wind.
The proposals include new laws to tax the largest polluters; eliminate subsidies for fossil fuels; introduce clear and transparent rules to approve renewables projects; and make it easier for communities, companies and individuals to install renewable energy technology. The devil will be in the detail but the plan, which is being driven by Prime Minister Matteo Renzi, looks as though it is going to put renewable energy on a more certain footing.
But we are not heading back to the days where annual wind installations topped 1GW. The reason for this is that the country has almost met its nationally-binding targets.
For instance, Italy is in touching distance of the 2020 target, set by the European Union, of generating 17% of energy from renewable sources. At a national level, it is still a way off the target set in 2008 of 12.7GW of installed wind power by 2020, but that target was set in the heady days before the global financial crash. Since then, Italy’s leaders have focused on the more urgent priority of stopping Italy from going the same way as Spain or Greece.
Investors should still be able to find opportunities in Italy. Firms are winning consent for projects, and there will be opportunities in repowering existing projects in order to improve returns. It has also thus far avoided the mistakes of nations like Spain.
Italy will not be top of the list of prospects for many investors, but this dark horse might still be worth a bet.
We have expressed doubts about US yieldcos before. They have to keep buying assets in order to generate returns for shareholders, which carries the risk they will pay too much.
Indeed, as you have read in the news section, the head of top US yieldco NRG Yield has said this week that prices are too high.
But at least firms like NRG Yield can control how much they pay for assets. Now firms in this sector also face a risk they cannot control.
Next month, the US Federal Reserve is tipped to raise interest rates, which some analysts and economists say could be the first of two US rate rises by the end of this year. The Fed has kept interest rates at near zero since the economic crash that started in late 2008 but, with inflation picking up in the US, it has indicated that a series of gentle rises is coming.
Alas, the impact on yieldcos would be anything but gentle.
To re-cap, energy companies set up yieldcos in order to hold operational assets including wind farms. The yieldco buys the completed assets from the energy company, as well as other sources, which gives the seller more money to invest in new developments. And the benefit to investors in the yieldco is the stable returns they get from the operational assets.
Bloomberg New Energy Finance reported that, in the US and Europe, 15 yieldcos have raised $12bn in the public markets over the last 30 months; and their market values have risen 84% to $28bn over the same period.
The problem is that, when interest rates rise, it boosts the returns that investors can get from other investments such as government bonds, which means that returns from wind-focused yieldcos look less attractive. The result is it will then be tougher for these yieldcos to raise more money to make further investments; and this also means that there is less money flowing on to the energy companies that set up the yieldco in the first place.
US yieldcos are looking to grow more aggressively than their European counterparts.
Among the most aggressive are NRG Yield, which said last year that it expected to grow its dividend by between 15% and 18% over five years; SunEdison’s TerraForm Power has committed to 15% growth over three years and has been highly acquisitive; and NextEra Energy Partners is looking for growth of between 12% and 15% over the next five years.
By contrast, London-listed yieldcos The Renewables Infrastructure Group and Greencoat Wind have said they are simply seeking to increase distributions in line with inflation.
Undoubtedly, a rise in US interest rates will reduce investment in US yieldcos and curtail some of the aggressive expansion plans, but in our view that would be no bad thing.
When these yieldcos are raising large amounts of money then it puts pressure on them to spend it, which means extra pressure to buy assets and greater risk of overpaying. In the long-term that makes the model unsustainable.
When interest rates rise, that may help to remove some of this pressure, and mean that the yieldcos left behind are more stable long-term investment prospects.
Ultimately, a reputation for stability is better for the wind sector than boom and bust.
Wind Watch
Wind Watch is published every Monday and Friday.
One year ago, British Gas owner Centrica said the UK should stop building pricey offshore wind farms. It is no surprise, therefore, that it is now exiting the wind sector altogether.
The utility last week revealed its first-half results, which showed small rises in sales (2% to £15.7bn year-on-year) and operating profit (3% to £1bn in the same period). But its financial performance was overshadowed by the results of a strategic review launched in February. It is set to axe 6,000 jobs and sell its three wind assets.
