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Last week, public hearings into South Africa’s proposed energy plan by 2030 kicked off last week and some grey areas of this long-awaited programme have emerged.

Energy minister Jeff Radebe published the new draft of the country’s energy plan, calledIntegrated Resources Plan, in August. This axes previous plans for nuclear expansion and aims to increase the share of renewables in South Africa’s energy mix by 2030.

The draft aims to support the addition of 8.1GW of new wind capacity by 2030, which would account for 15% of the country’s power mix. This would be a great step for a country where coal accounts for 90% of its energy mix and renewables for only 5%. The IRP also envisages to add 8.1GW of gas, 5.7GW of solar, 2.5GW of hydropower and 1GW of coal.

The plan has been welcomed by the renewable energy industry, and by the wind sector in particular, as it has rekindled hope for wind and solar developers that their troubled days are only a matter of the past. But, for this be true, the IRP may need some further work.

Jamie MacDonald, director of finance and projects at law firm DLA Piper in South Africa, has said that the current form of the IRP 2018 suggests that no new wind generation capacity would be commissioned in the three years from 2022 to 2024.

Radebe launched in June a new bid round for 1.8GW of renewables technologies, to be held next year. The current draft of the programme suggests that developers would commission the projects awarded in 2019, but provides no clarity on what would happen next. A “stop-start” approach like this is not what the industry needs to grow, particularly after having experienced three years of frozen market due to issues with state utility Eskom.

In addition, in the first week of public hearings, organisations including the Centre for Environmental Rights have criticised the programme for including 1GW of new coal-fired power stations. This is despite the fact that Radebe has said that including new coal plants in the IRP will cost South Africa an additional R23bn (€1.4bn), which could potentially be invested instead in supporting renewables.

That additional support from the government could be needed as wind developers in the country face increased competition and price pressure in the coming years.

MacDonald told A Word About Wind that between bid rounds 1 in 2011 and 4 in 2015, of South Africa’s Renewable Energy Independent Power Producer Procurement Programme, bid tariffs for wind projects dropped by close to 60%. If this trend is to continue, developers may need to contemplate more innovative financing and project structures in order to be able to competitively price their bids. In this sense, a “stop-start” approach wouldn’t help the country’s wind supply chain to consistently deliver cost reduction.

Finally, the draft of the IRP 2018 does not clarify the role of Eskom.

MacDonald is of the view that the government will need to clarify, at some point, its intention for the state utility, particularly as to whether the majority of its function would ultimately be confined to being a buyer of independently-produced power and grid operator. MacDonald has said any decision on this would likely come after the resolution of some of Eskom's current constraints.

We aren’t being negative for the sake of it. We do believe that the IRP 2018 lays the basis for a strong development of the wind sector in the country and it is encouraging to see that the market is finally awakening after a three-year halt. For example, last Friday Vestas secured an order in the country for two wind farms totalling 294MW from Italian utility Enel.

However, continuity for the procurement of renewables in the next decade and clarity about Eskom is very much needed. The feasibility of meeting the new targets is currently left to the ability – and willingness – of Eskom to meet its obligations: we think that the last three years are a convincing enough evidence that this isn’t a winning approach.

Learn from Marc Groves-Raines, Head of Renewables at Allianz Capital Partners, how investors are coping with the transition away from subsidies. Marc will be speaking at Financing Wind Europe on 1st November.

Marc Groves-Raines has been with Allianz Capital Partners since 2005, and has been its head of renewables since January 2018. During this time, he has led on European transactions and been instrumental in growing an operating portfolio of over 2GW of renewable energy assets.

Marc was one of the guest speakers at Financing Wind Europe 2018. To find out more about upcoming conferences, visit the Financing Wind site.

Allianz is one of the biggest investors in renewables in Europe. How big is your wind portfolio now?

Since 2005, Allianz Capital Partners has been one of the world’s largest investors in renewables – we manage approximately €4bn of assets in renewable energies.

Our investment approach is long-term with a focus on Europe. However, we are also investing in tax equity in US renewables projects. So far we have invested in more than 80 wind parks and 7 solar farms, and our 1.8 GW renewable energy portfolio is predominantly made up of onshore wind assets.

What do you think the future looks like for renewable energy?

Today, one fifth of the world’s electricity is produced by renewable energy. In 2016, there were 160GW of renewable energy installations worldwide. New solar power was the main contributor to this with half of all new capacity, followed by wind power, which provided a third.

At the same time, costs of producing clean energy continue to fall and we see a growing role for renewables in the energy mix. Given its increasing affordability and technological development, the applications for renewable energy have broadened, providing new solutions for mobility and energy security worldwide.

How is the European market changing?

The market in Europe has changed as the competition for projects has increased significantly. As a consequence, one has to bid for projects carefully and think twice before committing to highly competitive auction processes. That's why markets like Germany or France, which have been core markets traditionally given the robust support frameworks, have become more challenging for investors. The industry is going through a period of change as more emphasis is placed on merchant revenue streams.

What role do corporate power purchase agreements play in this?

In the past, EU countries have heavily subsidised renewable energy. As a result, investors’ capital has enjoyed protection under the feed-in tariff model.

With the cost of technologies coming down, the trend towards a subsidy-free market with increasing reliance on wholesale electricity prices is continuing. That means investors need to cope with a less advantageous environment. PPAs can play an important role here to reduce revenue volatility and uncertainty. I'm sure that the PPA market, and in particular the appetite for longer-term contracts, will determine the success of the subsidy-free market in the future.

Can you share with us some details about your recent investments?

We have made several tax equity investments in wind parks in the US this year. With the increasingly high levels of competition amongst investors in the onshore wind sector, we are evaluating new business strategies and markets in Europe where we haven’t invested yet. I think that subsidy-free markets in connection with long-term PPAs could play an important role here and, with this in mind, we have recently focused on opportunities in Iberia.

Each year, we hold a one-day conference to discuss the biggest issues in European wind. To find out about our 2019 events, click below.

The impact of Brexit on wind energy deals is set to be a key talking point at our Financing Wind Europe conference in London on 1st November – and for good reason.

As the exit day of 29th March 2019 approaches, and with little clarity on what Britain’s exit from the European Union will look like, businesses in every industry – including wind – are facing uncertain times. Will Britain stay in the single market? Will we see import and export tariffs on goods and services to and from European Union countries? What about the free movement of workers? Even the so-called transition period is up in the air too.

