Last week, the UK’s National Grid turned off wind farms in Scotland because the grid could not absorb the power being pumped through it.
That is the second time that this has had to happen in less than twelve months and, with turbines generating more than 3GW at any one point, it marks a milestone in the evolution of European wind.
However, it also serves as a wake up call for future European wind energy ambition.
Put bluntly, the turbines were switched off because the grid simply couldn’t find a use for the power and it couldn’t send it far and wide enough through the existing grid system. And that’s actually quite a problem.
In fact, it’s the reason why there’s been so much talk of a European super grid for the past twelve months and it’s the reason why the UK government has started putting electricity power sharing agreements in place with the likes of Ireland. However, there’s still too much talk and too little action.
With manufacturers and developers working hard to overcome a whole multitude of challenges associated with bringing a new farm online, there’s soon going to be additional capacity entering the European network. And each new farm will of course have its own power generating peaks and troughs. The real challenge therefore, is to ensure that other farms, located in other areas on the grid, iron out the electricity generating highs and lows that an individual location inevitably offers.
Hence all the talk of a European super grid. A great idea but at the moment, it’s still exactly that – a great idea. With new farms coming online every month, perhaps it is time, once again, to push forwards the agenda of the super grid? That way, we can avoid having to switch the revenue generating machines off.
On Friday, David Cameron promised UK Government backing of Siemens’ plans to build a factory in Hull, at Alexandra Dock.
Responding during Prime Minster’s questions to something asked of him by local Labour MP Diana Johnson, Cameron said, “I think it is vital for the future of our economy and the future of the area that she represents. I met Members of Parliament from Humberside to discuss the issue.”
However, perhaps more tellingly, he added, “I have myself spoken to the head of Siemens about the importance of this investment going ahead. We are continuing the extra money going into ports to help the development of this industry and we back it all the way…”
It’s strong rhetoric on an increasingly divided area of the wind energy market and while it’s music to the ears of Siemens, it’s also good news for the wider UK manufacturing and engineering sector.
For Government of course, this isn’t just about the benefits of wind. It’s about generating jobs and investment, it’s about kick starting future economic growth and it’s about safeguarding energy security in the future. All terribly positive stuff and an stance that can and should be applauded.
However, as the race offshore continues to heat up and as first round investors continue to count the cost of working in a fast moving and rapidly unfolding new area of the market, let’s not all man the boats. After all, with a series of major onshore initiatives about to come online, we still have a viable and proven area of the market to capitalise on and invest in. And it doesn’t involve getting any feet wet.
The struggle to secure the US’s first major offshore wind scheme continues, as opponents to the project have taken action at the Massachusetts Supreme Court over the agreement signed between the developer, Cape Wind, and the National Grid regarding the supply of power.
The court action, launched by the ‘Alliance to Protect Nantucket Sound’ (APNS), claims that the Purchase Power Agreement (PPA) signed between the two parties unfairly places an increased cost burden on power consumers in Massachusetts, as lower priced renewable energy contracts from other states were not considered by the grid.
It is, of course, another tactic by opponents of the development to derail the scheme, which, when construction eventually starts, will be a crucial step on the path towards US offshore wind.
What’s broadly more interesting though, is that it does cast a new light on the nature of PPAs signed between Independent Power Producers and utilities, particularly at the rate at which consumers will be signed up to over the contract’s length.
Whilst APNS’ grievance is to serve their own ends, perhaps it may be worth a re-examination of the way in which PPAs are signed. With utilities increasingly moving towards ownership of wind projects, the PPA, which has strongly supported the growth of US onshore wind, may not be wholly suitable for the offshore realm.
This, coupled with merchant wind developments that don’t sign an upfront pricing agreement, foregoing initial guaranteed revenue to instead rely on market price to provide better returns, suggest that there is room in the market for a rethink.
This would, perhaps, have the effect of demonstrating to consumers that the developers and utilities behind a particular project had sought to keep prices as competitive as possible, thereby going some way to removing arguments that wind energy has to be prohibitively expensive for consumers.
For Dong Energy, the Danish company responsible for developing the site and selling of almost half its stake, the deal freed up significant capital, while for the industry, the agreement provided an insight into offshore finance in the future.
So does the deal open the door for further Asian investment and should European developers be worried?