These job losses will be made through a mix of redundancies and not replacing staff that leave, but investments in other parts of its business mean the net loss of 4,000. This is a significant change of direction for the firm, and one with little space for wind power.
It follows a plan that the company put into action last year.
In summer 2014 it axed plans to develop 4.2GW of wind power in the Irish Sea; and in December it sold its 50% stake in the 90MW Barrow offshore wind farm for £50m to co-owner Dong Energy. The result is that its interests in the wind now total just 245MW.
Centrica should not have any problem selling these assets, either to existing co-investors or new investors. The largest of its three wind assets is a 50% stake in the 270MW Lincs offshore wind farm, where Dong Energy and Siemens Project Ventures own the remaining 50%. Dong and Siemens have both showed they are highly active in the sector and, if they are not interested in buying Centrica’s stake, we are confident that plenty of others will be.
The British utility’s other stakes are a 50% share in the 194MW offshore wind farm Lynn and Inner Dowsing, where EIG owns the other half; and 50% in the 26MW onshore wind farm Glens of Foudland where, again, EIG owns the remaining 50%.
The bigger question is where Centrica goes from here, as its review shows that it is not completely turning its back on renewables. The utility may not want to own or build wind farms, but it has said it will continue to be involved through power purchase deals.
Instead, it has turned its attention to stepping up investment in solar, particularly in North America. The company’s US subsidiary Direct Energy last year bought domestic solar specialist Astrum Solar for $54m to enable it to push into that part of the market.
Also, for the last couple of years, the company has also backed a fund, initially worth $125m, with Solar City to invest in commercial scale solar projects. It is not that Centrica dislikes all renewables, but mainly that it does not see potential in its wind business.
Back in the UK it is looking to ramp up the services it offers to large corporates; is eyeing deals in nuclear; and is backing technology to help homeowners boost energy efficiency. But no place for wind.
We never thought there would be.
If Hillary Clinton becomes US president in November 2016 then this should give a boost to investors in the country’s wind industry. She certainly looks better than the alternatives.
There is still a long way for Clinton to go in the race to succeed Barack Obama. She may be the leading presidential candidate for the Democrats but a nomination is not a foregone conclusion.
Then she would face fierce competition from the Republicans, whose leading candidates for a presidential nomination include former Florida governor Jeb Bush and the wind-hating billionaire property tycoon Donald Trump. Even so, she is a strong candidate.
In the last week Clinton has put renewable energy at the centre of her campaign.
She has said that, under her presidency, there would be 500million solar panels installed in the US by 2020; and that all homes in the US would be powered by renewable energy by 2024.
This would take renewables to 33% of the energy mix by 2027, compared with Obama’s 25% target over the same period, and quells the fears among green groups that she would roll back Obama’s policies. Clinton will reveal more on her plans this year.
Clinton is also looking to launch a Clean Energy Challenge to give states and communities financial incentives to exceed energy and climate change targets of the US Environmental Protection Agency. This is another move that would help investors in wind and solar.
The main concern from those in the wind industry will be that Clinton’s plan focuses more on solar than wind, but it seems churlish to complain about that. The fact is that she is the most pro-renewables of the leading 2016 presidential candidates.
We need only look more closely at the plans of a couple of her rivals to see there really is no other green choice.
For example, last week Jeb Bush said he wanted to scrap subsidies for oil and gas firms, which sounds like it should be good news for the renewable energy sector. In fact, it is the opposite. Bush actually wants to get rid of subsidies for all energy sectors, including wind, and this would make it much tougher for green energy companies to compete financially.
Effectively, he wants wind to compete on an even footing with a sector that has had a century's headstart. We could spend days debating what level of subsidies are appropriate, but expecting even competition here would clearly harm wind investors.
And then there is Donald Trump, whose hostility to wind farms — especially those near his golf resort in Aberdeenshire in Scotland— hardly needs stating. It is easy to dismiss his presidential run as a joke but, while he is running, we must be alive to the threat.