It is these questions that will determine the future of the UK’s wind industry after Brexit. In practice, these questions are most pressing for offshore wind, given that the Conservative government cut support for onshore wind in 2015 and the planning system continues to be an obstacle for developers onshore.

Just last month, a group of businesses and organisations, including energy company EDF and trade body RenewableUK, wrote to Prime Minister Theresa May and EU Commission President Jean-Claude Juncker warning that, unless efficient tariff-free trade agreements were reached: “Brexit may create additional costs for sectors… such as offshore wind.”

Luke Clark, head of external affairs at RenewableUK, has also told us that that two factors will determine whether Britain’s offshore wind industry does indeed incur these additional costs. First, the supply chain impact; and second, the free movement of skilled workers.

While Britain’s offshore wind industry enjoys levels of local content nearing 50%, that still leaves half of its goods and services to be imported from other countries, most of which – given the prominence of European firms in the wind market – are in the EU. These are so closely entwined that any significant change to exports must affect UK-based companies.

Clark also highlighted the importance of sharing skills and expertise across borders. He told us: “If markets are unable to access that international talent, that will drive up costs. A Brexit deal that ensures the reciprocal movement of skilled workers is really vital.”

And this could happen. Prime Minister May has been pushing for a Brexit deal with the EU that achieves just that. However, her Chequers plan has incurred the wrath of many of her Brexit-backing ministers, and disagreements over the Irish border is holding up progress on negotiations too. This means that the possibility of a ‘no deal’ Brexit continues to linger.

Matthew Wright, UK managing director of Ørsted, has said a hard Brexit or a last-minute “no deal” could ‘cause a problem in terms of supply chains and movement of goods and people’. It seems clear that a ‘no deal’ situation would be the worst scenario for renewables.

Yet a ‘no deal’ Brexit does not have to be catastrophic.

One reason to be optimistic is the government’s pledge to open its Contract for Difference renewable energy auctions every two years from 2019-2030. This is a domestic policy, not an EU one – and should endure regardless of the form that Brexit takes, giving developers and investors some security.

Likewise, as we’ve heard many times before, people will still need to be able to turn on the lights after 29th March 2019, and the UK electricity system is still in need of upgrading. We see a need for wind farms whether or not the UK is in the EU, and they will need investment and technology from somewhere. There is no question of the industry surviving Brexit, even if there is no deal reached between the UK and the EU.

However, surviving doesn’t mean there won’t be any costs of Brexit – and it’s very different to the breezy pronouncements of the Brexiteers in the 2016 referendum campaign. As long as there continues to be support from the UK government, that will continue to support and bolster the offshore wind sector. Now we just need it to reverse its hostility onshore too.

Financing Wind Europe speaker Felix Fischer, of Chatham Partners LLP, spoke to us about prospects for renewable energy at a time of declining subsidies, as well as the future of German offshore wind.

Felix Fischer is one of the founding partners of infrastructure law firm, Chatham Partners. He specialises in advising developers and investors with regard to renewable energy facilities, with a particular focus on offshore wind.

Felix was one of the guest speakers at Financing Wind Europe 2018 - to find out about Financing Wind 2019, visit our conference site.

Which wind projects are Chatham Partners currently involved with?

As you may have seen in the press, we are on Ørsted’s panel of legal advisors in Germany. And we are supporting another large developer in his project execution, in particular with contracts and claims management.

We advise some larger-scale onshore wind project developments and a few commissioned projects, both on- and offshore across Germany on legal matters of operations. And what I am particularly happy about is that we recently contributed our first advice to one of the projects in Taiwan.

That’s quite a diverse spread in terms of geographical location. Where do you see the most interesting marketing opportunities for wind?

It depends whether we are talking about onshore or offshore. In terms of offshore, my perception is that the US is a very interesting market at the moment – you can tell from Ørsted’s acquisition of Deepwater Wind that they are increasing their footprint in that market. A number of projects are making large progress and have been awarded power purchase agreements [PPAs] by state governments, like the 800MW Vineyard project.

I think that market is very interesting because, though you can say what you want about the current government, it is still an established industrial market where it is possible to comfortably set up the logistics of a project. This means that, although it is geographically further away, it is still a quite familiar environment for European developers.

There are also opportunities in markets further afield. Look at Taiwan, India and Korea – to name a few. What you see on the ground is that the complexities are obviously slightly bigger than in more established markets. This concerns political processes, supply-chains and simply culture.

For onshore wind, it is my perception that the market has become truly global. We see clients invest in most fairly stable economies across Asia, North and South America and Europe. After all, investors have to consider how large your appetite is for return expectations, and that decides to what extent your interest lies in more established or emerging markets. On the other hand, some players simply have a global strategy.

What do you see as being the biggest legal challenges for European wind?

To be honest, I must say that we’ve overcome a lot of the challenges. Now the main regulatory issues are problems of grid congestion and environmental permitting.

In my view, few countries so far provide a viable regulatory framework to finally break-through on storage technologies or power-to-X solutions. To improve this would be important in order to allow for a faster and efficient build-out.

The step from subsidised to purely marketed electricity production is large from a financing perspective. We are still experimenting with that. It is more common in Scandinavia and the UK than it is in Germany, so PPAs with volatile electricity are still something we are learning how to address properly, both economically and contractually.

On the other hand, everybody always talks about the PPA market as though it was a new thing – but we have known and worked with PPAs for decades. There still are many parallels to the days of nuclear and fossil power plants. So that is no revolution from my perspective – at least in the legal sense, it is not as complicated as many people claim. Economically, one may take a different view, in particular considering the range of electricity price forecasts.

What do you think the next ten years will look like for wind in Germany?

The government is planning to auction an additional 4GW of onshore wind capacity so that is good news. Also, the prices have increased in the last auction. Overall, I think onshore wind might over this period become the cheapest electricity we have, especially with further scaling.

Right now, offshore wind is a bit problematic because our grid enhancements and expansions have not kept pace. But I think with more technology coming to the market, that helps to balance the grids and some infrastructure measures – this natural boundary to offshore wind – will fall. We will see more capacity being realised than most people expect at this point.

And finally, what do you think the impact of Brexit will be for wind in the UK?

The fundamental logic of power production will stay the same. But I do not know what the impact might be on the political agenda of the UK.