With the deal still less than a week old, it’s still far too early to call. However, with the European private equity markets exercising considerable caution, with developers keen to free up future funds and with the Asian markets looking to learn from our experiences in the North Sea, on paper the argument begins to stack up.
What’s going to be interesting to watch of course, is the impact that these sorts of investments begin to have on public policy, government incentives and the much-anticipated new tariff system, under which offshore farms will be rewarded with a fixed price for electricity and by proxy, a guaranteed rate of return.
Whatever the impact, for the consumer, the deal will no doubt go un-noticed. However for industry executive’s, returning fresh from their summer break, the deal could just be what was needed to unlock vital future funds.
With GE’s announcement that it intends to develop a turbine of up to 15MW, there is further evidence that the manufacturers at least have long term confidence in the future of US wind, even if the investment community doesn't.
Indeed, when the US Government put subsidies for the offshore Cape Wind scheme on hold, Siemens stepped forward to offer the financial support to keep the project on track. Clearly, then the manufacturers are shaping up for the next battle.
For GE, continuing to invest in technology is critical, as it finds itself under increasing pressure in its domestic market not only from the likes of Siemens and Vestas, but also from the Chinese manufacturers keen to establish a foothold overseas.
GE was also keen to highlight that it will pursue a new type of direct drive technology that reduces a reliance on rare earths. Whilst rare earths are predominantly sourced from China, the move makes sense, at least until demand pushes market price to a point where US and Australian deposits may be mined economically.
With crucial choices on turbine manufacturers currently being made, in particular, for US offshore schemes, it will be interesting to watch the various market protagonists look to demonstrate not only innovation, but track records, where the European businesses will play particularly strongly. Whether this will be enough to overcome a US purchasing mantra that looks to ‘buy American first’, will be demonstrated by the deals that are sure to fall out of the forthcoming US offshore conference in Baltimore.
In the UK, today is the last Bank Holiday of the summer. Tomorrow investors, financiers and all manner of individuals working across the private equity markets will return to their desks. And this being the investment market, they’ll be looking to invest.
Only, when it comes to wind energy, there’s one part of the investment community that won’t be quite as active as all the others. The hedge funds.
So why aren’t the hedge funds currently seeking profits from the sector?
Perhaps it might be to do with the fact that to date, there are still too many variables within the European wind market - particularly within offshore sector, where the greatest risks continues to offer the greatest rewards.
This, combined, with intangible government commitments across Europe on pricing structures and electricity tariffs, as well as a lack of any strong project developers coming to the table, causes concern. Too many unknowns.
A couple of things might change this though.
The first, naturally, is a clearer set of directives from government and a clear commitment to the market. Forget cash incentives - governmental pockets simply aren't that deep. Instead, a focus on removing barriers and creating a sustainable investment framework for the future should do the trick. And in turn, provide the right level of incentives for the likes of Vestas to start building that port hub.
Second, is a broader change in the way in which these projects get funded in the first place.
Earlier in the year we saw two Danish pension funds invest in offshore projects. These investors create a good deal of certainty, since they're in it for the long term and are less likely to be swayed by four year government cycles and changes in project suppliers et al.
And the third, is the ease with which the hedgies can offset these projects against other investments. We have already started seeing this in the rapidly maturing US market and with time, it will cross the Atlantic.
A small, but significant, announcement seemed to largely escape the attentions of the wind industry this week.
Wind farm developer Carbon Free announced that, subject to local approval, it would launch a renewable energy apprenticeship programme backed by the profits from its wind farm development. The wind project is located in Fife and consists of 9 turbines and is committed to providing £2million over 25 years, which, Carbon Free hope, should provide scope for up to 150 apprenticeships at the local Adam Smith College.
Whilst some may, unfairly, diminish the figures backing the scheme, or bracket it as merely good public relations, the positive news is that certain players in the industry are starting to take the issue of the skills gap that besets the UK supply chain rather seriously.
Indeed, as one of the major hurdles to the use of UK firms in the wind energy industry, the lack of skills is highlighted as one of the significant risks as to whether investors will put up the cash for projects that will become heinously expensive to maintain as skilled operators have to be imported.
