Evidently, it’s contagious. Last week Andrew Cuomo, Governor of New York, officially opened the New York Green Bank.
The institution will work to stimulate private sector financing and accelerate the transition to a clean energy economy. It is initially capitalised with $210m and has an ambition to increase this to $1bn. It may not be the first such initiative in the US - Connecticut holds that honour - it certainly looks set to be the largest.
And, with a clear focus on increasing the existing pool of capital following the early injection of seed funding, the bank soon intends to be self-sustaining. Some insiders suggest that its capitalisation could be as much as $8bn within ten years.
If that happens then it would be a smart investment. Just nobody mention Solyndra.
Solyndra was a manufacturer of cylindrical panels that created a revolutionary thin-film solar cell and, that for a while, looked set to revolutionise the solar markets.
In 2009, the Californian company posted revenues of in excess of $100m and this figure was only ever expected to climb. The Federal government duly opened its chequebook, providing a $535m loan guarantee and some healthy tax breaks.
But nobody foresaw that silicon prices would plummet and leave the company unable to compete with traditional solar panel manufacturers. As a result, in autumn 2011 the firm collapsed, filed for bankruptcy and left taxpayers about $500m out of pocket.
As the NY Green Bank starts seeking funding proposals there are, therefore, a couple of important lessons here for Alfred Griffin, President of NY Green Bank.
First, investing in new ventures is one thing, but backing the right ones at the right level is quite another.
And second, the institution needs freedom and autonomy if it is to do this effectively. For an example of how this can be achieved, Griffin could look at what is happening in the UK.
The UK’s Green Investment Bank - established in 2012 - has a market capitalisation of £3bn and in its first year of operations committed over £700m in new capital that has encouraged a further £2bn of private investment.
It has supported the first listing of a renewable energy infrastructure fund, undertaken the refinancing of a minority stake in an offshore wind farm, and, in total, has backed more than 21 separate projects across each of its core sectors.
It is by no means perfect as gaining true bank status has taken longer than expected - and Shaun Kingsbury and his team would be the first to admit that - but it’s a start. It’s also an important example of what can be done. As Griffin and his team start ploughing through the expectant proposals they would do well to keep an eye on Kingsbury’s progress.
In particular, they should take note of of the speed with which the Green Investment Bank has distanced itself from the machinations of government. The NY Green Bank currently sits within a state agency.
Its success needs to be measured not just by the size of its investment portfolio, but by its ability to set itself free from the restrictions of public office.
Article search
Wind Watch
Evidently, it’s contagious. Last week Andrew Cuomo, Governor of New York, officially opened the New York Green Bank.
The institution will work to stimulate private sector financing and accelerate the transition to a clean energy economy. It is initially capitalised with $210m and has an ambition to increase this to $1bn. It may not be the first such initiative in the US - Connecticut holds that honour - it certainly looks set to be the largest.
And, with a clear focus on increasing the existing pool of capital following the early injection of seed funding, the bank soon intends to be self-sustaining. Some insiders suggest that its capitalisation could be as much as $8bn within ten years.
If that happens then it would be a smart investment. Just nobody mention Solyndra.
Solyndra was a manufacturer of cylindrical panels that created a revolutionary thin-film solar cell and, that for a while, looked set to revolutionise the solar markets.
In 2009, the Californian company posted revenues of in excess of $100m and this figure was only ever expected to climb. The Federal government duly opened its chequebook, providing a $535m loan guarantee and some healthy tax breaks.
But nobody foresaw that silicon prices would plummet and leave the company unable to compete with traditional solar panel manufacturers. As a result, in autumn 2011 the firm collapsed, filed for bankruptcy and left taxpayers about $500m out of pocket.
As the NY Green Bank starts seeking funding proposals there are, therefore, a couple of important lessons here for Alfred Griffin, President of NY Green Bank.
First, investing in new ventures is one thing, but backing the right ones at the right level is quite another.
And second, the institution needs freedom and autonomy if it is to do this effectively. For an example of how this can be achieved, Griffin could look at what is happening in the UK.
The UK’s Green Investment Bank - established in 2012 - has a market capitalisation of £3bn and in its first year of operations committed over £700m in new capital that has encouraged a further £2bn of private investment.
It has supported the first listing of a renewable energy infrastructure fund, undertaken the refinancing of a minority stake in an offshore wind farm, and, in total, has backed more than 21 separate projects across each of its core sectors.
It is by no means perfect as gaining true bank status has taken longer than expected - and Shaun Kingsbury and his team would be the first to admit that - but it’s a start. It’s also an important example of what can be done. As Griffin and his team start ploughing through the expectant proposals they would do well to keep an eye on Kingsbury’s progress.
In particular, they should take note of of the speed with which the Green Investment Bank has distanced itself from the machinations of government. The NY Green Bank currently sits within a state agency.
Its success needs to be measured not just by the size of its investment portfolio, but by its ability to set itself free from the restrictions of public office.
Wind Watch
Forget Valentine’s Day cards. The European Commission is far more likely to spend today reading letters that criticise its 2030 climate and energy plan.
Last month, the commission set out its goal that 27% of energy used in the European Union should come from renewable sources, including wind farms. Clean technology companies criticised the commission for lacking ambition, and the EU Parliament made it clear that it wants it raised to 30%.
But the lacklustre response to this policy isn’t the plan’s biggest problem. On Wednesday, six senior executives from leading European wind power companies gathered together in Brussels to discuss the proposed EU targets.
The debate, hosted by the European Wind Energy Association, focused on the need for legally-binding targets for European countries. And, more specifically, on the precise proportion of energy in each that comes from renewable sources.
There are currently targets that bind countries in the EU. By 2020, countries are legally obliged to gain 20% of their energy from renewable sources.
But the European Commission plans to ditch such targets in its 2030 climate and energy plan.
The speakers said that failing to extend legally-binding national targets to 2030 would send a message to investors that the EU is not serious about renewable energy. They argued that this suggests the EU is weakening its stance, and that this would cause confusion, reduce investment, and harm job growth.
Those are all strong arguments. Without such a commitment, there’s a growing danger that individual countries will lack sufficient drive to see the plan through.
For its part, the UK government has welcomed what it sees as an EU climbdown, and it is easy to imagine countries using this as an opportunity to re-nationalise their energy policies and take a more independent view.
There’s also a growing danger that once again the “bureaucrats in Brussels” get portrayed as isolated from the realities of the commercial agenda.
But the truth of it is that investors need long-term market confidence if they plan to invest in wind energy over the medium to long-term. Binding targets bring with them that assurance.
Indeed, we need only look at Spain to see the negative impact of policy uncertainty on future investment.
In Spain, 27% of power came from renewable sources in 2012. The sector was performing well, aided by strong financial incentives for renewal energy firms. But, last summer, the Spanish government started to weaken those financial incentives and, by attempting to overhaul its energy market, has only created significant industry confusion and stagnation.
Hardly the desired result for a troubled Mediterranean economy that was in need of a financial catalyst and boost.
As the European Commission sets a course for EU energy investment from now until 2030, its success should be measured not by its ideology and vision but by the means through which it will guarantee that these ambitions will be met.
Forget Valentine’s Day cards. The European Commission is far more likely to spend today reading letters that criticise its 2030 climate and energy plan.
Last month, the commission set out its goal that 27% of energy used in the European Union should come from renewable sources, including wind farms. Clean technology companies criticised the commission for lacking ambition, and the EU Parliament made it clear that it wants it raised to 30%.
But the lacklustre response to this policy isn’t the plan’s biggest problem. On Wednesday, six senior executives from leading European wind power companies gathered together in Brussels to discuss the proposed EU targets.
