The thinking behind this week’s UK Offshore Wind Industrial Strategy is clearly that if the wind industry wants government backing then it needs to start generating vote-winning jobs.
Going hand-in-hand with a support package worth a total of around £66m is an ambition to get a ‘made in the UK’ stamp on around seven tenths of the work and components going into British offshore projects.
Plus there is the possible requirement of a supply chain plan for large project developers applying for a Contract for Difference.
The Department of Energy and Climate Change says the measure is designed to ‘encourage a wider, more diverse supply chain and support innovation and skills.’
But it is unclear whose innovation and skills are to be supported. The tone of the strategy clearly hints at local manufacturers. This is fine as it goes. Britain would hardly be the first country wanting its renewable power industry to create jobs.
However, if the UK is moving towards something like a domestic content requirement (DCR) for offshore wind, there could be a couple of problems.
The first is regulatory. In the solar industry, tempers are already running high over protectionist measures imposed by US and European lawmakers on Chinese products.
And the issue of DCRs has come under scrutiny at the World Trade Organization, which recently forced the government of Ontario, Canada, to change a local content requirement for subsidising green power projects.
The second issue is associated with the effort needed to fulfil the UK’s offshore plans in the first place. In this respect, the choice of location for unveiling the Industrial Strategy was an interesting one.
Sure, the 270MW Lincs offshore project which Energy Secretary Ed Davey used as the backdrop for his announcement is a great example of Britain’s offshore wind capabilities, developed as it is by the UK energy giant Centrica.
But the key partners in the project were Dong of Denmark and Siemens of Germany. Offshore wind, it appears, is still very much an international affair.
So trying to fence off parts of it to foster local interests is a strategy that could backfire.
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Ouch! Having to revise down financial figures is never easy.
Irrespective of whether it’s due to underperforming operating assets of poor international market conditions, it’s something that’s always going to hurt.
So spare a thought for one of Europe’s largest energy producers, Vattenfall, after it took a $4.6bn hit to its asset values. A result, according to the utility, that has come about due to, “increasingly adverse market conditions and higher business risks.”
Interestingly however, while it’s already well known that European energy utilities have had a tough time of late trying to manage high levels of debt taken on during previous boom times, Vattenfall was the first major firm to cite market conditions as the reason for a major asset write down.
And that’s significant. Since the move follows comments made in May by eight leading energy utilities that warned that EU policy and regulatory uncertainty would hit investment, supply and jobs.
This then, could be the first tangible proof of what they really meant.
Of course, there are individual company operating dynamics at play here too. Vattenfall has already made it clear that the significant financial adjustment mainly concern gas and coal-fired operations within northern continental Europe.
A situation not helped by its previous commitment to German nuclear power – something that had already hit its 2011 profits.
Nevertheless, those warnings continue to cause concern.
So perhaps it’s not surprising to learn that Vattenfall will soon split the firm into two regional units, with one half focused on the Nordes and the second focused on continental Europe and the UK.
The regional split comes into effect in January and political pressure from within Sweden to protect domestic markets will no doubt have played its part.
However, what’s particularly interesting about all of this is the subsequent potential impact on wind.
Increasingly energy utilities are being forced to focus on key generating technologies and hive off non-core assets and operations.
Vattenfall currently benefits from a diversified and well-established onshore and offshore wind energy operating base and has become a passionate and powerful industry ambassador.
To date, the utility has already implemented a cost-cutting programme and placed a freeze on recruitment, although it maintains that over the next five years investments will continue to be made in renewable energy.
Undoubtedly the East Anglia Offshore Windfarm Zone will be a part of this, as will commitment an anticipated extension to Kentish Flats. With both projects building on what is already recognised as a strong UK wind energy base.
The question of course, is whether this much anticipated investment is focused exclusively on bringing previously planned European projects to the market and to what extent the utility will be prepared to take on future energy risk.
An interesting development from Scotland this week as it emerges that ministers in the country are proposing planning changes that would make it more difficult to build projects on land defined as ‘wild land’ – that is ‘rugged, remote and free from modern visible human structures.’
The move would appear to be a blanket response, rather than looking at each development on a case by case basis.
As to whether the legislation would only apply to wind energy developments, or whether other energy structures would be excluded has not yet been made clear.
Scottish Renewables, the industry lobby group in Scotland has claimed in response that up to £2 billion worth of investment in Scottish wind industry could be jeopardised.
And given Scottish First Minister Alex Salmond’s plans to secure the equivalent of all Scotland’s energy from renewable sources by 2020, the changes to the planning law could put that target out of reach.
Whether these changes will become law is still up for a lot of speculation. The number of Scottish Tories sitting as ministers sits at an all time low – and given this is more often the party to object to wind energy developments, the chances of the law being pushed through might not be that high.
Nevertheless, Ministers should be mindful of implementing legislation that further risks the attitudes of investors.
After all, if Alex Salmond is successful in his 2015 bid to lead Scotland to independence, and make good on his green energy goals, this kind of rhetoric at this stage is not something he will want to encourage. Furthermore, an independent Scotland will have to compete with England, Wales and Northern Ireland for green energy investment.
Scotland has long championed its credentials as a green energy hub, it would be a shame if it were to fall at the last hurdle.
In any relationship, setting expectations is key.
It’s a critical part of gaining trust and it can only ever be achieved through powerful and persuasive communication.
For examples of how not to do this, just ask any B-list celebrity.
For the wind industry though, it’s now time to sit up and take note.