It is possible there will be less foreign investors willing or able to invest in the UK. But that will not be a problem as long as there is so much capital in the market. If at any point in time we see a general downturn with less money in the market, then it could hit the UK harder as investors would have to diversify their portfolios.

Each year, we hold a one-day conference exploring the biggest issues in European wind. To find out more about our 2019 event, click below...

Wind Watch

What does the retreat of subsidies mean for renewable energy projects?
By Justin FitzHugh, partner at Augusta & Co.

The retreat of subsidies is the most significant trend in today’s renewable energy market, and it's coming in many forms. Sometimes, as in the UK, subsidies have simply been removed. In other countries, such as Norway and Sweden – and arguably Finland and Spain – the subsidy is of little or uncertain value.

Even in the markets where some form of tariff persists, auctions are restricting eligibility, prices are being driven down, and the security of the structure is being eroded as intermittent generators are being exposed to true balancing costs and capture pricing.

In our view, these changes are bumps to be expected on the road to a mature, cost-competitive industry. How close we are to that destination should be cause for celebration. Those who have argued against renewable energy on the grounds of cost have been proved dramatically wrong.

However, the move away from subsidies is posing some fundamental questions for developers, lenders and investors that the industry will need to answer if it is to continue to flourish. In this context it’s useful to sketch the outlines of a world where subsidies don’t exist to see what the answers might be.

The cost of wind turbines: benefits and limits of PPAs

Some of these outlines are quite clear. There will be more long-term power purchase agreements (PPAs), corporate or otherwise. Augusta has helped projects totalling over 1GW to secure such contracts, with parties including Google, Facebook, Alcoa and Norsk Hydro. However, we think that such PPAs – the closest substitutes for feed-in-tariffs – will not be available in sufficient volumes to enable the scale of development required by European Union targets.

This gap will lead to a more diverse and creative industry, with more varied approaches to managing risk and more participants helping to manage those risks.

We expect corporates, utilities and market makers playing a bigger role. In addition to that, we expect more activity from investment banks providing derivatives to protect against merchant price, credit and wind risk, from insurers providing credit and other specialist insurance and other new entrants better placed to take risks than the projects or developers themselves.

On the capital side, there will be less debt and more equity. With more merchant risk, lender views of cash flows per unit of capital expenditure will be lower than with a fixed tariff protecting the debt. This will also mean that lender views diverge further from investor views of the same cash flows. Leverage levels will fall.

Investing in wind energy: negotiating the post-subsidy world

For equity investors, the world will get more complex. Lower leverage will lower the sensitivity of equity returns to movements in merchant prices, but there will typically be higher exposure to those movements from a less contracted offtake structure.

Investors in the subsidised world had these trade-offs too but, because all projects in the same market had the same offtake structure, these sometimes got hidden behind a simple view of returns.

It was possible to talk about an IRR (internal rate of return) for German wind or French solar – or even UK ROC (Renewables Obligation Certificate) wind – without stating the underlying assumptions that leverage was maximised, the operating life was 25 years and, largely, that any merchant exposure followed the consultant central case view of forward power prices.

In an ex-subsidy world, this will no longer be possible. Even now there are projects in the same European market being built with full merchant power price risk, and others being built under 29-year PPAs. Equity risks will not be the same in both projects. But then leverage, the PPA structure and volume, the quality of the off-taker, the structure of the O&M contract and other factors will all impact the appropriate return.

Benchmarking across projects will become more difficult because project structures will be more varied and the market will be less commoditised. Smart investors will find their niches where they can take views on, or develop structures that help them to manage, certain risks better than others. Those who can only invest in projects with a 15-year PPA with an investment grade off-taker will find themselves in a very competitive corner of the market.

Finally, for developers in need of funding for their projects, an ex-subsidy world will require new skills and new ways of thinking.

Off-take sourcing will be critical, but they will also need to understand individual investor and lender approaches better to ensure that they deliver attractive projects to the market. Investor partnerships will become more common, but some investors may prefer to leave the contracting phase of development to investors who have those skills in-house.

Want to hear more from Justin? He'll be speaking at Financing Wind Europe conference on 1st November, where Augusta & Co. is a silver official sponsor. Book your place here.

Australian financial giant Macquarie last week agreed to invest an undisclosed sum in the 11GW Asian Renewable Energy Hub hybrid project in Western Australia.

I’ll be honest, I spent a few minutes double-checking the project size because… 11GW?! That’s almost as much as the total installed wind capacity of Brazil!

But the figure is correct and the idea for the project has been around for a while. A consortium that includes Australian developers Intercontinental Energy and CWP Energy, as well as Danish turbine maker Vestas, started work in 2014 on the idea for a 6GW wind and solar project in the huge Australian state.

The partners spent three years working on the proposal and assessing its viability, with a plan to export its full output to Southeast Asian countries, including Singapore and Indonesia. Last year, the companies agreed to add a further 3GW, with the aim of supplying to the local market too, and submitted it for environmental review.

And now, following more analysis of wind speeds in the area and with the newly-won support of Macquarie, the planned capacity of the scheme has been further increased to 11GW. This would include 7.5GW of wind turbines and 3.5GW of solar panels, located on more than 7,000 square kilometres of land. That’s somewhere between the total size of Trinidad & Tobago and Cyprus.

The partners plan to allocate 5GW of the total electricity produced to large local consumers including miners, who currently rely mainly on gas, diesel and hydrogen projects; and 6GW is set to be exported to countries in Southeast Asia, and in particular to Indonesia.

The Asian Renewable Energy Hub is also set to require a whopping investment of A$22bn ($16bn), with a first financial investment decision due in 2021. The group then aims to start construction of its 1,400 wind turbines and 10 million solar panels in 2023, with first power to be produced in 2024.

But while the hub is still at a very early stage of its development, it is too significant for us not to address the challenges that a project of that size might bring.

First, the Australian electricity system is very fragmented. Western Australia and the Northern Territory are not currently connected to the National Electricity Market, which feeds all other Australian states. This means that Western Australia’s neighbouring states are unlikely to benefit from the project.

Paradoxically, it would be easier to export energy produced by the scheme to countries in Southeast Asia than to Western Australia’s neighbouring states. The partners are also likely to find it easier to attract private capital to fund undersea interconnectors from investors in Asia, rather than getting the national government to commit to major infrastructure investments and changes to the electricity system. This would also mean fewer objections from landowners over the construction of transmission lines.