The debate, hosted by the European Wind Energy Association, focused on the need for legally-binding targets for European countries. And, more specifically, on the precise proportion of energy in each that comes from renewable sources.
There are currently targets that bind countries in the EU. By 2020, countries are legally obliged to gain 20% of their energy from renewable sources.
But the European Commission plans to ditch such targets in its 2030 climate and energy plan.
The speakers said that failing to extend legally-binding national targets to 2030 would send a message to investors that the EU is not serious about renewable energy. They argued that this suggests the EU is weakening its stance, and that this would cause confusion, reduce investment, and harm job growth.
Those are all strong arguments. Without such a commitment, there’s a growing danger that individual countries will lack sufficient drive to see the plan through.
For its part, the UK government has welcomed what it sees as an EU climbdown, and it is easy to imagine countries using this as an opportunity to re-nationalise their energy policies and take a more independent view.
There’s also a growing danger that once again the “bureaucrats in Brussels” get portrayed as isolated from the realities of the commercial agenda.
But the truth of it is that investors need long-term market confidence if they plan to invest in wind energy over the medium to long-term. Binding targets bring with them that assurance.
Indeed, we need only look at Spain to see the negative impact of policy uncertainty on future investment.
In Spain, 27% of power came from renewable sources in 2012. The sector was performing well, aided by strong financial incentives for renewal energy firms. But, last summer, the Spanish government started to weaken those financial incentives and, by attempting to overhaul its energy market, has only created significant industry confusion and stagnation.
Hardly the desired result for a troubled Mediterranean economy that was in need of a financial catalyst and boost.
As the European Commission sets a course for EU energy investment from now until 2030, its success should be measured not by its ideology and vision but by the means through which it will guarantee that these ambitions will be met.
Alstom agrees 30MW Deepwater deal
French conglomerate Alstom has agreed a deal to supply five of its Haliade 150-6MW turbines to US offshore developer Deepwater Wind.
The US company plans to use the turbines for its 30MW Block Island pilot project off the coast of Rhode Island, which could pave the way for a larger 1GW scheme.
The deal is a big step for overseas expansion plans at Alstom, which last month signed a 48MW deal with Japanese firm Green Power Investment Corporation.
John Laing kicks off £160m fundraising
John Laing plans to sell seven operational assets, including three UK onshore wind farms, into its new fund John Laing Environmental Assets Group (JLEN).
The company is aiming to raise at least £160m through an initial public offering by the end of March, but this could rise to £174m depending on investor demand.
The fundraising would enable John Laing to sell these assets to JLEN and then invest in other projects. The three wind farms — Bilsthorpe Wind, Castle Pill & Ferndale Wind, and Hall Farm Wind — generate a combined 44MW.
Temporis seeks UK wind fundraising
Temporis Capital has begun raising £20m to invest in UK wind energy and hydropower projects through two venture capital trusts (VCTs).
Named Ventus and Ventus 2, the VCTs will aim to invest the money within a year.
Temporis Capital has already identified three investment opportunities, including a consented 10MW wind farm with a secured grid connection.
Ireland eyes 70GW offshore renewables push
The Irish government has set out its Offshore Renewable Energy Development Plan, showing that the country has the potential to generate 70GW of offshore clean energy.
The report, which took four years to compile, suggests that Ireland will look to export surplus energy generated to Europe.
In other news, estimates have shown that Germany will grow its offshore wind capacity to 1.5GW this year.
According to Bloomberg, six offshore projects including the 400MW Global Tech 1 and 288MW Baltic 2 wind farms are due to be completed this year.
Court rejects Trump’s Scottish wind challenge
Donald Trump has been dealt a blow as a court rejected his legal challenge against the decision to grant planning permission to a 100MW offshore wind test site in Scotland.
The US tycoon, who owns a golf course and resort near Aberdeen Bay, has opposed the £230m European Offshore Wind Deployment Centre since its inception.
Trump will reportedly appeal against the decision.
Siemens wins 21MW north German order
Siemens has won a 21 MW turbine order for the Holzacker-Knorburg community wind farm in north Germany, which is due to be built this year.
The German manufacturer is set to deliver seven direct-drive wind turbines this summer for the project between the municipalities of Enge-Sande and Stadum.
It has also signed a 20-year agreement to service and maintain the turbines.
European debut for new Gamesa model
Gamesa has secured an 8MW order from Eolus Vind for a wind farm in Sweden.
The deal marks the Spanish manufacturer’s debut of its G114-2.0MW model in Europe.
Gamesa will supply, install and commission the four turbines at the Nötåsen project in Sundsvall, starting this summer.
12.5%. That’s the cumulative global growth that the wind industry clocked up in 2013.
It’s a measure of recent market success that this progress – achieved during what remains a tough economic climate – comes in lower than many may have hoped.
That’s a curious scenario. And it’s one that we need to handle carefully if we are to be able to set and achieve realistic targets and ambitions for the future.
Because here’s the thing. When measuring market success, should we not be considering more than incremental, top line global growth?
Sure, it’s a great yardstick. For in an instant it provides the market with a clear overview and insight into what has and hasn’t been achieved in recent months.
However, as we continue to clock up the megawatts, it’s important to understand the difference between genuine market evolution and progress for progress’ sake.
Moreover – viewed from the perspective of the individual company - there’s a danger to doggedly chasing an ever-increasing megawatt base.
Indeed, as many industry stalwarts have already experienced, by focusing efforts almost exclusively around increasing existing multiples, there’s a danger that the strategic imperatives for doing so can suddenly get lost.
For major corporations, that blinded focus often results in over-inflated acquisitions, costly forays into emerging markets overseas and a bloated product and service base.
While for smaller enterprises, this constant quest for top line growth can at best have profound implications on company culture and, at worse, lead to senior personnel and team changes as priorities and principles shift.
Of course, some see nothing wrong with this constant quest for megawatts and argue consistently that in a capitalist economy, this is largely the only way.
However, increasingly key industry insiders are beginning to recognise that the true measure of a market is geared around much more than this.
Instead, the measure of a market’s true worth is governed by confidence, clear thinking and a laser commercial focus.
Sure, chasing megawatts increases the overall market power base and helps cement a strong international energy market position. However, as the market continues to evolve, and investors and developers alike must also be able to recognise the importance of lifting their eyes and stepping off the treadmill.
2013 might have ‘only’ clocked 12.5% growth – but as we’ve consistently argued, this market is a marathon, not a sprint.
Wind Watch
12.5%. That’s the cumulative global growth that the wind industry clocked up in 2013.
It’s a measure of recent market success that this progress – achieved during what remains a tough economic climate – comes in lower than many may have hoped.
That’s a curious scenario. And it’s one that we need to handle carefully if we are to be able to set and achieve realistic targets and ambitions for the future.
Because here’s the thing. When measuring market success, should we not be considering more than incremental, top line global growth?
Sure, it’s a great yardstick. For in an instant it provides the market with a clear overview and insight into what has and hasn’t been achieved in recent months.
However, as we continue to clock up the megawatts, it’s important to understand the difference between genuine market evolution and progress for progress’ sake.
Moreover – viewed from the perspective of the individual company - there’s a danger to doggedly chasing an ever-increasing megawatt base.
Indeed, as many industry stalwarts have already experienced, by focusing efforts almost exclusively around increasing existing multiples, there’s a danger that the strategic imperatives for doing so can suddenly get lost.
For major corporations, that blinded focus often results in over-inflated acquisitions, costly forays into emerging markets overseas and a bloated product and service base.
While for smaller enterprises, this constant quest for top line growth can at best have profound implications on company culture and, at worse, lead to senior personnel and team changes as priorities and principles shift.
Of course, some see nothing wrong with this constant quest for megawatts and argue consistently that in a capitalist economy, this is largely the only way.