While Trump is highly unlikely to be president, his high-profile bid to become president has at least highlighted one thing: he owns shares in US wind investor NextEra Energy. It is good ammunition for the next wind developer who attracts Trump's ire.
His spokesman has denied accusations of hypocrisy because a proportion of Trump’s, money is managed by Deutsche Asset & Wealth Management A/C 1 Brokerage Acct Holdings.
But Trump is still a sideshow. It is the main battle between Bush and Clinton that we are watching with the most interest.
Wind Watch
Wind Watch is published every Monday and Friday.
Last week, US private equity house KKR (Kohlberg Kravis Roberts) bought an 80% stake in the solar arm of Spanish firm Gestamp.
This deal valued Gestamp Solar at $1bn, and the 80% stake is set to be held by KKR’s $3.1bn fund, Global Infrastructure Investors II. The deal is set to complete this year subject to regulatory approval. Gestamp Solar is active in 18 countries and has 300MW of solar farms operational or in construction, with 2.2GW more planned.
This foray into the solar market is a significant move for KKR, which has been growing its investments in renewable energy.
But we wonder what this means for Gestamp’s wind division.
On the face of it, Gestamp Wind is an investment as attractive as its solar sibling. It is developing, building and running wind farms in Europe, North America, South America and Africa; it has 900MW in operation or under construction; and it is planning 1GW more.
And we know the parent company is looking at division’s future. Indeed, in the release on the solar deal, Gestamp Renewables president Jon Riberas fanned speculation by saying that the firm was continuing to “evaluate its options” for the wind arm.
Neither Gestamp nor KKR has said anything, but we think it would be strange if a deal had not been discussed.
We also know KKR is interested in wind. In October, it completed the acquisition of a one-third stake in Spanish utility Acciona’s international development arm Acciona Energia Internacional, which has a 2.3GW portfolio, mainly wind, in 14 countries. Its key markets include North America, Europe, Australia and Africa.
Buying a stake in Gestamp Wind would give it the chance to grow its portfolio even further.
And KKR has also talked highly of its new partner, as you would expect. Jesus Olmos, head of European infrastructure at KKR, said Gestamp had a “highly experienced and entrepreneurial management team, an outstanding track record of developing and constructing its own assets, and an attractive advanced portfolio”.
But such a deal is not without risk. KKR may feel that buying a big stake in another part of the Spanish firm would leave its $3.1bn fund too exposed to the fortunes of one company. It is a legitimate concern, particularly with the problems facing Spanish firms.
So, if there is no deal with KKR, what else could happen with Gestamp Wind?
One option would be to continue in its current form, but that looks unlikely. We think Gestamp Wind wants a deal so it can bring in the financial backing that would enable it to step up the scale and pace of its investment plans, and compete with global rivals.
If there is to be a deal then there will be other private equity firms interested, as well as US yieldcos and other big developers. Wind is ripe for consolidation, and we have seen Centerbridge Partners get involved this year by buying manufacturer Senvion.
Or perhaps it will sell a stake to US renewables giant SunEdison, which has done a series of significant deals this year.
But, whichever way this goes, we expect a deal in the next 12 months. Watch this space.
Is there a way to shave months off the development time for a new wind farm? The Massachusetts Institute of Technology thinks so.
In the next week, it is set to present a new statistical technique at the International Joint Conference on Artificial Intelligence in Buenos Aires, which it says will improve the energy yield from wind farms. It also says that its method only needs three months of data, which could save several weeks on project planning.
If MIT is correct then this would save developers time and money; and therefore boost financial returns from projects. MIT says the approach would have the biggest effect on offshore wind farms, where installing and maintaining measurement stations is pricey.
And, of course, it will have applications in onshore wind too, where subsidies are often in a state of change with developers racing to finish schemes before rules change. The current building boom in Germany ahead of changes in 2017 is one example of this.
There are plenty of reasons to welcome MIT’s contribution.
Like any industry, it is easy for people working in wind to focus so much on the short-term goals of developing schemes and making money that they can lose track of the industry’s long-term aims.