It’s something that many industry observers have often pushed to the fore, asking why Government, which is keen to ensure that UK industry supports a UK sector, hasn’t yet got to grips with addressing the issue. The UK, after all, has an excellent heritage in marine engineering, both in offshore structures and composite materials. It’s exactly this type of heritage that should be being capitalised on for offshore wind, for example.
But of course, it undoubtedly comes down to cost. And in what is likely to have to become a wider trend in the renewables industry, Government will have to provide the commitments through policy and future contracts, whilst private industry will have to cover the short term costs.
No one ever said heading offshore would be easy. Clipper’s announcement on Friday that it was shelving plans for its giant 10MW turbine is a case in point.
It is also another bitter blow for the US manufacturer that has had more than its fair share of challenges, since it was taken over by UTC, one of the world’s largest industrial companies, in December last year.
However, with Clipper backing out, it puts the spotlight on the Crown Estate, who, having invested in the Clipper initiative back in 2008, will now be back on the hunt for purchasing prototype turbines.
Naturally, Clipper has been at pains to position the development in a positive light, with all parties keen to stress the way in which the initiative has helped the industry to start scaling up to the next generation of turbine technology.
However, with Clipper yet to announce any major turbine sales since the December acquisition and with the Siemens, Vestas and Gamesa already making substantial commitments to the UK offshore space, the development raises real questions about international wind policy and its impact on manufacturers remaining competitive in the future.
Second quarter result from Vestas, released this week, have shown that the world’s largest turbine maker by market share continues to secure a healthy pipeline of orders. The company posted a first half increase in revenues to Euro 2.4billion, with profits up to Euro 8billion over the same period.
The accompanying analysis from Vestas Chief Executive Ditlev Engel, also made for interesting reading.
Overall, the business expects European demand to continue to rise, as, despite an uncertain financial climate, the binding low carbon targets to which European countries have signed up to mean that there is still much more to be done. The UK, which despite a number of cutbacks in the domestic economy has made financial commitments to wind energy was cited as an important area for growth.
And with moves in Germany towards the increasing use of renewables, Vestas expects to be able to play well, if not against some strong domestic competition, in the market.
Giving a break down on expected future earnings, Mr Engel said that he expects 25% of orders to come from the US, half from Europe and the remainder from Asia, suggesting he sees not insignificant opportunities for western manufacturers in China.
Given recent deals by XEMC and Sinovel, which saw Chinese manufacturers gaining an increasing foothold in Western geographies, a fact also acknowledged by Mr Engel, it's interesting that he still expects a fair amount of business to still flow from West to East. Previously, Mr Engel has stated that the business needs to be as competitive as ‘Asia plus freight’, which would suggest a challenge in winning business in this particular market.
And with the company increasingly hinting that it will press ahead with its new manufacturing facility in Kent if greater assurances are provided by the UK Government, it’s not a business afraid to use its results to its best advantage.
At the end of last week, Emerging Energy released a report highlighting that Chinese developers continue to climb the ranks of plant and project owners.
Longyuan is the Chinese winner to date, having overtaken Acciona to claim fourth spot in terms of international installed capacity. Putting that in context, that places Longyuan behind Spain’s Iberdrola, the US-based NextEra Energy Resources and Portugal’s EDP Renovavels.
Impressive stuff. Perhaps even more so given that Datang and Huaneng claimed sixth and seventh, respectively.
In fact, out of the top 25 global players, eight of the firms were Chinese – a figure that underlines the Chinese government’s ongoing support for multi giga-watt international initiatives.
However, the rapid expansion of the Chinese market hasn’t given everyone reason for cheer. When US-based component manufacturer AMSC announced a rather miserable set of results last week, the senior team was quick to point the finger – blaming ongoing business and contractual issues with Sinovel.
Clearly it’s difficult for the likes of AMSC to discuss such issues in objective terms, and it is impossible not to deny the Chinese their success to date. However, if China is going to continue to climb the ranks and enter western markets, then its focus on supplier and customer relationships will also have to shift.
Plans by Vestas to open up a plant in Brazil largely crept under the radar this week, but it’s an interesting decision and one worthy of further investigation.
A BRIC cornerstone, Brazil represents much that is favourable about investing in emerging markets, particularly in renewables. Despite the fact that wind energy currently represents only 1% of installed energy capacity in the country. With Government plans, however, to diversify energy generation away from hydro power, currently the mainstay, Brazilian wind power is expected to grow exponentially in the coming years.