However, before we dive into the specifics, let’s take a step back.
For, without wishing to start a diatribe about the need for effective communication, the reality of course is that expectations can only ever be set through a clear and consistent two-way industry engagement.
And let’s be blunt – the ability to set expectations isn’t just something that sits within the realm of government either.
After all, the vast majority of European governments can offer countless case studies of mismanaged energy policies that outline just how not to do it.
No, to my mind, having the foresight to accurately set and manage market expectation is too important to leave to chance.
And for individuals businesses, it’s exactly the kind of thing that needs to stay firmly under the control of senior management teams.
So it’s viewed in this light – when we talk about the delicate issue of setting expectations – that we stumble across the capacity challenge.
Wind capacity has become something of an established industry measurement and yardstick over recent years.
And it’s a figure that’s often trumpeted by the developers and project owners during the early stages of construction.
In other words, it’s become part of the established industry lexicon.
But does that make it right?
Because here’s the thing. While financiers and investors increasingly understand the complexities of wind energy generation – is there not a more accurate and realistic measurement that provides them with true power plant potential?
Capacity figures are wonderful and they’re easy to calculate. However, they’re impossible to achieve. And there’s a growing school of thought that suggests that they only ever serve to set a benchmark through which all future operating output will be measured against.
That’s pretty dispiriting stuff. And it can lead to all sorts of awkward conversations too – especially when owners and investors are looking for future incremental gains.
For the general public too, the capacity figure is in danger of doing more harm than good. For it provides fuel for the fire for naysayers and it’s intangible at best.
Far better then to talk in terms of clear and measurable specifics, to both investors and the wider public at large.
Recently, this thinking has already been taken onboard by some developers, who now seek to provide a clear link between the project and the volume of households that stand to gain.
However, this still takes into consideration the upper capacity limit, so while it’s a step in the right direction, it’s by no means perfect.
It was RWE npower that, this week, broke ranks with the rest of the UK’s ‘big six’ power companies to warn in a report that UK government measures for green energy would push consumers’ bills up by 19%.
It seems a risky move from a firm whose renewable division has made great strides in on- and offshore wind projects.
After all – it is a given that energy bills will rise one way or another. Generally, it seems that anti-wind energy campaigners tend to adopt the view that clean energy policies are responsible for substantial rises in bills, whilst many others point to the costs of buying gas internationally on the spot market.
So, as a major power utility, it might not have been a bad idea for the firm to be perhaps encouraging consumers to look at ways in which they can reduce their electricity usage first.
But on further examination, there seems to be more to this. Back in March, it was the firm’s CEO, Paul Massara, who warned that the government shouldn’t agree a long-term subsidy deal with the nuclear industry as it would leave consumers with ‘unnecessarily high bills’.
Play the trick once, and you might just get away with being seen as on the side of the consumer – despite the fact that the firm made huge profits over the 2012 winter as consumers turned up their heating.
Play it twice, and it starts to look like a cheap shot at the government.
When viewed back to back, however, both warnings also risk positioning the firm as indecisive. If it isn’t nailing its colours to the nuclear or clean energy mast, what is the firm backing? Shale gas?
It’s all well and good trying to be a consumer ally, but public memories can be long as well as short.
And trying to blame the government whist enjoying strong profits doesn’t always sit well with the public at large.
It was billed as the mother of all electrical reforms. The one that would finally do away with Spain’s pernicious ‘tariff deficit’.
But what emerged last Friday was yet another savage cut to the country’s crippled energy industry… and one that will not even cure its underlying malaise.
For those unfamiliar with the matter, the tariff deficit is the mismatch between regulated electricity prices and the costs of energy production and distribution in Spain. A detailed history of the deficit could fill a book.
In grossly simple terms, however, it was originally introduced as an apparently cunning sleight of hand to help pay for the costs of generation and distribution at a time when Spain’s economy was booming.
The expectation at the time was presumably that economic growth would allow the books to be balanced in a few years’ time.
Instead, Spain’s economy crashed and the costs contained in the deficit, which include feed-in tariffs for renewable energy, have continued to grow.
This administration and its predecessor have tried to kill the deficit monster by backtracking on promised support for green energy, among other measures.
But the actions taken have so far failed, and each new announcement has heightened the sense of desperation.
By last Friday, even the renewable industry (or what is left of it) was just calling for a root-and-branch review that would eliminate the deficit and let everyone live in peace. Alas, it was not to be.
In the plans unveiled by the Secretary of State for Energy, Alberto Nadal, the country’s five big utilities, including international wind energy darling Iberdrola, were hardest hit.
Spain’s recession-hit consumers, meanwhile, were told to brace themselves for further electricity price rises. But a deal to get Revenue help in paying off the deficit fell through, leaving the monster alive and kicking.
Reuters reported the deficit will rise by up to €3bn by the end of this year.
It all amounts to is a truly gloomy outlook for the wind industry in Spain… and a situation other countries would do well to learn from.
Another week, another report.
This one, the latest research from the Institute of Public Policy Research, claims that unless there is a significant upscale in ambition, then UK offshore wind will not deliver a fraction of the economic benefits that are possible.
The arguments are largely ones we’ve heard before – a lack of a 2030 decarbonisation target and UK Government opposition to a European 2030 clean energy goal, mean that investment in the sector will stall, ultimately threatening the long term future of the industry.
The report also criticises governmental failure in securing turbine manufacturers in setting up shop in the UK.
The institute claims that at least two manufacturers are required in order for the country to see wider economic benefits in the supply chain.