However, increasingly key industry insiders are beginning to recognise that the true measure of a market is geared around much more than this.
Instead, the measure of a market’s true worth is governed by confidence, clear thinking and a laser commercial focus.
Sure, chasing megawatts increases the overall market power base and helps cement a strong international energy market position. However, as the market continues to evolve, and investors and developers alike must also be able to recognise the importance of lifting their eyes and stepping off the treadmill.
2013 might have ‘only’ clocked 12.5% growth – but as we’ve consistently argued, this market is a marathon, not a sprint.
Wind Watch
In the flurry of results that were announced from the European utilities this week, it seems that 2013 was a good, if not necessarily a vintage, year.
Investors, in most cases, have reasons to be cheerful. Even if some might try to tell you otherwise.
But, in a wider reflection of the economic malaise of the Euro zone - and whilst the Northern European firms looked like serious blue chip investments - some in Southern Europe carried a note of caution.
However, in Italy, an economy that has stayed largely stagnant since the global financial crisis, investors have more to worry about than stock performance alone. For, while the overall performance of the utility matters, it’s the political machinations that go on behind the scenes (in the largely state owned enterprises) that’s a cause for concern.
Over the coming weeks, the Italian Treasury is to embark upon a drive to recruit 500 new appointments to top positions within state, or semi-state owned firms.
Enel, and its energy group cousin, Eni, are both to see some change.
And whilst Enel has managed to remain largely stable – even reducing its debt pile by Euro 3billion – investors will want to know whether the new senior executives will be able to keep the firm on the same footing.
After all, Enel, along with Eni, is a major contributor to Italian GDP, and the main driver towards the deployment of renewable energy projects in Italy.
For investors, that government dependence alone is usually something that sounds a note of caution.
However, the fact that the appointments are likely to reflect the makeup of the Italian political system means that this latest round of chair shuffling is starting to cause some serious concern.
Moreover, if the Italian utilities are to compete with their Northern European counterparts, such as DONG Energy, which already has a significant state holding and only last week confirmed fresh investment from Goldman Sachs, then the appointment and selection process for senior personnel needs to be unequivocally non-politicised.
That’s easy on paper. In reality however, it’s something very different.
Moreover, it’s important to remember that for power and energy utilities, the recent economic malaise has created a future that’s far from certain. If, therefore, any utility is to truly safeguard and protect its future - and reassure its investor base - there’s simply no room for question when it comes to the competence of the senior team.
As the Italian government once again shuffles the pack, aspiring political leaders like Matteo Renzi, the 39-year old reformist and mayor of Florence, should take heed.
In the flurry of results that were announced from the European utilities this week, it seems that 2013 was a good, if not necessarily a vintage, year.
Investors, in most cases, have reasons to be cheerful. Even if some might try to tell you otherwise.
But, in a wider reflection of the economic malaise of the Euro zone - and whilst the Northern European firms looked like serious blue chip investments - some in Southern Europe carried a note of caution.
However, in Italy, an economy that has stayed largely stagnant since the global financial crisis, investors have more to worry about than stock performance alone. For, while the overall performance of the utility matters, it’s the political machinations that go on behind the scenes (in the largely state owned enterprises) that’s a cause for concern.
Over the coming weeks, the Italian Treasury is to embark upon a drive to recruit 500 new appointments to top positions within state, or semi-state owned firms.
Enel, and its energy group cousin, Eni, are both to see some change.
And whilst Enel has managed to remain largely stable – even reducing its debt pile by Euro 3billion – investors will want to know whether the new senior executives will be able to keep the firm on the same footing.
After all, Enel, along with Eni, is a major contributor to Italian GDP, and the main driver towards the deployment of renewable energy projects in Italy.
For investors, that government dependence alone is usually something that sounds a note of caution.
However, the fact that the appointments are likely to reflect the makeup of the Italian political system means that this latest round of chair shuffling is starting to cause some serious concern.
Moreover, if the Italian utilities are to compete with their Northern European counterparts, such as DONG Energy, which already has a significant state holding and only last week confirmed fresh investment from Goldman Sachs, then the appointment and selection process for senior personnel needs to be unequivocally non-politicised.
That’s easy on paper. In reality however, it’s something very different.
Moreover, it’s important to remember that for power and energy utilities, the recent economic malaise has created a future that’s far from certain. If, therefore, any utility is to truly safeguard and protect its future - and reassure its investor base - there’s simply no room for question when it comes to the competence of the senior team.
As the Italian government once again shuffles the pack, aspiring political leaders like Matteo Renzi, the 39-year old reformist and mayor of Florence, should take heed.
Vestas to issue 20m shares after turnaround
Vestas has announced plans to issue around 20.4 million new shares as it seeks to raise over €450m of capital from institutional and professional investors.
Plans for the sale of the shares, equivalent to 9.99% of existing stock, follow the completion of a 2-year turnaround programme, which saw a 30% cut to the global workforce and numerous factory closures.
These measures contributed to net income of €218m in the fourth quarter of 2013, leading the Danish manufacturer to a return to profit for the first time since mid-2011.
Higher than expected revenue of €6,084 and EBIT of €211m in 2013 were driven by smooth installation and transfer of risk combined with favourable December weather conditions.
EU wind growth slowed by 8% in 2013
11,150MW of new wind energy capacity came online in the EU in 2013, an 8% decrease from 2012.
According to new figures from the European Wind Energy Association (EWEA), a total installed capacity of 117,289MW masks the volatility of previously stable markets Spain, Italy and France, where installations have decreased by 84%, 65% and 24% respectively.
46% of new installations took place in the UK and Germany, indicating the increasing reliance of the market on a small number of countries.
Wind power accounted for 32% of all energy installed in 2013, with renewable energy installations responsible for 25GW of a total 35GW of new power capacity.
Short-time working at Senvion offshore unit
Senvion, formerly known as Repower, has revealed that it will introduce short-time working for employees at its subsidiary PowerBlades until the end of 2014.
According to local reports, the decision comes following a lack of offshore turbine orders, and will affect 246 employees in Bremerhaven, Germany.
The turbine manufacturer has ceased offshore blade production since the second calendar week of this year in response.
Spain 'eyes 7.4% renewables returns cap'
The Spanish government is reportedly looking to cap the rate on investment for renewable energy at 7.4%.
According to Bloomberg, the return is based on the average interest of a 10-year sovereign bond, in addition to 3 percentage points.
Spain’s wind energy trade body AEE complained that wind was disproportionally affected by the plans, with 37% of installed turbines set to lose premium payments, and the remainder due to see their earnings take a 50% hit.
Siemens wins 68MW Texan order
Siemens has won a 67.6MW turbine order for the Windthorst-2 wind farm in Texas, which will enter commercial operation towards the end of this year.
The deal is the German turbine manufacturer’s second in the U.S. state within a few weeks.
A majority interest in the 28-turbine project was recently sold to a fund managed by BlackRock.
Canadians commit £644m to London Array
Dong Energy has decided to sell half of its 50% stake in the 630MW London Array offshore wind farm to a Canadian pension fund for £644m.
The divestment to La Caisse de dépôt et placement du Québec means that the fund joins Dong, E.ON and Masdar as owners of the world’s largest offshore wind farm.
La Caisse is no stranger to offshore wind investments, having already invested in the 288MW Butendiek project in Germany, and having recently joined forces with GDF Suez and EDPR under the Neoen Marine moniker in France’s 1GW second-round offshore wind tender.
Isle of Man invites offshore investment
The government of the Isle of Man has invited expressions of interest and tenders for offshore wind farms as it seeks to become an ‘Ecoisland’.