So what does this really mean for Vestas and what does this really mean for Europe?
Earlier in the year, Ditlev Engel, Vestas’, Chief Executive Officer, commented that he expected slower growth in the European onshore wind sector following economic austerity in many major European economies. And whilst Mr Engel emphasised the threat from Chinese competition, diversifying the business’s portfolio into alternative emerging markets makes a lot of sense.
And it’s perhaps this diversification that is assisting the business in some of its recent work in securing a Canadian servicing agreement and Spanish installation projects, whilst ensuring it doesn’t fall into the same sort of traps that have blighted Nordex this week.
Whatever the long-term outlook for the European turbine manufacturers, it is increasingly evident that in under the current market conditions, the horizons have to be set much further afield. Hello Brazil?
The investment commitment was intended to finance engineering, manufacturing and service facilities in a number of locations. With $100m allocated for its Norwegian research and development centre that has been working on its much-anticipated 4MW offshore unit.
For a firm that had almost exclusively focused on selling its 1.5MW turbine into the North American domestic market, no one was under any doubt that it was a bold move.
The company had built its reputation around a single series unit and as a result, had developed significant American muscle. But that wasn’t so over in Europe. Here, continental manufacturers had been left to their own devices – both on and offshore.
However, with the US market maturing and with an increasing pressure on margins, GE had no choice but to look further afield for growth. So it started taking Europe seriously and it opened its cheque book.
Scroll forwards eighteen months and GE executives will be pleased to see the Romanian wind farm deal go through – even if it has been achieved through a Prowind partnership and through further concessions on grid connectivity support. The deal will see the business ship a further 120 turbines and will bring cheer to the sales team.
However, with the likes of Siemens entering $1bn North Sea contracts with ABB, the question is, are Eastern European onshore deals really enough?
Aside from the size of the numbers involved, the key thing to fall out of the ABB deal this week is market confidence.
And in a kind of virtuous circle, this confidence will continue to build as infrastructure providers like ABB are able to drive industry costs lower, increasing the attractiveness, and ultimately demand for offshore wind energy schemes.
Undertaking the mechanics of the project will also provide an incentive for European countries to start to think supranationally about renewable developments, with the prospect of a European super grid becoming an ever more realistic proposition.
Figures from the EWEA this week suggested that windpower generation will triple by 2020, so it follows that the transmission businesses are the ones to watch, with ABB’s stock having risen 4% immediately on the publication of the deal’s announcement.
Big ambitions aside, the main issue to overcome may again be one at a local level. Recent protests in Wales saw a backlash against the construction of transmission pylons to connect onshore wind energy schemes. And in Germany, recent findings showed that in order to make its wind energy plans achievable, the country will have to construct 2800 miles of transmission lines, which despite the population’s generally broad support for renewables, will have to be constructed through some of its more picturesque regions.
But with announcements like this week’s appearing with increasing frequency, the market seems to be reaching that critical mass crucial for true long-term momentum. Something that's critical if we are to enable government to move beyond simplistic financial backing and instead, take on a more holistic approach.
In any industry, the ability to demonstrate a proven pedigree and a credible track record is paramount. And for the wind industry, it’s no different.
Track records give investors, partners, suppliers and customers, one main benefit - confidence. And confidence all too often wins contracts – particularly when the ability to differentiate either through price or through technological innovation becomes increasingly difficult.
But not all areas of the renewable industry work this way. And sometimes, it’s worth looking to other sectors, to ensure that lessons get learnt.
In the world of marine – where there are huge variations in the development and evolution of technology – commercial partnerships have become the lifeblood of large-scale initiatives. Something that has quickly ensured projects develop a laser-focus on the commercial reality of an initiative and its associated impact on the bottom line.
Self-policing at its best? Possibly. Particularly given the huge technological margins for error.
RWE provides a classic example of this, where, despite enthusiasm and investment from all sides, for one party, the numbers just didn’t stack up.
Perhaps then, there’s a lesson to be learnt, particularly as project and partnership ambitions within the wind industry continue to increase.
Sure, bigger can be better, but if the numbers don’t stack up, then you are back to square one. Just ask Gamesa and Iberdrola.