We also need to consider existing policy uncertainty. We are all well aware that recent Australian governments haven’t been renewable energy’s biggest fans, and this largely holds true for the current one as well. Responding to a United Nations climate change report last week, deputy prime minister Michael McCormack said that Australia would continue to use its coal reserves and that they could not be replaced by renewable energy.

While local governments have been the real drivers of renewables development in Australia, this is not an ideal environment to support a 11GW project. And that could have negative effects on long-term investor confidence, which will be required to make a project like this feasible.

Last year the country attracted $9bn of investment in renewables, but this project alone would require more than $15bn – albeit split over many years.

And finally, the permitting process; planning and construction of interconnectors; and opposition by local communities are just a few variables that could raise significant obstacles for the development of big schemes. We must take them into account.

We like huge projects that bring big investment (and attention-grabbing headlines!) but, in this case, we’ll remain cautious until

The rollback of subsidies poses problems for investment in renewable energy projects - and PPAs may not be the whole answer. Justin Fitzhugh, Partner at Augusta & Co and speaker at Financing Wind Europe, explains the issue.

Justin Fitzhugh, partner at Augusta & Co, explores what the rollback of subsidies means for investors in wind, including the limits of relying on PPAs. Justin was one of the guest speakers at Financing Wind Europe 2018 - click here to find out about upcoming conferences.

The retreat of subsidies is the most significant trend in today’s renewable energy market, and it's coming in many forms.

Sometimes, as in the UK, subsidies have simply been removed. In other countries, such as Norway and Sweden – and arguably Finland and Spain – the subsidy is of little or uncertain value.

Even in the markets where some form of tariff persists, auctions are restricting eligibility, prices are being driven down, and the security of the structure is being eroded as intermittent generators are being exposed to true balancing costs and capture pricing.

In our view, these changes are bumps to be expected on the road to a mature, cost-competitive industry. How close we are to that destination should be cause for celebration. Those who have argued against renewable energy on the grounds of cost have been proved dramatically wrong.

However, the move away from subsidies is posing some fundamental questions for developers, lenders and investors that the industry will need to answer if it is to continue to flourish. In this context it’s useful to sketch the outlines of a world where subsidies don’t exist to see what the answers might be.

The cost of wind turbines: benefits and limits of PPAs

Some of these outlines are quite clear. There will be more long-term power purchase agreements (PPAs), corporate or otherwise. Augusta has helped projects totalling over 1GW to secure such contracts, with parties including Google, Facebook, Alcoa and Norsk Hydro. However, we think that such PPAs – the closest substitutes for feed-in-tariffs – will not be available in sufficient volumes to enable the scale of development required by European Union targets.

This gap will lead to a more diverse and creative industry, with more varied approaches to managing risk and more participants helping to manage those risks.

We expect corporates, utilities and market makers playing a bigger role. In addition to that, we expect more activity from investment banks providing derivatives to protect against merchant price, credit and wind risk, from insurers providing credit and other specialist insurance and other new entrants better placed to take risks than the projects or developers themselves.

On the capital side, there will be less debt and more equity. With more merchant risk, lender views of cash flows per unit of capital expenditure will be lower than with a fixed tariff protecting the debt. This will also mean that lender views diverge further from investor views of the same cash flows. Leverage levels will fall.

Investing in wind energy: negotiating the post-subsidy world

For equity investors, the world will get more complex. Lower leverage will lower the sensitivity of equity returns to movements in merchant prices, but there will typically be higher exposure to those movements from a less contracted offtake structure.

Investors in the subsidised world had these trade-offs too but, because all projects in the same market had the same offtake structure, these sometimes got hidden behind a simple view of returns.

It was possible to talk about an IRR (internal rate of return) for German wind or French solar – or even UK ROC (Renewables Obligation Certificate) wind – without stating the underlying assumptions that leverage was maximised, the operating life was 25 years and, largely, that any merchant exposure followed the consultant central case view of forward power prices.

In an ex-subsidy world, this will no longer be possible. Even now there are projects in the same European market being built with full merchant power price risk, and others being built under 29-year PPAs. Equity risks will not be the same in both projects. But then leverage, the PPA structure and volume, the quality of the off-taker, the structure of the O&M contract and other factors will all impact the appropriate return.

Benchmarking across projects will become more difficult because project structures will be more varied and the market will be less commoditised. Smart investors will find their niches where they can take views on, or develop structures that help them to manage, certain risks better than others. Those who can only invest in projects with a 15-year PPA with an investment grade off-taker will find themselves in a very competitive corner of the market.

Finally, for developers in need of funding for their projects, an ex-subsidy world will require new skills and new ways of thinking.

Off-take sourcing will be critical, but they will also need to understand individual investor and lender approaches better to ensure that they deliver attractive projects to the market. Investor partnerships will become more common, but some investors may prefer to leave the contracting phase of development to investors who have those skills in-house.

Want to hear more from Justin? He'll be speaking at our Financing Wind Europe conference on 1st November. Find out more by clicking below.

CEO of Element Power, Mike O'Neill, explains why the changing nature of the renewables market means investors will need to change tactics to keep pace.

Mike O'Neill, CEO of Element Power, explains how investors are managing the transition away from subsidies - and why this has proved problematic for some. Mike was a guest speaker at our Financing Wind Europe 2018 conference. To find out more about Financing Wind 2019, visit our conference site.

The renewables market is changing

A tremendous amount of capital has come into the renewable energy sector in recent years, on a promise of long-term contracted revenue streams. Low risks have meant lower yields on investment, but still higher than fixed-income alternatives. This capital has been channeled into dedicated funds, listed vehicles and other structures for an appropriate ‘handling fee’. Banks have almost reverted to their pre-crisis behaviour.

There has been a clamour for the last of the projects able to ride the final waves of feed-in tariffs, and a highly competitive secondary market, with analysts once again trying to squeeze out the last drops of juice from their exhausted models to make their capital the most competitive.

So as the comfort blanket of feed-in tariffs is taken away, those in charge of deploying capital in the sector have to respond to ever-decreasing circles of available shovel-ready projects and equity returns. People who have been used to avoiding risks are now having to re-think their approach in two principal areas: project development and routes-to-market.