In a presentation given in London last week, Ken Milne, Senior Manager for Energy Policy, outlined opportunities for offshore energy initiatives on the 4,000km2 of seabed owned by the self-governing island in the Irish Sea.
The island has offered to lease parts of this seabed to interested parties, who could then take advantage of onshore infrastructure suitable for O&M bases and the planned North Seas Countries’ Offshore Grid Initiative (NSCOGI) interconnector hub to export energy to the UK grid.
Likewise clean tech businesses could enjoy the benefits of a location to trial new technology, a precision manufacturing sector, access to European markets and strong intellectual property protection.
Delays risk future of £450m UK offshore hub
The future of the UK’s Able Marine Energy Park has been cast into doubt following an argument between the developer and the Association of British Ports (ABP).
The stand-off centres around a small area of land which Able UK believes is critical to the development of the £450m offshore wind hub in the Humber Estuary in northeast England.
ABP has already accepted plans to build a new jetty on the land, however, which Able UK believes could risk the creation of 4,000 new jobs and the prospect of the project going ahead at all.
US in 1.2GW PTC construction boom
The end of 2013 saw more U.S. wind energy construction than ever before, with over 12,000MW in the pipeline, 10,900MW of which began in Q4.
According to a report published by the American Wind Energy Association (AWEA), following a 92% slow-down in wind energy capacity brought online in early 2013, the industry rebounded to see 1,012MW of projects completed in Q4.
Behind this pattern was the extension of the Production Tax Credit, a 10-year 2.3 cents per kWh tax relief incentive, to apply to all projects underway before December 31st 2013.
This sparked a surge of construction activity before the New Year.
Nordex doubles German market share
Nordex has revealed that it doubled its market share in Germany last year to 8.4%.
The German turbine manufacturer recorded a 165% increase in new installations in the country, adding 251MW of capacity.
Total onshore installations in Germany rose by 29% to almost 3GW in 2013.
Wind Watch
87.5% of all the territory that falls under the jurisdiction and ownership of the Isle of Man is underwater.
In other words, that’s 4,000sq km of prime, undeveloped Irish Sea real estate.
Viewed in this light, perhaps it’s not therefore surprising that the locality has a growing appetite to attract and retain so-called clean energy solutions.
It’s been taking it seriously, too. Over the past twelve months the Isle of Man Department of Economic Development, working in collaboration with a major consultancy, has identified a number of potential offshore wind sites.
Industry insiders suggest that as a direct result of this, an unofficial generation target of 2GW has been set – with the first 1GW set to be consented, installed and operational ahead of 2020.
A further 1GW would be developed post 2020, in deeper waters – most likely bringing the projects into sight of some of the existing operational projects located of the UK coast.
For the Isle of Man government, the initiative has been cited as part of its wider push to become a supposed 'Ecoisland'.
All well and good but surely the revenue generating potential, coupled with a decreasing reliance on an ageing diesel powered electricity generating fleet increasingly plays its part?
Indeed, given the existing subsea cable and trading arrangements that are already in place – thanks to a 67MW subsea UK cable interconnect and a Bord Gais Irish gas pipeline link – the island is already reasonably well connected.
The problem for the islanders of course, is that right now the traffic is predominantly one-way. And these are currently cost contraptions as opposed to profit producers.
The UK Energy Bill might just change that. And in the process provide the island with a fantastic opportunity through which to export renewable energy and capitalise on a potentially lucrative Contracts for Difference (CfDs) framework.
And yet there’s a wider issue at play at here too. For, while the Isle of Man is unique in so far as the strength of its existing cable connectivity relative to it’s isolated island status is concerned, it is setting an important precedent.
Traditionally islands are renowned for running inefficient diesel generators that are fed by expensive, typically shipped, oil fuel imports. That’s expensive, inefficient and does nothing to create energy independence.
In leasing its land, capitalising on its cables and keeping a cool commercial head, the Isle of Man would be wise to raise its ambitions. An 'Ecoisland' is one thing – a net exporter of renewable energy power is quite another.
Wind Watch
With a population of just over five and a half million, many may be surprised to hear that one of the most egalitarian societies in the world has recently developed a cult-like global status.
Much of this follows the successes of a jumper-clad detective and a fictional prime minister with a messy private life.
Evidently global television is a powerful thing. And as a result, fictional crime dramas have become a prime creative export for a country that prides itself on maintaining a strong work/life balance and high healthcare and living standards.
However, having struggled with a property bubble that burst at the height of the financial crisis, this week the Danish government has once again been working overtime.
And this effort has not just been focused on enabling the country to hit its forthcoming EU deficit targets – contrary to what many may think.
Since the recent energy investment decision – of which the Danish government have been part – is just as likely to have a significant impact on economic growth as any debt deficit plan.
We’re talking of course, about Goldman Sach’s audacious bid for a 19% equity stake in Dong Energy – a bold move by the Wall Street bank that has caused significant domestic concern.
So much so in fact, that it has brought the Danish coalition government to its knees – with the Socialist People’s Party leaving the government over the deal.
The accompanying public furore leads one to inevitably conclude that this whole affair is a real cause for concern. But should it?
For, while the $1.5bn investment – confirmed yesterday – will present many challenges for the Danish utility, the reality is that the capital is necessary if the business is to boost its balance sheet and continue to invest in offshore wind.
And while that capital could have come from what is thought to have been a possible portfolio of domestic sources – including PensionDanmark – there’s a distinct set of advantages for the utility to secure fresh capital from overseas.
Indeed, with construction within the European market expected to dip over the next twelve to eighteen months and with new international markets already opening up, it helps that Goldman has some considerable capabilities in addressing the capital markets that the Danish government simply does not.
That’s especially important when you consider that the Danish government previously pulled back from a planned IPO of the company in 2008, when the financial markets took a tumble.
And that if it’s looking to pursue that route again, having Goldman as an investment partner positions them very well for a future listing.
Now, critics would argue that the U.S. investment bank has done rather too well out of the deal; if Dong is to change its chief executive or finance director, make a large acquisition or issue new shares, it will now need the approval of Goldman first - special veto privileges not afforded to other shareholders.
However, whilst the bank undoubtedly falls short of chief executive Lloyd Blankfein’s claim that it does ‘God’s work’, that doesn’t mean it does the Devil’s either.
All in all, the Goldman-Dong deal is interesting on a number of levels.
Yes, it brings fresh international capital to the firm following a series of failed natural gas bets, and yes, it has the potential to open up new markets and territories overseas.
However, what’s in no doubt is that the shareholder agreement ties the Danish government and Goldman tightly together – providing a catalyst for future capital and investment that, in an instant, shifts the firm onto the international investment stage.
With a population of just over five and a half million, many may be surprised to hear that one of the most egalitarian societies in the world has recently developed a cult-like global status.
Much of this follows the successes of a jumper-clad detective and a fictional prime minister with a messy private life.
Evidently global television is a powerful thing. And as a result, fictional crime dramas have become a prime creative export for a country that prides itself on maintaining a strong work/life balance and high healthcare and living standards.
However, having struggled with a property bubble that burst at the height of the financial crisis, this week the Danish government has once again been working overtime.
And this effort has not just been focused on enabling the country to hit its forthcoming EU deficit targets – contrary to what many may think.
Since the recent energy investment decision – of which the Danish government have been part – is just as likely to have a significant impact on economic growth as any debt deficit plan.
We’re talking of course, about Goldman Sach’s audacious bid for a 19% equity stake in Dong Energy – a bold move by the Wall Street bank that has caused significant domestic concern.
So much so in fact, that it has brought the Danish coalition government to its knees – with the Socialist People’s Party leaving the government over the deal.
The accompanying public furore leads one to inevitably conclude that this whole affair is a real cause for concern. But should it?