This week, the EWEA released its latest figures on offshore wind development. Of the 108 European offshore turbines constructed between January and June of this year, 101 were built in the UK. On the surface at least, there are reasons to be positive.
In the UK, with growing opposition to onshore wind, and with such developments at a five year low, offshore wind continues to make sense from a planning perspective, even if prospects for long term financing of offshore wind remain unclear.
However, while it may be tempting to sound the fanfare for UK offshore, it’s perhaps worth setting it all in context. Particularly as our continental cousins start sizing up the ports.
Onshore wind developments in Europe are much denser than schemes in the UK, thereby utilising the area given over to wind projects much more efficiently. Indeed, recent figures from RenewableUK show that for every onshore turbine per 100km in the UK, there are 11 in Denmark and 6 in Germany. The continent makes much better use of its onshore wind resources than we do.
The levels of ‘nimbyism’ are less from a European perspective also. And in Germany, for example, with Chancellor’s Merkel’s recent ruling on nuclear energy, the population are more familiar with the idea of onshore wind on a large scale.
However, such factors shouldn’t detract from the UK's offshore success and it's great to see that - on the surface at least - collaborations such as the Forewind partnership at Doggerbank are already starting to deliver. In the coming months, it will be interesting to see whether this initial momentum can be maintained.
In the space of just three months, a seemingly endless series of industry reports have turned what was originally just a planning and legislative headache into a fully blown public debate.
In an instant, UK turbine technology has moved from saviour to scapegoat, with the public already starting to raise questions about the future viability of wind. As anti-wind farm campaigners recognise the power of the media, how can the industry fight back? Adam Barber, Managing Director of Tamarindo Communications, reports.
A hippy in a suit. That’s the colloquial term for a city worker who’s focussed on renewable energy markets right now. And while it’s almost always said in jest, over the past six months it’s a phrase that has started to taken on a much more unexpected turn. In fact, while the numbers of people working within renewable energy continues to escalate, it’s clear that where once the sector was the poster child of the international energy markets, suddenly that’s being called into doubt. And never is the more in question than within UK wind.
But I’m getting ahead of myself. First, let’s turn the clocks back, to a little over six months. To Renewable UK, in November, in Glasgow. Opening the conference, Alex Salmond took to the stage to deliver an impressive keynote filled with optimism, energy and vigour.
Whatever your views of his personal politics, here was a campaigner who passionately believed in the benefits of wind energy and who wasn’t afraid to talk about it. Speaking almost entirely unscripted, he talked up the scale and scope of the market, before positioning himself right at the centre of an ambitious apprenticeship programme, supported by some of the major manufacturers and support firms.
It was impressive stuff and a timely reminder on how to motivate, engage and inspire an audience that was ready for a fight. And that’s before you even consider the political point scoring that his remarks generated…
Politics aside, the mood was set and the message was clear – here was a market that was filled with opportunity. The key to success was to find a way to work together.
Scroll forward to present day. The European summer is upon us and the progress is indeed being made. Contracts are being won, new markets are opening up and partnerships are already generating results.
Yet behind all this, there’s an uncomfortable truth. It’s a growing body of public uncertainty and unrest. Questions are being raised about the true benefits and potential of the wind energy markets and the public (in particular, the British public) is beginning to demand answers.
And questions of course, are to be expected. After all, for those that are not living and breathing turbine technology, wind farms are still shrouded in a certain mystique.
Can we really produce and generate such vast quantities of power by taming the winds? What real impacts do these vast structures have on our landscape and environment? And where does wind energy fit into the wider national and international energy mix?
Make no mistake; the public has proved time and time again that when it comes to asking questions, they’re prepared to ask some awkward ones! Worse still, an industry sticking its head in the sand isn’t going to make the questions go away.
Nevertheless, the questions were avoided, the public was side-stepped and the industry moved on. So three-months back, anti-wind farm campaigners upped the ante and began to flex some communications muscle.
Teaming up with the likes of the John Muir Trust proved a smart move for some, while others focussed on building armies of local support that harangued local politicians and officials and placed increasing pressure on planning councils and teams.
Additional reports from the likes of the Carbon Trust didn’t help and only served to stoke the fire. All-in-all, for anti-wind farm campaigners, it’s been a pretty successful start to the year. And how have they become such a thorn in our side?