But we should never forget wind is under constant pressure to show that it can compete economically with fossil fuels and other energy sources, such as nuclear.
It also shows the benefit of bringing in insight from others outside the sector. It is too easy to discount the ideas of people who do not work in wind full time, but we should remember that they are in fact perfectly placed to question established ways of working.
And it should also remind us why it is important for firms to continue to invest in research and development to improve both working practices and technology. It is all too easy to cut back on research when the industry is under pressure to deliver energy at lower costs but, in fact, it is a perfect time to invest. We must keep innovating.
So what has MIT found?
The scientist behind the study, Kalyan Veeramachaneni, said consultants typically forecast wind speeds at a given site by measuring wind speeds for a year and then correlating this with a nearby weather station. The consultant then comes up with long-term predictions.
MIT’s approach is different because it uses only three months’ of site data but correlates it with information from multiple weather stations — from 15 or more sites — which can give more accurate long term forecasts. The researchers said that, based on their tests, their method could predict wind speeds for the next two years three times more accurately than existing models. This is because its method finds non-linear links between the data-sets.
That is the theory. Now we need developers to test the model.
With the financial benefits on offer, it should be easy for MIT to find someone willing to give it a try.
Guest post by Ked Shayer, an offshore wind energy advisor for Mott MacDonald who has worked on high-profile offshore wind projects such as Walney, Cape Wind and Gemini.
Guest post by Ked Shayer, an offshore wind energy advisor for Mott MacDonald who has worked on high-profile offshore wind projects such as Walney, Cape Wind and Gemini.
The appetite for financing offshore wind projects is growing, with a wide range of investors interested in accessing an attractive and cash hungry market. So what can offshore wind developers do to de-risk projects and attract this investment?
The most important factor in delivery of an offshore wind project is the quality of the developer and contractor teams. These projects are complex, with many interlinked aspects, and strong communication is vital. Owner management teams of 20-30 often communicate better than larger groups with more restricted communication.
Health and safety performance should also be paramount, with contractual penalties for poor performance and the developer having the authority to address issues with contractors and subcontractor staff. Developer-managed marine coordination centres and relevant contractual procedures can help reduce health and safety risks.
Typically, contractors are unwilling to accept ground risk, so the standard of ground investigation campaigns is crucial. Comprehensive investigations can be costly so a staged investigation campaign should be implemented to minimise expenditure prior to confirming conditions are appropriate. However, knowledge of ground conditions is insufficient to confirm offshore structures can be designed appropriately, so design and certification should be in place at or shortly after any financing decision.
We have not seen any standard on contracting strategies and, while lenders always prefer a reduced number of contracts, experienced developers often feel best placed to manage the complex job of co-ordinating offshore work. We have not detected any relationship between number of contracts and project costs and, with a strong management team armed with a comprehensive interface matrix, a multiple contract approach is manageable.
Approaches to weather risk sharing are equally varied, and it is crucial to use clear language on weather thresholds, the risks accepted and measurement procedures.
During installation the highest-risk items are vessels. Delays can cost €100,000 to €300,000 a day, so even minor issues can lead to expensive overruns. Engagement of contractors and the marine warranty surveyor in development is crucial, to confirm vessel specifications and operational criteria are appropriate and understood.
Developers should actively check vessel availability and back-up options in case issues are experienced. Cable laying is a particularly high-risk activity, and owners should carefully monitor planning and execution in this area.
Permits should be completed prior to any financing decision, with requirements collated and passed to contractors where appropriate. Stakeholder reference groups should be created early in the process to aid communication and gain understanding from relevant groups.
Operations and maintenance (O&M) should be considered from the design stage with maintainability and redundancy forming a particular focus. Electrical system downtime can affect multiple turbines and be extremely costly, so plans for major intervention and replacement of key components, particularly cables, should be carefully considered. O&M teams should be involved in the commissioning period in order to be up to speed from day one.
While these lessons have typically been learned in other industries, many have been costly in offshore wind. Thankfully, developers should not to have to learn expensive lessons themselves if they bring competent parties on board during development.