For, while the $1.5bn investment – confirmed yesterday – will present many challenges for the Danish utility, the reality is that the capital is necessary if the business is to boost its balance sheet and continue to invest in offshore wind.
And while that capital could have come from what is thought to have been a possible portfolio of domestic sources – including PensionDanmark – there’s a distinct set of advantages for the utility to secure fresh capital from overseas.
Indeed, with construction within the European market expected to dip over the next twelve to eighteen months and with new international markets already opening up, it helps that Goldman has some considerable capabilities in addressing the capital markets that the Danish government simply does not.
That’s especially important when you consider that the Danish government previously pulled back from a planned IPO of the company in 2008, when the financial markets took a tumble.
And that if it’s looking to pursue that route again, having Goldman as an investment partner positions them very well for a future listing.
Now, critics would argue that the U.S. investment bank has done rather too well out of the deal; if Dong is to change its chief executive or finance director, make a large acquisition or issue new shares, it will now need the approval of Goldman first - special veto privileges not afforded to other shareholders.
However, whilst the bank undoubtedly falls short of chief executive Lloyd Blankfein’s claim that it does ‘God’s work’, that doesn’t mean it does the Devil’s either.
All in all, the Goldman-Dong deal is interesting on a number of levels.
Yes, it brings fresh international capital to the firm following a series of failed natural gas bets, and yes, it has the potential to open up new markets and territories overseas.
However, what’s in no doubt is that the shareholder agreement ties the Danish government and Goldman tightly together – providing a catalyst for future capital and investment that, in an instant, shifts the firm onto the international investment stage.
Wind Watch
Pop quiz. If cash is king, which major international corporation would today be wearing the crown?
It's an easier question than you'd think.
Particularly since it's universally acknowledged that having stockpiled almost $150bn in cash (and having subsequently come under fire from activist investors), Apple rules the roost.
However, while the firm's cash stash is far larger than most, its spendthrift tactics are far from unique.
Indeed, since the start of the financial crisis it's been universally acknowledged that companies have been tightening their spending and hanging onto their cash.
Moreover, while this trend has continued over successive quarters, to many of those on the outside looking in, it's been both forgotten and overlooked.
All the same, that's not stopped this huge concentration of capital from becoming ever tighter and, as the M&A market now begins to pick up, that will to lead to some very interesting questions.
For, let's be in no doubt here, when we talk about corporate cash piles, we aren't talking about small chunks of change.
Indeed, according to estimates from accountancy and auditing firm, Deloitte, about one third of the world's non-financial companies are now sitting on an estimated cash hoard of $2.8 trillion. With the polarisation between the corporate hoarders and spenders only widening as time rattles on.
As the Apple example shows, there are some high profile cases that help demonstrate this trend and recent investor unease has already started bringing this increasingly thorny issue to light.
However, while raising the matter of a cash-heavy balance sheet is one thing, working out how to spend such vast amounts of cash is quite another.
And, while amassing these cash piles provides corporate certainty when entering a global downturn (safeguarding the financial performance of the firm and helping to iron out the lumps), they do nothing of the sort when the economy starts to pick up.
Indeed, shrewd investors already recognise this and are starting to get a little uncomfortable.
It's why, in a recent study undertaken by Bank of America Merrill Lynch, 58% of those investors polled wanted companies to step up their corporate spending.
And for an investment intensive industry like wind, requiring significant capital expenditure, that means it's time to sit up and pay attention.
Since although to some this may not sound like a real problem, the simple truth is that many of these cash rich corporates, while evidently good at primary revenue generation, may not be so good at reinvesting, divesting and actually spending it.
Nevertheless they must learn to do so.
Since not only does this facilitate and fuel further potential profit, but it also releases fresh capital back into the market at a critical time.
So herein lies the challenge.
With these huge cash piles putting recovery in the hands of the few, how can we position wind as a viable candidate for future funds?
And perhaps most importantly, when as an industry will we learn that in order to unlock these deep cash pools, we have to first understand the needs and priorities of these cash-rich corporate kings?
Talk of energy security on a country by country basis is one thing, but recognising the true motivations of these major multinationals is quite another.
“Coming together is a beginning; keeping together is progress; working together is success.” Henry Ford
Ford was, of course, a man who knew a few things about working together. He pioneered cooperation with Giovanni Agnelli of Fiat in 1912, when the Ford Motor Company was only 9 years old. This enabled Ford to establish a foothold in the European markets and challenge other early manufacturers.
One wonders what Ford would have made of today’s wind industry, and in particular, its supporting manufacturing processes.
The joint venture announced this week between Areva and Gamesa for offshore turbines would perhaps have given him plenty to think about.
In the face of stiff competition from Vestas and Siemens, the collaboration makes a lot of sense. Whilst Areva has been successful in supplying turbines to many offshore wind projects – including Alpha Ventus, Global Tech 1 and Borkum West, as well as a number of French developments - Gamesa lags far behind, having only recently debuted its 5MW offshore turbine.
Interestingly, this 5MW machine will apparently not form part of the deal, but will be destined for onshore use instead. Both firms, however, will work on a new 5MW machine, and an 8MW unit.
The joint venture will provide some breathing space to both manufacturers struggling to balance the ever-shifting sands of political support and policy for offshore wind, and is a way of reducing the competition and sharing efficiencies.
This, as many will remember, is not the first joint venture that the offshore wind industry has seen – Mitsubishi and Vestas entered into a similar agreement back in September.
It is then, perhaps, a sign of the times. The wind industry has, despite the continued fluctuation in the market, managed to avoid large amounts of consolidation – unlike other parts of the renewable energy industry, such as solar panel manufacturers.
But for the smaller players, there is strength in unity. Auto manufacturers have suffered a similar fate as their industry has gone through its own tumultuous times. Existing partnerships such as Renault-Nissan and Fiat-Chrysler – long standing relationships borne out of the need for cost sharing - have been replaced by new joint-ventures between existing European and US brands and new Chinese firms as the former look to open up a new market.
We’ve said before that the wind industry can learn a lot from a sector that is essentially its polar opposite. For the wind sector, the true test will be in how these ventures last, and whether they deliver what is truly hoped for.
If differing businesses with different cultures, albeit ones operating in the same industry, aren’t able to maintain synergies and make things work culturally as well as commercially, success, as Ford noted, will ultimately remain a stranger.
Pop quiz. If cash is king, which major international corporation would today be wearing the crown?
It's an easier question than you'd think.
Particularly since it's universally acknowledged that having stockpiled almost $150bn in cash (and having subsequently come under fire from activist investors), Apple rules the roost.
However, while the firm's cash stash is far larger than most, its spendthrift tactics are far from unique.
Indeed, since the start of the financial crisis it's been universally acknowledged that companies have been tightening their spending and hanging onto their cash.
Moreover, while this trend has continued over successive quarters, to many of those on the outside looking in, it's been both forgotten and overlooked.
All the same, that's not stopped this huge concentration of capital from becoming ever tighter and, as the M&A market now begins to pick up, that will to lead to some very interesting questions.
For, let's be in no doubt here, when we talk about corporate cash piles, we aren't talking about small chunks of change.
Indeed, according to estimates from accountancy and auditing firm, Deloitte, about one third of the world's non-financial companies are now sitting on an estimated cash hoard of $2.8 trillion. With the polarisation between the corporate hoarders and spenders only widening as time rattles on.
As the Apple example shows, there are some high profile cases that help demonstrate this trend and recent investor unease has already started bringing this increasingly thorny issue to light.
However, while raising the matter of a cash-heavy balance sheet is one thing, working out how to spend such vast amounts of cash is quite another.
And, while amassing these cash piles provides corporate certainty when entering a global downturn (safeguarding the financial performance of the firm and helping to iron out the lumps), they do nothing of the sort when the economy starts to pick up.