On the last point, it could probably be argued ‘yes’ and ‘no’. There are other overseas manufacturers from other industries in the UK that still ship in components from overseas, just as much as there are those that are happy to use a local supply chain.
And we know that firmer targets would of course help with the investment case. But merely repeating the mantra ad infinitum won’t make it so.
There is also always a danger of talking down an industry.
It may not fit the profile that many would wish, but at the same time, there are a number of firms that are gearing up behind the scenes to get involved in offshore wind and are positive as to the opportunities it offers.
Conflating clean energy deployment with economic benefit in a time austerity was never going to be an easy task, but with developments such as Triton Knoll being given the go-ahead this week, there is a slow, but sure, momentum driving the industry forwards.
Here’s another milestone for you to consider. Late last week, Vestas celebrated the eighth successful installation of its V112-3.0MW offshore turbine.
The kit is currently being installed at Kårehamn, the 48MW Swedish site. It’s an early-stage initiative that is being developed by E.ON.
But that’s not all. For the units also formed the first part of a shipment of equipment that left Vestas’ pre-assembly facility, in Esbjerg, Denmark.
And perhaps more important still – the shipment marks the start of many more that are expected to take place over the next 12 to 24 months, as the manufacturer delivers at least 145 V112-3.0MW units to expectant developers.
Little wonder then, that senior Vestas executives were in high spirits when it came to trumpeting the news.
And well they might. For the units have been a long while in the making and have been incubated during a torrid time for the European manufacturer.
Indeed, with earlier development costs having over run to the tune of €125 million and with the business having cycled through a number of senior offshore personnel in relatively quick succession, the past few years have seen Vestas conspicuously absent from the offshore wind energy space.
And all this while Siemens has steamed ahead; developing close working relationships with developers and the utilities, building out the footprint of its existing fleet and most recently, having successfully deployed two 6MW demonstration turbines to Gunfleet Sands.
A chance then, for Vestas to start shuffling the pack. And with further offshore momentum already being demonstrated by the Chinese, it’s well timed, too.
For, only last week, Ming Yang unveiled a 6.5MW super compact drive (SCD) machine that will be installed and tested over the next three months and that pushes engineering design further, all over again.
Sure, the Chinese turbine might be all-too quickly dismissed by many European developers – particularly with its two bladed design – however, the anticipated price alone will ensure that at least some will want to take a second look.
Of course, the irony that Ming Yang was once touted as a potential suitor to Vestas during its share price lows won’t be lost on the manufacturing community, here. And Vestas’ renewed manufacturer vigour is intended to draw a line under the previous takeover talk.
Irrespective, for Vestas the battle lines have once again been drawn. And the latest developments are undoubtedly intended to re-establish its commitment to working on wind initiatives in the water.
Setting aside the manufacturer’s retreat from establishing a new facility in Sheerness, Kent, early-stage planning for the 8MW offshore behemoth continues and the sales team are already calculating the commissions.
As the wider market keeps a close eye on cutting costs, let’s hope for everyone’s sake that the increased competition that this new kit facilitates brings about wider market benefits, over and above the need to hit individual sales goals.
US President Barack Obama completed his tour of African countries this week. And in doing so, he left behind something that, if successful, could be one of his most important global legacies.
The President’s ‘Power Africa’ initiative outlined during his stopover in Cape Town last weekend, highlighted plans for the US to invest $7billion in order to provide 10GW of power to Sub-Saharan Africa.
Yes, that's right - that's a $7 billion investment.
Under the ‘Power Africa’ banner, a number of firms and investors are expected to expand the size of the available capital pool. South African bank, Standard Chartered, have also committed a further $2billion to the venture.
All in all, it's impressive stuff. And it's a shrewd US economic growth move, too.
As some commentators have already highlighted – it’s likely that one of the biggest beneficiaries will be US power equipment business, General Electric - as the firm receives export finance support under the deal. It’s something that President Obama hasn’t shied away from; acknowledging that US power engineering and management companies can bring a wealth of experience to the table.
In the main, the initiative all sounds very promising, although while the headline numbers might at first sound significant, it's worth reiterating that in the international energy markets, the investment still remains modest, at best.
However, what hasn’t yet been made clear, is just how much of an opportunity there is for wind energy to become involved in the programme.
The initial projects that GE will become involved with, for example, will use offshore gas.
So far, the most promising wind project in Sub-Saharan Africa is the Lake Turkana project in Kenya – backed by energy developer, Aldwych International.
And while that's a compelling initiative, power production in Africa needs a clear time imperative - particularly since much of the population still lacks an uninterrupted power supply.
That's not to say though, that gearing the projects towards renewable energy initiatives becomes an impossible dream.
After all, in the same way that African telecoms leapfrogged copper landlines, and moved to a mobile market from the start, so too can new energy grids better cater for renewable energy supplies.
In the first instance, that means moving away from traditional radial grids (built around a fossil-fuelled power generating environment). And in the longer term, it means taking a fresh look at energy storage, too.
Whatever the case, the opportunities for clean power development on the continent are manifest – and the time is now.
Nobody dare doubt him – the plan remains fixed and the company stays resolutely on track. In other words – deviation is for another day.
That’s the clear signal that was shared with the market late last week, following Dong Energy’s commitment to offload its entire onshore wind business in Denmark, to the Danish Energy company SE and PFA pension fund.