Simple. Through teamwork, collaboration and demonstrating an aptitude for working together. It’s not rocket science, it’s simply a classic demonstration of the power of motivating and inspiring a community. Just like Alex set out to do back in November 2010.
To their great credit the likes of Renewable UK, IWEA, EWEA, and indeed AWEA and CANWEA over in North America, have already started to work together and encourage us to fight back. But it’s not something they can achieve on their own.
Rather, it’s something that needs to be driven from the ground up. It means working together with our partners and peers. It means answering those tricky questions from the public. And it means developing a truly integrated programme of two-way communication and engagement with the great British public that goes beyond the glossy corporate brochures and the marketing puff.
It’s not an easy path to follow. And it’s not something that can be pursued without the commitment of each and every member of a senior executive team. But when it’s done properly, with the right level of investment, commitment and trust, then it’s something that has the potential to catapult a business from mediocrity to something far more exciting.
A handful of wind energy businesses have already started to dip their toe in the water and test the true power of communications and engagement. Who’s next?
Adam Barber is the Managing Director of Tamarindo Communications and the publisher of awordaboutwind. He has worked throughout the financial services, technology and renewable energy sector for over ten years. For further information about how you can develop and enhance the way in which your company communicates, contact Adam direct at adam@tamarindocomms.com.
On Thursday last week, Joe Hogan, chief executive, ABB – one of the largest international suppliers of electricity distribution and plant automation equipment – made a couple of very short but very salient remarks.
He was in the midst of delivering solid second quarter results, with revenues up 43% on last year, topping out at an impressive $893m. A set of results, he said, that was directly attributable to recent efforts to push up energy production through greater use of wind and solar power.
But it wasn’t his company figures (as good as they were) that were the truly remarkable thing. It was his candid comments about Europe. And in particular, about European finance in the future, that were worthy of note.
In providing a backdrop for the European economy, Mr Hogan said, “I feel that we [ABB] have a good platform for growth over the next 12 months but the economic environment is a concern and could begin to affect us…”
Or put in simpler terms, European politicians only have a finite period of time to tackle the escalating debt crisis before risking a serious loss in confidence in the market.
Now, given the timing of his remarks – coming as senior European Union finance officials met to try to nail down a new Greek rescue package – it was clearly a natural link and one that certainly helped temper analyst future expectation.
However, it was also a sober reminder for the wider wind energy market. As manufacturers, engineering firms and support services chase down the future, instilling commercial confidence, remains key.
It’s now almost a week since Chris Huhne published his much-anticipated industry white paper, setting out his flagship policy on Electricity Market Reform (EMR), and all talk continues to centre on one issue – a short term increase in electricity prices.
No one need be surprised. For the cost-conscious consumer, any talk of bigger bills inevitably creates chaos, as media columnists and commentators pull apart the numbers and look for the governmental gaps.
However, from an industry perspective, such analysis can all too quickly become a distraction and we need to be careful about just how much we get pulled back into the fray.
There are lessons to be learnt – particularly regarding the implications of an increasingly price sensitive consumer – but we do need to recognise where our responsibilities begin and end.
Perhaps then, it’s time for our efforts to be focused on the more immediate future. More specifically, on ways in which we can continue to invest and spend money within the European markets, while ensuring that we get the best bang for our buck. Indeed, as Nigel Verdon, Chief Executive of FX Capital Group outlines in his article discussing foreign exchange above, before we start looking for further industry investment, let’s ensure that we’ve got our own finances in order first.
Local resistance to wind power has been identified as one of the biggest barriers to accelerating UK wind turbine deployment.
Not only are the UK’s 2020 renewable electricity targets in jeopardy, but the profitability of wind companies is already being hit by drawn-out opposition, which can ultimately lead to the rejection or forfeiture of worthy and ambitious proposals.
Oxford University student, Jeff Beyer, reports on an innovative study that aims to address this.
Over the past five years, a great deal of research has been undertaken to better understand communities and the way in which they respond to the wind power challenge. However, to date very little time has been devoted to understanding how companies are actually approaching communities, what tools and practice are used, and why. And yet, given the increasing number of organisations that are entering the fray, it’s an issue that’s becoming increasing critical. Indeed, with the Localism Bill looming, it’s an issue that’s not about to go away.