Indeed, shrewd investors already recognise this and are starting to get a little uncomfortable.
It's why, in a recent study undertaken by Bank of America Merrill Lynch, 58% of those investors polled wanted companies to step up their corporate spending.
And for an investment intensive industry like wind, requiring significant capital expenditure, that means it's time to sit up and pay attention.
Since although to some this may not sound like a real problem, the simple truth is that many of these cash rich corporates, while evidently good at primary revenue generation, may not be so good at reinvesting, divesting and actually spending it.
Nevertheless they must learn to do so.
Since not only does this facilitate and fuel further potential profit, but it also releases fresh capital back into the market at a critical time.
So herein lies the challenge.
With these huge cash piles putting recovery in the hands of the few, how can we position wind as a viable candidate for future funds?
And perhaps most importantly, when as an industry will we learn that in order to unlock these deep cash pools, we have to first understand the needs and priorities of these cash-rich corporate kings?
Talk of energy security on a country by country basis is one thing, but recognising the true motivations of these major multinationals is quite another.
Wind Watch
“Coming together is a beginning; keeping together is progress; working together is success.” Henry Ford
Ford was, of course, a man who knew a few things about working together. He pioneered cooperation with Giovanni Agnelli of Fiat in 1912, when the Ford Motor Company was only 9 years old. This enabled Ford to establish a foothold in the European markets and challenge other early manufacturers.
One wonders what Ford would have made of today’s wind industry, and in particular, its supporting manufacturing processes.
The joint venture announced this week between Areva and Gamesa for offshore turbines would perhaps have given him plenty to think about.
In the face of stiff competition from Vestas and Siemens, the collaboration makes a lot of sense. Whilst Areva has been successful in supplying turbines to many offshore wind projects – including Alpha Ventus, Global Tech 1 and Borkum West, as well as a number of French developments - Gamesa lags far behind, having only recently debuted its 5MW offshore turbine.
Interestingly, this 5MW machine will apparently not form part of the deal, but will be destined for onshore use instead. Both firms, however, will work on a new 5MW machine, and an 8MW unit.
The joint venture will provide some breathing space to both manufacturers struggling to balance the ever-shifting sands of political support and policy for offshore wind, and is a way of reducing the competition and sharing efficiencies.
This, as many will remember, is not the first joint venture that the offshore wind industry has seen – Mitsubishi and Vestas entered into a similar agreement back in September.
It is then, perhaps, a sign of the times. The wind industry has, despite the continued fluctuation in the market, managed to avoid large amounts of consolidation – unlike other parts of the renewable energy industry, such as solar panel manufacturers.
But for the smaller players, there is strength in unity. Auto manufacturers have suffered a similar fate as their industry has gone through its own tumultuous times. Existing partnerships such as Renault-Nissan and Fiat-Chrysler – long standing relationships borne out of the need for cost sharing - have been replaced by new joint-ventures between existing European and US brands and new Chinese firms as the former look to open up a new market.
We’ve said before that the wind industry can learn a lot from a sector that is essentially its polar opposite. For the wind sector, the true test will be in how these ventures last, and whether they deliver what is truly hoped for.
If differing businesses with different cultures, albeit ones operating in the same industry, aren’t able to maintain synergies and make things work culturally as well as commercially, success, as Ford noted, will ultimately remain a stranger.
Siemens in Danish espionage case
Siemens has been indicted for industrial espionage against Danish turbine tower manufacturer Hendricks Industries.
According to Ekstrabladet, in 2008 a former employee of the German manufacturer allegedly hacked into the Hendricks computer system and stole nearly a thousand confidential files, ranging from financial information to production secrets.
In a trial set to conclude on Friday in Aarhus, Denmark, it will be determined whether the Siemens employee was acting alone or on behalf of his employer.
Siemens has stated that the employee in question was immediately fired upon discovery of the offence and was acting of his own accord, seeking information for private use.
Bank calls for installation vessels redesign
Rabobank has released a report suggesting that new installation ships are in need of a more radical redesign in order to meet long-term offshore wind industry needs.
According to the Dutch bank, vessels installing turbines or foundations should consider more original designs to lower installation costs and realise projected capacity growth as offshore wind farms get bigger.
Rabobank added that ‘while financiers prefer multi-purpose vessels with a scope that goes beyond offshore turbine installation, dedicated vessels are likely to remain in use’, and companies building dedicated vessels at a cost of over €150m could quickly become leaders in an immature, but innovative and fast-growing market.
Germany to cut onshore FIT as offshore rises 240MW
The German government is expected to put forward significant cuts to feed-in tariffs for onshore wind today.
Economics and energy minister Sigmar Gabriel has reportedly suggested that the country’s forthcoming Renewable Energies Act will see a reduction in the support price for onshore wind by a third by 2015.
In other news, a study has found that Germany connected 240MW of offshore wind capacity in 2013.
The research, commissioned by VDMA Power Systems and the German Wind Energy Association (BEWE), said that 48 offshore wind turbines were added, increasing Germany’s total offshore wind capacity in the North and Baltic Seas to over 520MW.
Dong divests Dutch sales department
Dong Energy has agreed to sell its sales division in the Netherlands to Eneco, the Dutch developer.
The Danish utility did not disclose details of the price, but said that the transaction is still subject to certain conditions.
Dong added that the offload will not alter the company’s focus on the Dutch offshore wind sector.
Repower rebrands to Senvion
German turbine manufacturer Repower has officially changed its name to Senvion.
The Suzlon-owned company had been using the Repower name since 2001, but the rights belong to a Swiss company that has now decided to use the name itself.
Senvion said that the ’S’ stands for the sustainability of its products, ‘EN’ stands for energy, ‘VI’ for vision, and ‘ON’ for being switched on.
Areva & Gamesa confirm joint venture
Manufacturers Areva and Gamesa have officially announced intentions to form a 50/50 joint venture.
The joint venture, aiming to become ‘one of the leading players in the global offshore wind market’, will pool assets including Areva’s Bremerhaven and Stade assembly and blade manufacturing plants and Gamesa’s engineering, operation and maintenance capabilities.
It will develop a product portfolio including Areva’s existing 5MW turbine, a new technologically advanced 5MW platform and a next-generation 8MW turbine.
Areva’s existing industrial commitments – including development of an assembly and blade manufacturing facility at Le Havre in France – will be fulfilled by the joint venture.
Wind Watch
This week, one of the EU's most visible environmental achievements will come into question.
It's a situation that's come about following concerns over high European energy costs, which are undermining support for binding 2030 European energy targets.
Following an intense period of international lobbying, new goals are due to be proposed on Wednesday. The results of which will have a profound and long lasting impact on the shape of the European energy market in the future.
Indeed, while the UK has been talking up the potential of nuclear power and shale gas, the Germans have been shutting down legacy infrastructure and pushing for an obligatory target.
And there's more. For while pushing for a more stable domestic energy mix that would see the introduction of a 27% renewable power generation target could make sense, eyebrows are now being raised.
Why? Primarily because, although the generation target is a laudable one, if it's non-binding, it's toothless.
All the more reason, therefore, for further proposals to prompt further discussion and action, regarding the subsequent impact that this would have on network efficiency. And by proxy, the potential establishment of legislative guidelines to protect related energy infrastructure such as storage, grid and cross-border interconnectors.
Of course, there's a deep irony to all of this. And it's not been missed.
For while many within the market may disagree, the recent renewable energy growth has been built on the back of generous subsidies. That in turn has fostered significant growth - creating jobs, safeguarding and protecting future energy demands and providing the base for a potentially valuable export market.
However, at the same time, many increasingly argue that this government-backed support has shielded the market from global competitiveness, especially when looking to the recent and ongoing North American shale gas boom.