The sale, for around €102m, includes 272 turbines, with a total installed capacity of 196MW. It also involves the transition of the eighteen staff currently committed to overseeing operations at the 80 different sites, where the turbines have an average operational track record of approximately 16 years.
Perhaps more importantly however, the sale – that’s still subject to regulatory approval - forms a key part of Dong’s strategic plan to divest DKK10bn in non-core assets, as it switches its attention to the offshore wind energy market.
And this of course is where it gets really interesting – not least because of the sheer size of the bet.
For, as Dong has become increasingly embedded in the European offshore sector, the challenge of maintaining a sufficiently buoyant balance sheet has become paramount. Developing on balance sheet is still achievable for the likes of Dong of course but it means that the company has to become increasingly selective about where it chooses to invest future capital.
And as a result, it is onshore wind portfolios like this that quickly start to shift.
Of course, by Chief Executive, Henrik Poulsen's own assessment, the utility already has a strong and differentiated competitive platform. And it’s this unique and well-tested format of undertaking early phase construction and build, before selling a majority stake that has become the highly regarded within this most pioneering of markets.
However, while Dong may well still be the European developer and utility that’s leading the charge, where the business goes others will surely follow. And the challenge of retaining a competitive balance sheet is by no means unique.
For onshore opportunists therefore, there’s a compelling business proposition that’s really starting to shape up, as the secondary market continues to evolve.
To date in 2013, we’ve already seen an unusually high volume of transactions and sales on the continent and new investors continue to enter the market.
Over this next phase, we’re sure to see initial investor fragmentation, as portfolios ebb and flow. However, as new industry participants wise up and look for increased margin, independently owned onshore asset pools will surely seek safety in increasing the size of their asset base.
Dong Energy might be moving out of the onshore wind energy market but its departure signals the start of an important new phase of onshore growth.
Despite it often being suggested otherwise, it is apparent that we do actually make things, here in the UK. Something that may come as a surprise to many, I realise.
Let's spell it out.
Over the last three days at the Seawork conference in Southampton, it's been apparent that in Great Britain there's a strong nucleus of firms that play a small but significant role in the offshore wind supply chain.
These range from the boat builders and component suppliers all the way through to the firms that own and charter out the vessels that are integral to transporting engineers and equipment to offshore wind projects.
Measuring the contribution of all these firms to the offshore wind business, is however, difficult. And the eventual figure of all UK contributed consultants, engineers, logistics and chartered services may amount to no more than 20%. However, that 20% for projects undertaken by overseas firms is a particularly significant.
And in the UK (and as we've argued before) it’s comparable to the automotive industry in many respects. The vast numbers of Jaguars, Land Rovers, Nissans, Hondas and BMW Minis that lined the docks at Southampton ready for export are of course all the products of foreign owned firms. And yet the workforce that makes them is British, and many of the components that supply them are sourced locally in the UK.
And irrespective of a company's geographic registration, that foreign ownership doesn’t nullify the fact that the UK is now one of the world’s premier automotive exporters.
So what does this mean for wind?
Well, with the proliferation of offshore wind projects overseas, there is every real chance that the niche areas of expertise that the UK has – such as workboat building or operation – can be exported very successfully.
Perhaps the argument for building a successful wind industry more broadly, isn’t necessarily about having a domestic turbine manufacturer at all then.
There will, after all, always be economies that can compete far more effectively in this area. Instead, perhaps it’s more about establishing and sourcing a UK built, registered and crewed vessel, with the expertise to deliver engineers and their equipment to the right place at the right time.
As the market matures, it's increasingly apparent that there's far more value locked away within this market than you'd first think.
Ignorance isn’t an oft-lauded trait. In fact, it’s actively shied away from for fear of embarrassment, awkward questions and possibly even failure.
Moreover, it matters not what market you’re operating in – the simple truth is that for many, an expression of ignorance can be seen as a chance to show up weaknesses and a lack of knowledge.
A potentially worrying scenario for many – leading to a fear that partners, prospects and peers will all too easily seek to leverage and exploit.
But here’s the thing. While long-term industry ignorance can indeed be a cause for concern – particularly when it’s apparent that there’s no real desire from an individual or company to address it – the reality is that ignorance itself, is in fact no bad characteristic.
Far from it. Since for new market participants keen on bringing new ideas and innovation to a sector, in can often be an individual’s single greatest strength.
Why? Primarily because industry ignorance injects an unrivalled willingness to listen and an unparalleled enthusiasm to learn.
These are two not insignificant attributes. And perhaps more importantly, they’re two character traits that are of increasing importance when it comes to the future growth and evolution of wind.
For, while the various battles that continue to be fought within country and state jurisdictions are of course unique, there’s a wider prize on offer and at stake.
Namely, the constant challenge to continue to innovate. To develop market thinking. To challenge the accepted way of doing things. And to question the status quo.
It’s precisely this thinking that moves specific areas of the market forwards – whether it’s related to the intricacies of foundations and grouting, gearboxes and drive trains, wider issues associated with blade evolution and nacelle design, or something else.
Sure, the market has made some real leaps within the past five, ten and fifteen years. And sure, we all recognise the urgency to rapidly develop and build out apprenticeship schemes and training programmes that put us on a path to growth.
However, as the sector continues to develop and as the workforce expands with it, let’s not forget that as we introduce new talent to the market, taking the time to listen and to learn with them, is as important as the need to tutor and to teach.
Much of the debate within renewables is frequently wrapped up with ensuring a viable market. It’s one of the reasons that the industry works hard to lobby Governments around the world to provide a secure framework that will encourage investors to seriously consider the technology as a serious asset class.