It’s time to address this issue head on. Over the course of the next few months, I’ll be conducting a series of interviews with manufacturers, project developers, consultants and the legal services sector to better understand the scale and nature of the challenge. Are you interested in getting involved?
I’ll be taking a closer look at how the issue of local liaison is handled within these organisations, how the communities are perceived, what motivates beliefs and attitudes towards future engagement, and what strategies are deployed throughout the consultative process.
How big an influence do the local councils really play within a community when set against the landowners and how do the approaches compare to others around the country? And perhaps most importantly, how does the commercial reality of community engagement differ from the guidelines and blueprints of their academic counterparts?
It’s a tough brief and one that is certainly not short on challenges. However, with the right level of support – both from industry and (perhaps ironically?) from the local communities themselves, it’s an initiative that might just lift the existing corporate/community engagement rate. I’ll be reporting back with some of the ongoing findings of the initiative throughout the summer.
Whilst writing last week that perhaps the likely second instance of a wind farm closure was an aberration, figures obtained this week by law firm, McGrigors, leave little doubt about the growing momentum behind the campaign to slow the development of onshore wind.
Starkly, the figures show that last year saw the lowest number of accepted wind farm proposals since 2005, with only 32 of 66 schemes accepted.
Significantly, under the forthcoming localism bill, with planning powers increasingly devolved back to provincial town halls, there is a strong likelihood of well orchestrated local campaigns continuing to successfully challenge planning applications. As an aside its interesting to note that many local councils refuse to act in disputes regarding reduced daylight, but are seemingly happy to cancel applications on the grounds of 'visual impact'.
And whilst the campaigners will be able to enjoy victory on a micro level, this does rather debase the national, and indeed European interest in meeting stringent climate change targets by 2020. It also fails to answer a number of questions regarding the important issue of energy security, as oil supplying countries look increasingly politically unstable. It also removes the possibility of local economic benefits through the use of the local supply chain.
The answer, then, must lie in winning hearts and minds. Often the naysayers are lead by a vocal minority and tend to silence those who believe in a green, sustainable and secure energy future. The key is encouraging the silent majority to get involved.
On Tuesday this week, Energy Secretary, Chris Huhne will publish a much-anticipated white paper that will provide a framework to overhaul the UK’s energy infrastructure, replacing lost capacity and reducing carbon dioxide emissions.
It’s an important report. For Britain’s utilities it will help set the pace for future investment. While for the wind energy industry, the confirmation of a guaranteed fixed price for electricity will help establish a foundation for future finance and investment.
Over the weekend, the media have already started to speculate about its exact contents and the focus has, perhaps quite understandably, already shifted to price and the impact on the UK consumer.
All well and good and certainly something that – given the size of the numbers – certainly need not be forgotten.
However, with a question mark still hanging over the reliability of wind power generation, perhaps this is our cue to start tackling this thorny issue and assessing how best we can overcome it?
After all, incentives and future government investment is one thing but if we’re looking for governmental support, then let’s ensure that they have sufficient ammunition to fight our cause.
Friday’s announcement regarding the Chinese turbine deal really shouldn’t come as a surprise. Rather, it’s a reminder of the incessant evolution of the European wind energy markets – as technology keeps leaping forward, costs come down and the market matures.
That said it’s interesting to note the size and scale of the agreement, as well as the positive comments that continue to be made by both Eddie O’Connor and his counterparts at Sinovel. Be under no illusion here – this deal is no one-off. Rather, it’s a timely reminder for the dominant European market players of the shape of things to come.
To their credit, the European manufacturers have acknowledged this shift and have begun to adjust their commercial strategies for the future. Gamesa’s factory opening is a case in point, as new markets continue to open up overseas.
So it’s not a question of whether the European manufacturers are changing – it’s a case of whether they’re changing quickly enough. And while engineering innovation still continues to take its lead from Europe, it would be naïve to underestimate the speed, power and efficiency of the Chinese.
How important is foreign exchange to the Wind Power industry?
The answer to this is very.
Why? Because financial flows may cross currency-borders and whenever a currency-border is crossed, there will be a foreign exchange cost and risk.
In the first of two articles, Nigel Verdon, Chief Executive, FX Capital Group, evaluates how to minimise both your currency costs and currency risks. This first article focuses on reducing your currency costs.