Indeed, with gas prices estimated to have fallen by almost two thirds within the US over the past ten years alone, many market analysts argue that they have a point.
Especially when you consider that within the same time period, European gas prices rose. By 35%.
Collectively, Britain, Spain, France, Italy, Germany, Holland and the Netherlands all agree on supporting the 2030 target of cutting emissions by 40% based on 1990 levels.
Nevertheless, with Germany and UK energy policy increasingly at odds with one another there's a danger that all this talk will come to nothing.
Utilities such as Eon have long campaigned against the need for a target, while manufacturers that include Vestas and such like have continued to champion the cause.
Whatever the case, legislative policy bigwigs in Brussels might not set the entrepreneurial hearts racing, but this week their discussions will have a profound impact on the future shape of the market, whether they realise it or not.
This week, one of the EU's most visible environmental achievements will come into question.
It's a situation that's come about following concerns over high European energy costs, which are undermining support for binding 2030 European energy targets.
Following an intense period of international lobbying, new goals are due to be proposed on Wednesday. The results of which will have a profound and long lasting impact on the shape of the European energy market in the future.
Indeed, while the UK has been talking up the potential of nuclear power and shale gas, the Germans have been shutting down legacy infrastructure and pushing for an obligatory target.
And there's more. For while pushing for a more stable domestic energy mix that would see the introduction of a 27% renewable power generation target could make sense, eyebrows are now being raised.
Why? Primarily because, although the generation target is a laudable one, if it's non-binding, it's toothless.
All the more reason, therefore, for further proposals to prompt further discussion and action, regarding the subsequent impact that this would have on network efficiency. And by proxy, the potential establishment of legislative guidelines to protect related energy infrastructure such as storage, grid and cross-border interconnectors.
Of course, there's a deep irony to all of this. And it's not been missed.
For while many within the market may disagree, the recent renewable energy growth has been built on the back of generous subsidies. That in turn has fostered significant growth - creating jobs, safeguarding and protecting future energy demands and providing the base for a potentially valuable export market.
However, at the same time, many increasingly argue that this government-backed support has shielded the market from global competitiveness, especially when looking to the recent and ongoing North American shale gas boom.
Indeed, with gas prices estimated to have fallen by almost two thirds within the US over the past ten years alone, many market analysts argue that they have a point.
Especially when you consider that within the same time period, European gas prices rose. By 35%.
Collectively, Britain, Spain, France, Italy, Germany, Holland and the Netherlands all agree on supporting the 2030 target of cutting emissions by 40% based on 1990 levels.
Nevertheless, with Germany and UK energy policy increasingly at odds with one another there's a danger that all this talk will come to nothing.
Utilities such as Eon have long campaigned against the need for a target, while manufacturers that include Vestas and such like have continued to champion the cause.
Whatever the case, legislative policy bigwigs in Brussels might not set the entrepreneurial hearts racing, but this week their discussions will have a profound impact on the future shape of the market, whether they realise it or not.
There’s a lot to be said for keeping things simple. But for industry, that doesn’t always bring in the returns that are needed.
It’s why the global financial services sector offers so much more than just vanilla products and investments. Derivatives, futures and options have all provided the means and opportunity for the banking industry to attract new investors and increase returns.
But as we saw in 2008, it only needs some miscalculation (and the wrong regulatory environment) for the wheels to come off.
With the wind industry still fairly young, we are yet to see a widespread climate of financial innovation.
But there are still some in the sector who have tried. And for German wind farm operator, Prokon, this week, the results of the experiment weren’t looking too rosy.
Prokon, for those not familiar with the firm and its business model, took the decision to provide a number of profit performance certificates that promised investors a return, set at 8%, from their initial investments.
In reality, what happened was that the firm found itself having to pay out on its certificates earlier than anticipated, as investors clamoured to collect the returns they had been promised.
Some of this perhaps lies in the rumoured enthusiasm of the firm to entice investors with heavy marketing campaigns, which reportedly brought in 2 billion Euros.
In the eyes of the law, the firm has done nothing wrong. Profit performance certificates are entirely legal – even though they essentially mean that investors have none of the rights of shareholders, and collectively will have to shoulder the losses of the business.
There are many of course who will consequently say that the investors knew the risks. But that doesn’t exculpate Prokon entirely, as, according to some sources, the firm was warned that the returns it was offering were unrealistic.
Even if Prokon manages to convince its investors to hold off from trying to collect their returns, and consequently pushing the firm into insolvency, there will be many questions asked.
The risk to the wider industry is one of reputation. There are many that try to paint the sector as an enormous scam. Prokon will have done little to convince them otherwise.
Wind Watch
There’s a lot to be said for keeping things simple. But for industry, that doesn’t always bring in the returns that are needed.
It’s why the global financial services sector offers so much more than just vanilla products and investments. Derivatives, futures and options have all provided the means and opportunity for the banking industry to attract new investors and increase returns.
But as we saw in 2008, it only needs some miscalculation (and the wrong regulatory environment) for the wheels to come off.
With the wind industry still fairly young, we are yet to see a widespread climate of financial innovation.
But there are still some in the sector who have tried. And for German wind farm operator, Prokon, this week, the results of the experiment weren’t looking too rosy.
Prokon, for those not familiar with the firm and its business model, took the decision to provide a number of profit performance certificates that promised investors a return, set at 8%, from their initial investments.
In reality, what happened was that the firm found itself having to pay out on its certificates earlier than anticipated, as investors clamoured to collect the returns they had been promised.
Some of this perhaps lies in the rumoured enthusiasm of the firm to entice investors with heavy marketing campaigns, which reportedly brought in 2 billion Euros.
In the eyes of the law, the firm has done nothing wrong. Profit performance certificates are entirely legal – even though they essentially mean that investors have none of the rights of shareholders, and collectively will have to shoulder the losses of the business.
There are many of course who will consequently say that the investors knew the risks. But that doesn’t exculpate Prokon entirely, as, according to some sources, the firm was warned that the returns it was offering were unrealistic.
Even if Prokon manages to convince its investors to hold off from trying to collect their returns, and consequently pushing the firm into insolvency, there will be many questions asked.
The risk to the wider industry is one of reputation. There are many that try to paint the sector as an enormous scam. Prokon will have done little to convince them otherwise.
Wind Watch
2013 was a critical year for the international wind energy market. It was also a significant period for the newly merged classification and advisory company, DNV GL. In December, the new business unveiled its new identity and set out its vision for helping to enable a safe and sustainable future – of which UK offshore wind plays a key part.
Following the company’s official new brand launch, Managing Editor Adam Barber spoke to Joe Phillips, Head of Strategy & Policy Services, Renewables Advisory, DNV GL about the state of the market and the firm’s vision for the future.
Adam: In recent years, the pace of development within UK offshore wind has been rapid to say the least. To what extent has this pace been set by the regulatory framework and government policy?
Joe: First and foremost, as the industry matures, it’s worth setting the record straight – and in doing so, facing some hard facts. While there’s no doubt that UK offshore wind has indeed come a long way in a short space of time, not all of this progress has been undertaken at such a blistering turn of speed.
Indeed, looking back over the last 10 years of deployment, it’s perhaps more accurate to suggest that while there have been some considerable growth spurts, when viewed as a whole, progress has been stuttering rather than stable. It is fair to say that almost every growth projection has been wrong – with offshore wind never failing to disappoint in terms of actual delivery.
But to a large extent this is all a matter of great expectations. With the benefit of hindsight, we can see that although the positive political signals in the UK got this technology through the “valley of death”, it also over-inflated expectations in terms of market size and timing.
At the same time, we must recognize what has been achieved: with over 3GW operational in the UK and over 5GW globally, offshore wind is coming of age.