Success requires a new approach

Securing a dedicated pipeline of future investment opportunities seems like an obvious panacea to thirsty investors experiencing the project drought. However, stepping into development is not as straightforward as it might seem for those unused to getting their hands dirty. Investors more familiar with making decisions based on ‘red-flag’ due diligence reports with only the odd fleck of crimson, will be faced with something that looks like a Tarantino movie script. It will require a different mind-set to adapt and evolve and thereby control their own destiny.

However, they need to proceed with caution. ‘Development’ does not mean ‘just a bit of finishing off to do’. Securing a long-term, sustainable flow of investment means having a portfolio of projects at all stages of maturity. In this world, the skill set required for success is less about raising capital and more about understanding and managing development risk - how to assess opportunities, oversee projects through the various stages, and make decisions on deploying capital before everything – or anything - is locked down.

Having €2 billion at your disposal does not guarantee success; deploying this to build out projects is the easy part! The real challenge is spending €20m-€30m a year to successfully develop the pipeline to build.

The other piece of the jigsaw is the revenue stream. As if having to move over to the ‘dark-side’ of pre-financial close development isn’t bad enough, investment managers now have to understand how energy markets work.

Renewable energy, now able to compete in those markets, has come of age.

Everything up to now has been setting the foundations on which we will truly start to build. This is the most exciting time that we have seen, and the opportunities are huge. But with the subsidy stabilisers taken off the bike, some will wobble and fall over, whilst others will start going up through the gears.

Again, it is not about the volume of capital but the ability for it to be deployed into building projects that have less certain cash flows. This will require in-house knowledge of how to secure routes to market, stack different revenues and operate assets.

And it is not just about getting a better understanding of the revenue streams; only the most competitive projects will succeed, and therefore the approach to costs will need to change. For example, the gold-plated 15-year operational arrangements that have been driven by the project finance market and proved lucrative for the OEMs will need to be re-thought, and project design and operating strategies become more bespoke.

Re-emergence of utilities

All this points to a fresh opportunity. Those most naturally able to respond to the new renewables age are those who already possess the required DNA to develop energy projects, manage grid, understand the energy markets and operate plant efficiently - the utility companies themselves.

And some of the more forward-looking will become an increasingly dominant force. Statkraft was best placed to acquire Element Power’s Irish and UK platforms in a deal we completed at the start of October. In doing so they have now taken a leading position in these markets, following an offtake structure for a project in Ireland secured a few weeks earlier. Others will follow as the inevitable market consolidation continues, and we see evolution take over with the survival of the fittest.

The ‘smart’ capital has already seen this coming, and is ahead of the curve. They will succeed in taking a share of the market alongside the utilities, and also work with them to provide liquidity. Those stuck with an investor base and model that fits the old world may find themselves facing extinction.

Each year, we host a one-day conference to explore the biggest issues in European wind. For more information, click below.

Danish giant Ørsted has bought leading US offshore wind developer Deepwater Wind from hedge fund D.E. Shaw for $510m. You saw that one, right?

In its announcement – which went out in time for our Monday edition – it said it wanted to create the“US offshore wind platform with the most comprehensive geographic coverage and the largest pipeline of development capacity”.

And this comes hot on the heels of its acquisition of US onshore wind developer Lincoln Clean Energy for $580m in August. That deal showed that Ørsted aims to make inroads onshore again, and this one shows it isn’t neglecting offshore wind.

With Ørsted’s double defeat in offshore tenders in Massachusetts and Connecticut earlier this year still fresh in our minds, the acquisition of Deepwater sends a clear message: Ørsted is more determined than ever to conquer the US. Will it do so?

As far as strategic moves go, buying Deepwater is a bold way to succeed in this market that has, thus far, proven challenging. But simply, it makes a lot of sense.

The value of this deal to Ørsted is reflected in the cost: $510m for a small developer with only one project online could be a major risk, but Deepwater looks worth it.

Deepwater has a strong track record in the sector in the US and has shown that it can succeed against the big boys. We shouldn’t forget how Deepwater outbid Bay State Wind, the 50:50 joint venture between Ørsted and Eversource, for the right to develop Connecticut’s first offshore wind farm in June. With this acquisition, Ørsted is not only expanding its own reach in the US – adding 3.3GW to take its US offshore portfolio to more than 8.8GW – but is also quite literally buying out the competition.

Known for developing the first offshore wind farm in the US, the famed 30MW Block Island, Deepwater also has a development-stage portfolio of 810MW, with 2.5GW of potential capacity in the pipeline. It therefore possesses location-specific experience, and an understanding of how to deliver projects within the US regulatory framework.

In addition, by buying Deepwater’s extended pipeline of projects, Ørsted has been able to get something out of auction processes in which its bids fell short.

And both companies have helped to build the positive momentum in the US offshore sector in the last three-and-a-half years. Ørsted electrified the market in early 2015 by entering as the US’s then-flagship offshore wind project, the 468MW Cape Wind, fell apart. And Deepwater Wind helped to show it was possible to build in US waters despite deep uncertainty provoked by Cape Wind.

From Deepwater’s perspective, Ørsted also possesses the financial and operational capacity needed to develop its pipeline. After the deal completes, which is due by the end of 2018, the combined company will be known as Ørsted US Offshore Wind, and led by Ørsted’s Thomas Brostrøm and Deepwater’s Jeff Grybowski as co-CEOs.

Finally, the acquisition reflects the potential for investment firms such as D.E. Shaw to get involved in ventures early on, build them up, and then sell them on to a utility.

These deals have become a feature of the US market in the last few years, and we wrote about thisin our free report, America’s Wind Buyout Boom, in September. The pressure on utilities to expand makes this a good time for investors looking to sell.

In this way, Ørsted is simply one more example of a European utility demonstrating a popular principle to achieve growth in the US: if you can’t beat them, buy them.

Wind Watch

Equinor’s Stephen Bull: Innovation in floating wind, new market opportunities and the future of RenewableUK
By Frances Salter

Equinor is the developer and operator of Hywind Scotland, the world’s first commercial floating wind farm. What’s next for floating wind?

Amongst many other leads, we are currently developing a concept for Hywind around oil and gas installations. This is part of our wider strategy to reduce 3million tonnes of CO2 emissions in our Norwegian offshore oil and gas business. By applying renewable energy to our offshore platforms we can save costs, carbon and add innovation to the Hywind floating wind concept.