In the Western world, this is of course key. Cash strapped Governments wrestling with austerity, climate skeptics and vocal minorities opposed to green energy, can’t afford, or secure the support, to take the entire cost onto the national ledger.
In China, however, this hasn’t been so much of a problem.
The Chinese state, awash with surplus cash, has been able to bankroll an entire wind energy manufacturing base from scratch in a fraction of the time it’s taken the established players in Europe and the US.
It should be said that, after all - despite the latest wrangling in the solar sector over Chinese manufacturers dumping their excess supplies in the European and US markets - the Chinese state has, to a degree, subsidised the development of the global solar industry.
So when this week it was announced that the Chinese city of Shenzen was about to launch a new carbon trading scheme, it garnered some attention.
Carbon trading isn’t new of course. There are 48 carbon-trading schemes worldwide, with well-established markets in Europe.
Unfortunately, at least in Europe, carbon trading is marred by a supply glut, and commensurately low prices meaning in essence that firms and investors have little incentive to get involved.
So will it work in China? It’s still too early to say, but with Chinese industry being a very visible polluter in most major conurbations, the incentive is clearly tangible.
If it does work in China, where it has failed in Europe, then there are surely some lessons that can be learnt by the global wind industry on creating a pricing structure, securing investor confidence and ensuring a long-term viability to the market.
It’s still early days, but once again, the renewables industry looks East…
The wind industry is as good as any other at taking a long and hard look at itself. Through conferences, shows and informal discussions, we dissect the state of the sector and the ways it might evolve.
Such introspection is both necessary and desirable. If we cannot keep our own house in order and our own progress on track then we have little chance of being taken seriously in the wider context of global energy markets.
But that doesn’t mean we should forget about the world around us. Wind energy does not just depend on government support, benign regulation and a receptive investor climate.
It also depends on there being sense in producing wind energy to begin with. For a long time, the rationale for our industry has been that the world needs more renewable energy and wind is in many cases the cheapest and safest way to get it.
There have always been weaknesses with this argument, though. Massive onshore wind farm developments can irk even the most hardened climate change campaigner. Offshore wind cannot yet to be that cheap.
And perhaps perniciously of all, wind still suffers from major intermittency problems. True, there are ways to deal with this without falling back on hydrocarbon or nuclear fuels.
Smart grids can help even out supply and demand, for example. Interconnectors can make it easier to ship excess energy to wherever it is needed.
Plus there is an entire emerging industry that rarely gets talked about but could help: energy storage.
In Germany, energy storage is already aiding the solar industry by allowing community and residential customers to take better advantage of rooftop panels.
The kind of energy storage that would benefit wind power is likely to be in a different league, but what is important is that the research and development to make it happen needs to be supported now.
Frankly, though, there is little sign of that happening.
In the UK, industry insiders believe that the Government is starting to provide some support but remain to be convinced that it's throwing its shoulder behind the wheel.
Part of the problem could be the lack of an obvious technology to back. This is something the wind industry could help with, however.
By getting behind energy storage, we won’t just be giving an allied sector a helping hand; we will also be securing our own future.
Despite all the talk, at some 213 pages long, I’d be interested to know just how many people have actually had the time to read the much-anticipated UK Energy Bill.
Over and above those operating in an advisory capacity, of course, and therefore working on (lucrative) billable time.
And perhaps more pertinently, I wonder just how many UK consumers, are even aware that the Bill’s already been debated and that it’s headed to the House of Lords?
Irrespective, like any national policy document it’s certainly no light prose.
And while there’s been a great deal of discussion surrounding what’s been left out – perhaps notably, the omission of a 2030 decarbonisation target – there’s no doubting just how far it’s already started to shift the current thinking and debate.
And it was viewed in this light that we kicked off Wednesday’s panel session at Offshore Wind 2013 that took place in Manchester, earlier this week.
In the early stages of the debate, there were those on the panel that were quick to share the view that many of the major pension funds and associated institutional investors have been watching the market from the sidelines.
With some even going as far to suggest that the recent attempts to adjust national solar incentives has had a negative impact on the appetite for offshore wind.
Time then, as one participant put it, to change the mood music. To tackle the challenge of negative market sentiment head on. And in doing so, to persuade and reassure those looking to engage of the clear opportunity to invest.
That in turn will require some difficult conversations. Since in the short to medium term construction, operation and maintenance costs will remain high and cabling breakages are unlikely to disappear over night.
However, the investment costs of today pale into insignificance when set against a longer-term pattern of rising energy costs in the future, argued one panellist. And this in turn is something that presents a compelling catalyst for change.
Plenty of positivity then? Despite the acknowledgement of an investment hiatus?
That was certainly a common consensus from the investors, manufacturers and developers on the panel, who recognised the need for visibility, clear targets and a steady, long-term market outlook.
However, for better or for worse, change takes place quicker than one thinks.
And given that the venue for this week’s gathering has itself made the transition from bustling train terminus, to car park, to conference centre in the space of a generation, let’s not forget about the true speed of market flexibility and innovation.
Talk about spin. Last week there was a deft slight of hand in UK energy politics as ministers set out new planning guidance for onshore wind farms.
The resultant changes will provide local communities with greater powers to block future developments, but will also offer greater incentives to accept them.
However, the measures, that will ensure that local opposition can override national energy targets, are likely to create concern for developers and investors alike. Not least because the changes are expected to see a five-fold increase in the benefits paid to communities hosting new initiatives.