Sure, the pace of development could have been smoother, more predictable and perhaps even a little faster. However, there’s no denying the importance of that early government intervention and catalytic policy and regulatory framework, even if we are now paying for some of the early hyperbole in the form of reduced market confidence.
Adam: To what extent is government industrial and energy policy critical to setting future market expectations, breeding investor confidence, and establishing a credible framework for the future?
Joe: In short, it’s critical. And it’s a very difficult balance to strike.
Industrial policy provides confidence for investment, while energy policy creates a clear and certain regulatory framework to meet energy policy objectives around security of supply, affordability and climate change.
And while that sounds relatively simple, what we have experienced – and, some would argue, continue to experience – in the UK is a fundamental disconnect between the two.
That means that on the one hand, investor expectations within offshore wind have so far been set and established by the market potential and its sheer size. Whereas on the other hand, the limited funding available under the Levy Control Framework (LCF) for Contracts for Difference (CfD’s) has meant that an installed base of 8GW by 2020 is looking increasingly like the best we can hope for. It remains to be seen whether a market of this size will be sufficient to attract significant supply chain investment.
Adam: We heard at EWEA Offshore in Frankfurt about the need to set clear European targets for 2030. However, for many, 2020 still feels some way off. Within the UK, what does an 8GW 2020 target really mean for the market? And is it achievable?
Joe: 2020 might seem like a long way off, but the reality within the offshore wind energy development and construction industry is that it really isn’t, especially if you are a supply chain participant looking at new strategic investments.
So it is absolutely imperative that the industry secures the 2030 commitments.
Truth be told, we really needed to set them a couple of years ago, in order to give future prospective investors the confidence and certainty that they really need.
As I said previously, although 8GW by 2020 is now comfortably achievable and the supply chain can deliver against these commitments without further additional investment, it’s worth remembering that this 8GW would consume approximately 65% of the available funds set aside through the CfD programme.
That’s a substantial chunk of funding and it raises important questions for the UK government’s commitments to other low-carbon technologies.
Adam: To what extent will these targets help the UK market deliver against and meet its public ambition to achieve £100/MWh? And perhaps more importantly, is this streamlining thinking and picking the cheapest projects?
Joe: When it comes to cost reduction in offshore wind, there really are two versions of the world.
Industrial policy strives for cost reduction through scale, learning and innovation. Each of these three key elements requires investor confidence in a large, stable and established market.
Then there is the post Electricity Market Reform (EMR) world. Here market forces are used to deliver the highest amount of clean energy, against a fixed budget. Given the limited size of the pot, this means that the most economic projects are likely to secure funding up to a cumulative deployment level of 8GW.
This cherry-picking, or “streamlining” might look like cost reduction, but by simply dodging the more technically demanding projects, there may be insufficient volume to achieve the real underlying cost reduction borne of scale, learning and innovation effects. For example, it is worth asking the question whether an 8GW market by 2020 will be sufficient to bring through the next generation of wind turbine technology in a 6-8MW range.
Adam: Okay, that makes a lot of sense. So in light of this – and given the recent developments at the Atlantic Array – what does this really mean for those considering investing in the UK? How does this impact the wider financial picture?
Joe: Undoubtedly it makes it tough – particularly for supply chain investors.
However, for investors in assets, irrespective of whether they are focused on generation or transmission, there remains a range of opportunities that offer stable returns. Following all of the travails of the last decade, we are now talking about a proven asset class, which is already attracting a wide range of funding sources from pension funds to non-recourse project finance.
Adam: That’s certainly good to hear – and the push towards a more proven and established asset class certainly breeds greater market confidence, Joe. So what of DNV GL – what does this mean for the newly merged business? And what changes within UK offshore wind in particular do you expect this to have on your business?
Joe: As a result of the merger we’re now in a position of real strength to make a significant positive impact on the market.
Our energy systems were built in a different age to meet different challenges. Over the coming decades they need to be radically transformed to meet future needs. We have over 1,000 of the world’s leading renewable energy experts and a similar number focused exclusively on grid and transmission technology. So we are very well placed to make a positive impact on the ongoing energy transition.
At DNV GL, our future success in the market can only ever be measured by the extent to which we can help our customers and the wider industry to transform our existing energy infrastructure to allow renewables to move to the next level. For us, that means enabling the renewable energy technology of today to become the key energy infrastructure of tomorrow – something that looks increasingly likely as we march towards grid parity. To achieve this, both renewables technology and grid technology will need to change and be developed together, in an integrated fashion. We look forward to being at the forefront of this transformation.
In the final week before Christmas last year, we launched our new brand and our vision for the future. For me, 2014 is not just the time for beginning to bring this all to life but is very much about continuing to deliver against it.
Joseph Phillips is a Chartered Engineer at DNV GL and Head of Strategy & Policy Services, as well as leading on communications within renewables for the company. His international team provides targeted support to governments and companies.
He has worked in renewable energy (primarily offshore wind), for over 10 years in engineering, project management and strategic roles. He has been the lead author of a number of industry reports including “UK Offshore Wind: Charting the Right Course” and “Wind In Our Sails - the coming of Europe's offshore wind energy industry". To contact Joe direct, please email joseph.phillips@dnvgl.com.
Wind Watch
In recent weeks, Japanese foreign affairs have dominated international headlines as political tensions escalate with neighbouring China over its territorial waters.
At the heart of the matter lies a dispute over the sovereignty and control of the Senkaku Islands – a remote and uninhabited archipelago in the East China Sea.
It’s a highly politicised debate that has seen a gradual increase in rhetoric and that has already got many international market commentators worried.
As yet, its impact and implications on the energy markets is unclear. However, since the surrounding area has always provided rich grounds for oil exploration and extraction, on that basis alone it’s unlikely that either party will back down.
For Japan in particular, it’s especially important since post-Fukushima, the ability to safeguard and secure future energy needs has quickly risen up the agenda.
Put simply, following the move away from nuclear power, the Asian economic powerhouse cannot afford to be overly reliant on existing energy interconnects and imports. And if that’s the case, then it can’t afford to sit on its hands, either.
That’s just part of the reason why over the past eighteen months we’ve seen such an uptick in Japanese wind energy engagement on the international stage.
And, as the automotive market knows only too well, when the Japanese take an interest in new industry segment, they won’t just dip their toes in the water.
Indeed, for the Japanese, the ability to truly understand and capitalise on a technology, starts with extensive research and development. That means an investment in fostering internal domestic talent. It also means, acquisitions.
Viewed in this light, it’s perhaps a little easier to see why the €300m Vestas-Mitsubishi tie up, that will see the two firms work together on the development of the V164-8.0MW turbine, is so significant.
It’s also why many of the major Japanese energy investors have focussed their efforts of developing a strong, well-diversified portfolio of wind energy assets.
In the medium- to long-term these assets are expected to generate good, steady returns.
While industry insiders have already acknowledged that in the short-term, participation at the deal-making table continues to provide a valuable insight into the mechanics and true workings of the international market.
As developments within the East China Sea demonstrate, tenure, command and control continue to be important negotiating tools for the Japanese, both in commerce and when handling itself in foreign affairs.
And, as the wider wind energy market looks to capitalise on the more immediate benefits that this approach now brings, while the Japanese build out their existing investment portfolios and manufacturing base, the extent to which the two sides can work together will without doubt prove to be paramount.
In the coming weeks the International Monetary Fund looks increasingly set to upgrade Japan’s economic growth forecast. Budgets are being increased. And Prime Minister Shinzo Abe is determined to rescue the country from 15 years of deflation.
In short, optimism abounds. For wind, picking the right partners and establishing strong working relation ships now, will pay dividends in the future.