Where will that project be based?

It’s off the coast of Norway, in the North Sea, linked to the Snorre and Gullfaks platforms. Each of the 11 turbines has an 8MW capacity. It’ll be an island system, integrated with gas generators as a back-up, and fully integrated into the operations of the platform – which requires power for drilling and operations. In total, we can offset about 200,000 tonnes of CO2 per year, equivalent to the emissions of 100,000 cars.

Where in the world do you see the most interesting opportunities for floating wind?

We firmly believe the UK has strong possibilities, with Scotland being a natural place for this because of its deeper waters and supply chain. Additionally, France is opening up and we will see some new tenders coming soon. Norway has shown stronger interest recently, particularly to support innovation within offshore, though mostly linked to oil and gas.

In terms of big-scale markets for us, first and foremost we’re looking at Japan – we’re opening our Tokyo office this week. We have a clear long-term intention of developing offshore wind there, with most potential within floating wind, due to the water depths and characteristics of the country. In addition, there’s other opportunities in Asia – South Korea is beginning to open up; and in the US, California presents some big opportunities, particularly with its recent zero-carbon electricity target.

Do you think the UK will remain a leader in offshore wind after Brexit?

Definitely. The UK has such fantastic geological conditions for offshore wind – obviously, it’s windy, it’s an island with over 11,000 miles of coastline with ostensibly shallow water. Just 3% of the UK’s seabed is utilised by offshore wind today, so there is a huge upside, for what is now an extremely cost-competitive technology.

Regardless of Brexit, the clear direction of travel in the UK is towards decarbonisation. Ten years ago, the Climate Change Act set the course for this and we see continued support across all parties. Plus, the UK is a great place to try out new technology and business models. We chose the UK to test out new battery energy storage concept, called Batwind, because the UK regulatory authorities are very solution-oriented and open – so it will remain a great place to pursue innovation during the energy transition.

You’re the chairman of RenewableUK as well. Can you tell us what they’re doing to promote offshore in the UK?

RenewableUK (RUK) is the UK’s largest renewable interest organisation. What’s unique about us is that the bulk of our members are part of the supply chain – smaller to larger companies up and down the UK who are involved in all aspects of onshore wind, offshore wind and wave and tidal. The majority of our membership is reflecting the strong growth in offshore wind, and that’s the great legitimacy the organisation. We can speak on behalf of the real breadth of the UK’s renewables industry and we are in touch with the fantastic innovation and investments going on here.

RUK has been instrumental in achieving a clear framework for future offshore wind auctions announced by the government, with a clear pathway to double offshore wind capacity. RUK is at the crossroads of being part of the mainstream, simply reflecting the UK’s energy mix. Our members are investing in smart, flexible systems which will deliver power to consumers in the decades ahead, so as well as helping them on technology-specific issues, we are increasingly looking at how to help them build the system of the future.

Tell us about the rebrand from Statoil to Equinor.
The name change came in May 2018 and was driven by our CEO Eldar Sætre, reflecting a clear vision for shaping the future of energy in the company. It’s the culmination of several years’ thought.

Over three years ago, we established our division, New Energy Solutions, with a clear direction to grow within offshore wind, solar and develop new opportunities within carbon capture and storage. But the name change also reflects our strategy to develop lower carbon-intensive oil and a lot more gas in the portfolio. The name Statoil served us well for the past 47 years, but perhaps doesn’t quite reflect where we see the company in another half century, where we see incredible opportunities in the ensuing energy transition.

Want to hear more from Stephen? He'll be speaking at our Financing Wind conference on November 1st in London. Click here to book your place.

“The age of subsidies is over. The government has to make the energy transition possible and make things easy for investors, but does not have to pay for it.

These are the words of Spain’s energy secretary José Domínguez Abascal, speaking at Bloomberg New Energy Finance Summit in London last week.

His statement is in line with a new programme of energy reform, announced by the Spanish government last month, which aims to attract up to €100bn of investment in renewable energy generation and storage capacity by 2030. It is looking to achieve this to meet a target from the European Union for generating 32% of its energy from renewables over the same period. Green investors have welcomed the target.

However, €100bn of renewable energy investments is not an easy goal to achieve for a country that seriously damaged investor confidence with retroactive cuts to subsidies between 2010 and 2013. Spain is still fighting legal battles with investors over the financial impact of these cuts. We wrote about this here.

So, to return to Abascal’s quote, the country needs a good plan to restore confidence of investors if it is to attract over €9bn a year for the next 11 years. Has it got one?

A key step for the government is to remove bureaucratic obstacles in the permitting process for new wind and solar projects, and facilitate the process for repowering existing wind farms. Power purchase agreements are set to play a key role.

In fact, the PPA market in Spain has slowly taken off over the last year. Recent examples include EDP Renewables and Engie, which have both signed agreements to buy power from Spanish wind farms; and Statkraft, Axpo and Nexus, which have signed solar PPAs. These deals are encouraging signs of a renewables market that if finally awakening, after years of stagnation.

But we still see many challenges to overcome. For example, there is limited availability of solvent PPA off-takers, in particular among small and medium-size corporates, and this would limit the potential of such deals.

Second, national utilities in Spain are not yet signing PPAs with third parties. This means that PPAs have been signed only by foreign wind farm owners so far, as they have seen them as an opportunity to catch a market share against local companies.

Freek Spoorenberg, Vice President at BlackRock Real Assets, told A Word About Wind that the continued development of the PPA market is set to mitigate the challenges that come with grid parity projects. Putting in place guarantees to cover the solvency risk of off-takers together with national utility off-take targets may improve the availability of PPAs to developers and investors.

As far as we know, the government has no concrete plan to do either, even though making PPAs work could be the quickest way to make investors comfortable with market risks.

Another problem in Spain is that electricity over-capacity has not yet been fixed. Abascal said that the government had no specific plan about phasing out old coal power plants and it is counting on companies on taking that decision. This might work in some cases, but still leaves the growth of renewables a hostage of vested interests from those in the coal sector.

If the government started retiring excess capacity, starting with the oldest and dirtiest power plants, then it would create more room for renewables in the grid and give a positive signal to investors. With over 4GW of wind capacity awarded last year and more auctions to come, investors need that reassurance.