That’s an expensive pill to swallow. Particularly given the already not insubstantial upfront costs associated with bringing new projects online.
The changes, that are due to be enforced before the end of 2013, will undoubtedly have a significant impact on the viability of future domestic projects. And the political shift will do nothing to close the growing disparity between UK energy policy and international developer and investor confidence.
Indeed, over the past five years alone approved onshore wind farm applications have already dropped from 70% in 2008, to around 35% in 2012.
That’s quite a shift. And while the current install base sits at around 4,000 turbines, there are still almost 6,000 energy generators that are either under construction or trapped in the planning system.
Now naturally, when it comes to the wider UK wind install base, onshore is now only a part of the story. For, when the industry gathers in Manchester later this week, we’ll receive the clearest picture yet of just how those estimated 973 UK offshore wind turbines signal the start of something new.
This, combined with the much-anticipated Energy Bill, that wound its way through parliament last week and that is now headed for the House of Lords, is intended to provide greater long-term investor and revenue certainty.
It’s a laudable goal. And it’s certainly something that’s been as divisive as it has been ambitious.
However, with a 2030 decarbonisation having already been cut, the challenge for the investors is to avoid viewing the framework in purely simplistic terms, as a menu without prices.
Whether this is indeed going to be the case, or whether instead, the Bill is going to be put the industry – and the offshore market in particular – on a path towards growth and competitiveness is very much up for debate.
And it’s something that I’m going to discussing with fellow panellists at the conference next week.
If you’re attending Offshore Wind 2013, do come and listen in.
When certain industries start to look for investment, it’s obvious that they turn to the people with the money.
Historically, this has always been the natural money-men: bankers, governments, private wealth, private equity and pension funds, as well as the global oil companies.
In recent years, since the global financial crisis, however, this community has expanded to include the consumer technology businesses.
For the renewable energy sector, this is good news. Two of the technology industry’s behemoths, Google and Apple, are starting to invest in the clean energy sector.
And with the size and strength of their balance sheets, these firms can start to make significant investments.
Take Google. This week the firm announced that it has struck a ten-year deal to buy electricity from a Swedish wind farm.
The agreement comes almost exactly a week later from an announcement that the business had invested $12million in a South African solar power development.
Both of these agreements come hot on the heels of domestic clean energy deals that Google has signed in the US so far – which already amount to £1billion.
Apple is in a similar position. Although not yet in the same league as Google, like its smartphone rival, the firm has a large number of data centres to manage, which require substantial amounts of power not only to run 24/7, but also for cooling to prevent outages caused by sensitive components overheating.
What this means in practice is that technology firms can do far more for renewable energy than most realise.
Where the traditional investors may shy away, technology firms recognise the imperative for backing new technologies and the move towards cleaner forms of energy.
Will the investments made thus far by apple and Google result in a sea-change overnight for the wind industry?
Not yet, but it would be premature to dismiss these developments as a flash in the pan.
Perhaps it should come as no surprise that former chief executive of Vestas, Johannes Poulsen, is reportedly planning a $600m wind turbine investment fund.
After all, for a man who started his career at a family run ice-cream factory just outside Copenhagen, before later switching to run a privately owned furniture business, his interest in clean energy – and more specifically, within wind – was by his own admission, more by accident than default.
Indeed, when he received the call from Vestas all the way back in 1987, the company was still making specialised farm machinery and had only recently tentatively started to explore the potential of commercial wind turbines.
At the time it was battling with that all too common challenge of over expansion and was in desperate need of some focus.
For Poulsen though – a natural businessman with a clear eye for an opportunity – he sensed the potential. And, when he took the reigns later that year; he quickly instilled that laser commercial focus.
Under his direction he sold off the farm machinery division, increased the size of the generators and improved the use of computer controls to radically improve the efficiency of the machines.
It was a smart move. And it formed the foundations of his fifteen-year tenure at the top, before he retired in 2002 at the age of 60.
Evidently though, old habits die hard and the Danish executive, now in his early seventies, looks set to capitalise on the potential of the wind, once again.
Reuniting a series of former Vestas executives – including the controversial figure of Henrik Nørremark, Vestas’ former chief financial officer – Poulsen has spotted an opportunity and will no doubt be a key figure in establishing the fund.
It’s a smart play, drawing on significant market experience and in the process, injecting a good mix of commercial understanding and technical know-how into a market that is notoriously hard to monitor and predict.
In short, and with the recent establishment of the likes of Greencoat Capital, no one is under any doubt that the timing for the new fund is good.
However, what industry insiders continue to question is his choice of companions to join him in tackling this critical new area of market growth.
Irrespective of the final outcome of the investigation currently being pursued by the Danish fraud squad, Henrik Nørremark left Vestas under a cloud. Fraud allegations surrounding the loss of €18.9m in what is believed to be a failed deal to buy Chinese turbines in India, continue to circulate. And the affair is unlikely to be concluded at anytime soon.
Vestas itself is currently basking in some (much-needed) positive news, with deals afoot in Jordan (117MW) and in Uruguay (90MW), and with shares last week rising to their highest level since 2011, as a result.
In short, nobody needs the headache of negative publicity – least of all Poulsen himself.
The fund remains a smart move. His selection of compatriots to join him in spearheading the initiative remains key. And the success or failure of the investment vehicle is as much dependent on the credibility of the team behind it, as it is on the wider state of the wind turbine market that Poulsen helped create.
Just another index, just another report?