The cross-currency financial flows within the Wind Power industry are typically one, or all, of the following: investment (equity capital), capital expenditure (equity capital and loan capital), interest payments, maintenance costs and general operating costs.
To be able to reduce your currency costs, the first step is to fully understand what these costs are and how to “illuminate them” and interpret the “foreign exchange myths”.
Dispelling Some Foreign Exchange Myths
I am sure every financial director within a Wind Power firm has been pitched ‘Better-than-Bank’ pricing by a currency broker or ‘choice pricing’ by their bank.
Both these statements appear very appealing on first inspection, however before working with a currency partner, financial director's and treasurers should be focusing on understanding the “true cost of currency”. More of this in a minute.
My other favourite is claims of “commission free” and “no payment fees”. Both these statements are fundamentally in-correct as everyone does pay a commission and payment fees, it is just that they are hidden (on purpose). I will show you how to see how much "commission" you really are paying.
How Do I Understand my True Cost of Currency?
To understand your true cost of currency, you need to answer the following questions:
Do you know how much “commission” you currency supplier is making?
How do you know that the rate you are quoted is in line with current market?
Will your pricing remain consistent over a specific period of time for all your trades?
Can you audit past and present trades to validate that you have consistent pricing?
To answer these questions here is a very simple methodology using the example of selling €1 million and buying £ (in FX terms, GBPEUR).
Use a free website to get the current mid-market “SPOT” price (note that this does change by the second)
In this example the mid-market spot price for GBPEUR is 1.1324 - if you used this price, €1m would buy you £883,080 (FYI - you would not get this rate as the mid-market rate is not commercially used)
Ask your currency supplier for their price. They may give you a price of 1.1424 which would buy you £875,350 (the difference in the price is 0.0100 which is termed “100 pips)
This gives you the commission earnt by your current supplier of £7,730 (which is also termed as your true cost of currency)
Are my Currency Costs Reasonable?
So do you know if this is reasonable? as a guideline, the price above is un-reasonable, although I have seen customers being charged £20,000 or more in “commission-free commission”.
A reasonable price would have a mark-up of 0.0040 on the mid-market price (for € and £, although prices do change per currency), earning the currency supplier £3,100.
Are My Currency Costs Consistent?
One of the sales ploys used by brokers and banks in the currency market is to “quote cheap” (e.g. 0.0040 or better) to win your business and then gradually increase the price over time hoping “you do not notice”.
To avoid this, take a note of the mid-market price when you transact and check that the “mark-up” applied is consistent.
Saving Currency Costs
In conclusion, the next time you have a cross-currency investment or payment within your wind power business, you should consider the following to reduce your currency costs:
The mid-market rate at the time you buy currency
The “fair price” for the transaction (currencies and size of transaction)
Always confirm the “mark-up” applied is consistent
Nigel Verdon, Chief Executive, FX Capital Group Nigel was previously Business Development Director for Dresdner Kleinwort Investment Bank's equity business (cash, derivatives, ECM and proprietary trading), managed the UK retail equities business (no.1 on the London Stock Exchange by consideration) and ran business development for Dresdner's Digital Markets electronic trading business (equities, rates, credit, futures, options, FX and prime broking). Prior to Dresdner he co-founded and sold Evolution Consulting Group Plc., a 120-person consulting firm advising tier-1 investment banks and private equity firms on financial markets technology and strategy.
Expect a swathe of deal signings and developments in the European offshore space this week.
It’s to be expected really, as over 167 companies and 2,500 delegates descend on Liverpool for Renewable UK’s Offshore Wind Energy Conference and publicly release details of contract wins, partnerships and commercial agreements.
Naturally, there will be some that garner more attention than others, and perhaps they’ll be the occasional surprise company partnership too. But to my mind, the companies that will be particularly interesting to watch will be those businesses that have a heritage of working within offshore North Sea oil and gas.
Admittedly, many of these specialist firms have been slow to register any real interest in the European wind energy markets, while some continue to dismiss it altogether. However, don’t let this lethargy put you off. After all, despite all the wind market’s talk of experience and expertise, when it comes to really understanding what it’s like to work out there in deep water, they do. Sideline these sector specialists at your peril. And watch them like hawks.