Finally, wind projects are still limited to generating a “reasonable return”, capped by the government, which affects returns on wind farms retroactively. If the government wants to really regain investor confidence, it needs to look at scrapping the cap.

Governments may be paying less in the way of direct subsidies, but politicians can still play an important role in making the transition possible and making things easy for investors. As yet, it doesn’t look like Spain’s leaders are doing enough.

Despite their geographical proximity, Denmark, Norway and Sweden are in very different situations when it comes to wind power. So what does this mean for investors?

Despite their geographical proximity, Denmark, Norway and Sweden are in very different situations when it comes to wind power. So what does this mean for investors? Frances Salter explains

Norway’s Approach to Wind Power

Of the three countries, Norway is currently the least promising market for wind - though it’s not without potential. In 2017, wind power only accounted for 1.9% of the country’s total electricity generation.

Nonetheless, it’s seen some solid PPA activity recently, as Norwegian aluminum company Norsk Hydro has signed a long-term PPA with the Green Investment Group – it’s the world’s longest power purchase agreement, with a duration of 29 years.

However, Norway’s unique geographic layout means that the windiest regions are also the most difficult to connect to the grid, creating issues for both developers and the government. For this reason, the government announced earlier in 2018 that, as of the start of 2019, developers looking to build power facilities in locations without a strong grid will need to contribute to grid upgrade investments. This is especially problematic for wind developers, who would often be looking to build projects in hard-to-reach locations.

Norway’s energy industry has criticised the plan, saying that it will end up needing to foot the bill for approximately $17bn of grid investments before 2025.

Assuming the government goes ahead with this plan, investors’ confidence may well be knocked.

Sweden’s Renewable Energy Goals

By contrast, wind power in Sweden is going from strength to strength.

The Swedish Wind Energy Association reported in July 2018 that Sweden is on track to reach its 2030 target of 49% energy from renewable sources by the end of 2018. This would need 7.5GW of installed wind capacity - at the end of 2017, the country had 6.7GW of installed capacity, so it’s on track to reach this goal.

Part of the reason for this success, as we’ve previously covered in our report, Europe’s PPA Revolution, is that Sweden has seen a major influx of corporate PPAs. For example, Google signed its first PPA in Europe in 2013 with OX2’s 72MW Maevaara wind farm.

There are a few reasons for this: its low power prices mean that developers find the financial certainty that comes from PPAs reassuring for the development of projects; Sweden is home to a large number of data centres, owned by companies such as Google, which require considerable amounts of energy; and thirdly, the country’s government has cut energy taxes, as well as having a predictable regulatory system.

These three factors create an environment which is ideal for investing in renewables.

Wind Power in Denmark

Denmark is world-renowned as a leader in renewable energy: 30% of its energy comes from renewable sources. It’s also been a pioneer in wind energy, having installed wind turbines since the 1970s – and in fact was the first country in the world to install offshore wind.

Over two-thirds of Denmark’s renewable energy production comes from biofuel from agriculture. But wind power is still a major contributor to the energy mix: it produces twice as much wind energy per capital as the runner-up country in the OECD.

It’s also seen some significant wind PPAs, such as Vattenfall’s 2018 agreement with global healthcare company Novo Nordisk, purchasing energy from its offshore wind farm Kriegers Flak.

On top of that, Denmark’s Ministry of Energy, Utilities and Climate has said that the country plans to source 50% of its energy from renewables by 2030, which far exceeds EU targets.

Plus, a 2018 sector deal has laid out plans for three new offshore wind farms, totalling 2.4 GW. There are also plans to run technology-neutral tenders, which are open to offshore wind projects - so the future’s looking bright.

Scandinavian wind was a key topic at Financing Wind Europe 2018. To find out more about the conference and our 2019 events, click below.

“Labour will kickstart a green jobs revolution.”

It is with this cry that Jeremy Corbyn, leader of the UK’s Labour Party, wrapped up the party’s annual conference in Liverpool last week. In doing so, he sought to put Labour on the side of the renewables industry, pledging to double the UK’s onshore wind capacity to 30GW by 2030 and grow offshore wind sevenfold to 52GW.

At this stage, the plan is hypothetical and would only be implemented if Britain faced a general election – and if Labour won it. However, as Conservative Prime Minister Theresa May’s Brexit negotiations flounder, this is becoming increasingly plausible. With both Conservatives and Labour in disarray, voters may decide that there is little risk in changing. We should never underestimate people’s desire to shake things up.

What would Corbyn’s plans mean for wind energy investors, both those based in the UK and international companies with an interest in the market?

Unsurprisingly, Corbyn’s ideas would be good for the UK wind industry. The current Conservative government has supported offshore wind, but with less ambition than Labour is promising. In an agreement with industry, the government aims for 30GW of installed offshore capacity by 2030, in contrast to Labour’s 52GW in the same timeframe. Labour would also reverse Conservative hostility to onshore wind.

But Corbyn’s plan may also have some downsides for investors, and particularly the owners of Britain’s utilities. Labour’s 2017 manifesto put forward plans to nationalise England’s nine water companies and transition to a publicly-owned energy system – and, in last week’s speech, Corbyn doubled down on promises to take back control of utilities. This could end up UK electricity companies taken into public ownership.

However, Corbyn’s ambitious statements were supported by industry bodies, with RenewableUK executive director Emma Pinchbeck welcoming the announcement.

Pinchbeck said that more investment in supply chains would be needed to deliver the growth that Labour promises – and we can’t really argue with that. The target of 52GW offshore wind capacity target would not an easy one to achieve, although we are sure that UK-based wind businesses would embrace the challenge to do so.

Britain’s offshore wind industry also has a strong manufacturing and skills base – RenewableUK estimated last year that 48% of work involved in new offshore projects goes to UK companies – but the scale of expansion incorporated in Corbyn’s ‘green revolution’ would require unprecedented levels of investment in the supply chain.

And it is here we see the biggest opportunities for international investors if Corbyn’s plan was implemented. Even now, the Conservative government’s Offshore Wind Investment Organisation exists to support and encourage investment in Britain’s wind industry, and we have seen industry heavyweights get involved: MHI Vestas has a blade facility on the Isle of Wight and is looking to expand it, while Siemens Gamesa manufactures blades and assembles turbines in Hull.