Irrespective of your view, the latest findings from Ernst & Young’s latest Renewable Energy Country Attractiveness Index, make for good news for the UK’s offshore wind industry.
Despite the continued uncertainty surrounding future UK policy support for renewables, the country, nevertheless, finds itself at the top spot in the global accountancy firm’s rankings, knocking Germany into second place.
Should it be a surprise? Perhaps not.
We’re frequently reminded of the scale of the UK’s ambition in offshore wind – with Great Britain possessing the world’s largest offshore project, London Array, recently granting permission for the 504MW Galloper project, and with work pressing on at the 389MW West of Duddon Sands development, amongst others.
Additionally, a host of utilities, lead by Dong, have big plans for Round 3, and there is already the burgeoning of a secondaries market evidenced by Greencoat Capital’s acquisition of a 24.95% stake in RWE’s Rhyl Flats project.
But there is a larger argument here that perhaps sits above indices and rankings for investment: that is, it is the developers who have the true potential to make or break a country’s ‘investment attractiveness’.
Most of the major utilities and developers have the flexibility to commence or cease operations globally, whether under their own banner or through the creation of a subsidiary.
This flexibility enables them to either make or break markets.
Witness, for example, the rapidity by which developers and utilities exited the Bulgarian wind market following an overnight change in subsidies.
The same flexibility, of course, applies the other way. Developers and utilities have significantly contributed to determining the attractiveness of investment for the UK’s offshore wind sector.
What this means in practice, is essentially, that governments have to realise that globalisation is as much a feature of the wind energy market as any other sector.
Once developers and utilities decide that a market is viable, and they will likely see a return on their investment, only then can countries start to reap the economic benefits of a ‘domestic’ industry through the creation of a local supply chain.
With this in place, the case for continued investment is, of course, strengthened.
Ultimately, governments need to ‘know their audience’ for their clean energy policy decisions.
Keeping the developers on side will, as E&Y’s report shows, pay dividends.
“Yes, yes but what about this £100 MW/h target – is it really achievable for offshore wind?”
That was the common line of questioning that was returned to again and again on Thursday evening of last week, as we moderated a lively debate hosted at one of the major London law firms.
And while the panel – that included senior representation from the Green Investment Bank, DONG Energy, Grant Thornton and GL Garrad Hassan – shared the view that yes, it was in fact entirely possible, the audience were only ever partially won over.
This, despite Dong Energy’s commitment to beat this target and stretch its own company objective a little further, to €100 MW/h. Coupled with comments from GL Garrad Hassan suggesting that, even with the current cost reduction strategies in place, the target remained both realistic and within reach.
Evidently then, there’s a common disconnect appearing once again, as those working on the industry front line continue to plough forwards, while those watching from the touchline – at least one stage removed – struggle to keep up.
And for the markets of course, it’s easy to dismiss this occurrence, out of hand.
Industry observers aren’t really listening, they’ll say. They’re failing to look all that closely at the progress that’s already been made and they’ve no knowledge of the real details locked away within it.
However, while that may well be true, the wider problem remains. And if left unchecked, it’s a critical communications and engagement challenge that is danger of quickly spiralling out of control.
And that’s an important thing to avoid.
Why? In short, because the wider issue at stake here isn’t really about hitting a specific figure or market milestone at all.
Rather, it’s about creating a common objective and goal and aligning the markets behind it. That creates unity, focus and clarity for a sector that must quickly become more valuable than the sum of its parts.
As my colleagues commented in this column on Friday, the success or failure of future offshore wind for any nation is as much about creating a secure, affordable energy supply chain, as it is about strengthening the existing energy mix. That’s an important message and one that, in the struggle to justify cost cutting targets, can all too quickly disappear from view.
Time then to speak up and to deliver some clear, focused messages the market. Time to keep talking. And time to ensure that in the process, you’re appealing to both the industry advocates and those hardened market sceptics.
For, in the battle to win over the hearts and minds of the masses, only those individuals and businesses that can truly strike the balance between the two polarised communities, will win the day.
Sometimes, when Governments make bold policy decisions, they are swiftly rewarded with the investment they are looking for.
This certainly seems to be the case for Japan, as Goldman Sachs announced on Monday that it would be investing $487million in Japanese renewable energy through a unit it created last August – the Japan Renewable Energy Company.
Now, Goldman didn’t get to be one of the most successful investment banks by making bad decisions, so it’s probably done the maths on the market and judges it to be a sound investment.
Certainly, Japan’s policy regime of generous support mechanisms for renewables has helped make the case. Under the Government’s feed in tariff system, introduced last July, utilities may be required to buy power produced by offshore wind, for example, at up to Y42 per kilowatt hour – a rate that its double that of onshore wind, and one of the highest support structures in the world.
Contrast this with Poland, once one of the doyens of Easter European wind energy, but now a shaky market with investors nervously awaiting the decision of a proposed green law governing support for clean energy technologies.
What’s even more surprising about Goldman’s decision, is that outside of Japan’s push for green energy supplies, following the Fukushima disaster 2 years ago, the wider case for investment in Japan’s economy is still less than clear cut.
Abenomics - the largely Keynesian spending mechanism created by Prime Minister Shinzo Abe, by which the country seeks to exit over a decade of low growth – is still an embryonic response and unproven in the long term.
And whilst there is a market assumption that excellence in Japanese industrial engineering will provide Tier 1 equipment, the pace of development, coupled with some of the pioneering technology that is slated for use – such as floating offshore wind turbines – could still conspire to cause a bumpy ride for some investors.
But, that aside, there is another incentive that should also keep the Japanese clean energy market buoyant; as the Yen weakens as Japan looks for export lead growth, energy imports will become commensurately more expensive. Japan needs a secure, affordable domestic energy supply if its long-term economic aims are to be achieved.
As in many economies, clean energy often finds itself merely a spoke in a wider infrastructure hub. But given the potential for investment, the opportunities to recover growth that Governments are chasing so single-mindedly, Japan, at least, teaches us that consistent, firm policies can start to pay dividends.
Last week, confidential client information about users of financial data provider, Bloomberg, leaked onto the internet and into the public domain.
It was a curious debacle, sparked initially by accusations from investment bankers at Goldman Sachs, following revelations that Bloomberg reporters had had access to private Bloomberg terminal activity, including messaging and data.
As a result, the ubiquitous Bloomberg terminal is now in the eye of the storm – and faces a significant reputational issue.
And while its parent company – founded by the now New York Mayor, Michael Bloomberg, way back in the early eighties – tries to shore up confidence in the financial data giant, the ramifications of the fallout continue.
Now, this might seem a million miles away from the international energy markets – and wind energy in particular. However, this is a significant commercial development and there are in fact, lessons in this sorry saga, for us all.
Indeed, as many of the major players within the market lobby hard for manufacturers to unlock proprietary statistical analysis and information about turbines currently in use, it seems all the more relevant.
Sure, primary manufacturer monitoring and efficiency data might not at first glance seem to hold as much value as traditional data studied and analysed within the more established financial services market.
Nevertheless, it would be wrong to dismiss its value altogether. Or perhaps more precisely, to assume that the value placed on it was only of engineering and future research and developmental benefit.
For in an age where the production of energy has become an increasingly valuable – and a tradable – commodity, the power play within the sector has slowly has slowly begun to shift.
In the longer term, that means that for the energy generating markets, there’s an expectant swing in emphasis from raw unprocessed materials (such as oil and gas), towards the generators and distribution networks themselves.
All the more important then, to understand just how efficiently and effectively these generators are really performing. And it is exactly this future data bank and constant stream of information that will help to provide this clear and impartial view.
Two key lessons to take from this then.
First, don’t underestimate the value of the data that you and your industry counterparts are collecting. For its future market worth will only grow.
And second, and as wind energy increasingly becomes an asset class in its own right, let’s not underestimate the importance of establishing a clear and transparent market framework and data aggregator, to help benchmark this, right from the start.
Sure, the data is valuable. However, it’s only possible to truly understand and quantify its worth when it’s benchmarked and set against its peers.
How the tables have turned. Less than a year ago, TenneT, the German transmission services operator was under fire for its pace of connections to German offshore wind farms.
In many respects, it was the industry whipping boy. Often, issues beyond its control were laid on its doorstep – including slowing the development of the supergrid - as well as political scrutiny that called into question how well motivated the Dutch-owned firm was to solving problems with the German grid.
But in a study carried out for the firm by Offshore Management Resources, TenneT claims that, actually, the pace of offshore connections is outstripping that of wind farm developments.
Tennet’s warning coincided with similar concerns voiced by Stephen Weil, Lower Saxony’s Prime Minister, who stated in an interview with German press agency, dpa, that up to 10,000 jobs in offshore wind could be jeopardized by a lack of planning.
To tackle the situation, Weil has called for the German Government to fix the terms of its current offshore wind development programme to provide the financing community with the confidence to invest in German offshore wind projects.
Of course for potential investors, the perfect storm of delayed grid connections and wavering Government policy has acted to cool any significant private interest in the market. It will be interesting to see what happens next.
And aside from what is a clearly well thought out riposte by TenneT to many of its detractors in the market, it’s probably fair to say the firm had inadvertently made a wider point.
By blaming one part of the industry, it’s very easy to cover the cracks that may be appearing elsewhere. Indeed, TenneT claims that there is already enough cabling capacity to handle 6.2GW of offshore wind production – a figure that isn’t matched by installation.
Ultimately, the problems in the German offshore wind industry aren’t going to be solved overnight, but blaming one particular area of the market won’t move developments any further, any faster.
Wind Watch
As we recounted on Friday, the annual conference of the American Wind Energy Association, whilst seemingly down on numbers, saw some pretty positive announcements.
It seemed after the uncertainty surrounding the continuation of the PTC towards the end of last year that the US market for 2013 would be in dire straights.
But although unlikely to equal the record number of installations in the first quarter of 2012, all is certainly not lost.
This was most typified on the last day of the conference when energy utility MidAmerican announced that it would be investing $1.9billion in a 656 wind turbine project that will generate in the region of 1GW.
Good news for American wind, and particularly good news for the state of Iowa that will benefit from the investment.
Of course MidAmerican profits significantly from the backing of Warren Buffett, so can certainly afford to make the kind of commitments to wind energy that are above and beyond those of the wider industry.
But what is generally given is that investment attracts investment.
Indeed, MidAmerican’s announcement comes hot off the heels of a commitment from social networking business, Facebook, to build a $300m data centre in Iowa that will source 25% of its power from wind energy.
And that, really, is what is key to wind energy making the case not only for the continuation of the PTC, but also as a real driver of economic growth. Wind isn’t just an area for investment on its own, it can also act as an anchor for other projects and spending.
For the American Midwest at least, wind energy continues to have strong credentials.
We’ll see in October whether this has started to permeate into the US offshore market.
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