Labour’s onshore wind proposals would also open up opportunities for investors and developers too, even if its deprivatisation agenda would make utilities twitchy. Those in the financial sector might also watch nervously if Corbyn gains power and enacts his proposals to end what he last week termed “greed is good” capitalism – although, given his other statements, the axe is unlikely to strike on those in renewables.

There could be enormous potential for investors in renewables, supported by strong government backing and ambitious targets, if Corbyn and co. ever did gain power.

But whatever Britain’s political landscape looks like in the coming years, one thing is clear. Both the Conservative and the Labour party are strong supporters of offshore wind, and will continue to support international businesses to set up shop in the UK.

For those working in onshore wind, though, there only looks like one good option.

Stephen Bull is SVP of Wind and Low Carbon Development at Equinor, the largest energy operator in Norway. The utility develops oil, gas, wind, solar and CO2 projects in more than 30 countries worldwide. We caught up with him to hear about the firm’s plans, the future of European markets, and how Brexit might impact wind.

Stephen was a guest speaker at Financing Wind Europe 2018. For details of Financing Wind Europe 2019, visit our conference site.

Equinor is the developer and operator of Hywind Scotland, the world’s first commercial floating wind farm. What’s next for floating wind?

Amongst many other leads, we are currently developing a concept for Hywind around oil and gas installations. This is part of our wider strategy to reduce 3million tonnes of CO2 emissions in our Norwegian offshore oil and gas business. By applying renewable energy to our offshore platforms we can save costs, carbon and add innovation to the Hywind floating wind concept.

Where will that project be based?

It’s off the coast of Norway, in the North Sea, linked to the Snorre and Gullfaks platforms. Each of the 11 turbines has an 8MW capacity. It’ll be an island system, integrated with gas generators as a back-up, and fully integrated into the operations of the platform – which requires power for drilling and operations. In total, we can offset about 200,000 tonnes of CO2 per year, equivalent to the emissions of 100,000 cars.

Where in the world do you see the most interesting opportunities for floating wind?

We firmly believe the UK has strong possibilities, with Scotland being a natural place for this because of its deeper waters and supply chain. Additionally, France is opening up and we will see some new tenders coming soon. Norway has shown stronger interest recently, particularly to support innovation within offshore, though mostly linked to oil and gas.

In terms of big-scale markets for us, first and foremost we’re looking at Japan – we’re opening our Tokyo office this week. We have a clear long-term intention of developing offshore wind there, with most potential within floating wind, due to the water depths and characteristics of the country. In addition, there’s other opportunities in Asia – South Korea is beginning to open up; and in the US, California presents some big opportunities, particularly with its recent zero-carbon electricity target.

Do you think the UK will remain a leader in offshore wind after Brexit?

Definitely. The UK has such fantastic geological conditions for offshore wind – obviously, it’s windy, it’s an island with over 11,000 miles of coastline with ostensibly shallow water. Just 3% of the UK’s seabed is utilised by offshore wind today, so there is a huge upside, for what is now an extremely cost-competitive technology.

Regardless of Brexit, the clear direction of travel in the UK is towards decarbonisation. Ten years ago, the Climate Change Act set the course for this and we see continued support across all parties. Plus, the UK is a great place to try out new technology and business models. We chose the UK to test out new battery energy storage concept, called Batwind, because the UK regulatory authorities are very solution-oriented and open – so it will remain a great place to pursue innovation during the energy transition.

You’re the chairman of RenewableUK as well. Can you tell us what they’re doing to promote offshore in the UK?

RenewableUK (RUK) is the UK’s largest renewable interest organisation. What’s unique about us is that the bulk of our members are part of the supply chain – smaller to larger companies up and down the UK who are involved in all aspects of onshore wind, offshore wind and wave and tidal. The majority of our membership is reflecting the strong growth in offshore wind, and that’s the great legitimacy the organisation. We can speak on behalf of the real breadth of the UK’s renewables industry and we are in touch with the fantastic innovation and investments going on here.

RUK has been instrumental in achieving a clear framework for future offshore wind auctions announced by the government, with a clear pathway to double offshore wind capacity. RUK is at the crossroads of being part of the mainstream, simply reflecting the UK’s energy mix. Our members are investing in smart, flexible systems which will deliver power to consumers in the decades ahead, so as well as helping them on technology-specific issues, we are increasingly looking at how to help them build the system of the future.

Tell us about the rebrand from Statoil to Equinor.

The name change came in May 2018 and was driven by our CEO Eldar Sætre, reflecting a clear vision for shaping the future of energy in the company. It’s the culmination of several years’ thought.

Over three years ago, we established our division, New Energy Solutions, with a clear direction to grow within offshore wind, solar and develop new opportunities within carbon capture and storage. But the name change also reflects our strategy to develop lower carbon-intensive oil and a lot more gas in the portfolio. The name Statoil served us well for the past 47 years, but perhaps doesn’t quite reflect where we see the company in another half century, where we see incredible opportunities in the ensuing energy transition.

Stephen was a guest speaker at Financing Wind Europe 2018 - for more details and to find out about our 2019 events, click below.

From promising market to pariah – and back? That’s the journey that Poland is trying to take when it comes to wind energy.

This month, the country’s energy minister Krzysztof Tchorzewski told Reuters that he wanted to cut the proportion of coal in Poland’s energy mix from 80% now to 50% by 2050. In the short-term, he said that natural gas would fill much of this gap, and also that renewable energy would play a part – although admittedly not a big part.

The Polish government, which has been hostile to renewables in the last three years, is now bending to pressure from the European Union to meet its renewables targets. It is aiming to boost the share of Poland's energy provided by renewable energy projects from its current 12% to 15% by 2020.

We've written about the Polish onshore wind market a few times in recent years, and made no secret of our anger at the way investors in the industry have been treated by President Andrzej Duda and his ruling Law & Justice Party.

Following its win election in 2015, after a campaign focused on strong support for the coal industry, Duda's government introduced a number of wind-hostile policies in the Polish Renewable Energy Act (July 2016), quadrupling tax on turbines and imposing restrictions on wind farm sites.

This caused a nose-dive in investment: 1.3GW of wind farms completed in Poland in 2015, but this fell sharply to 682MW in 2016 and again to 41MW in 2017. Poland has 6.4GW of installed onshore wind capacity but, whereas it was once one of the most active markets by annual installations, wind farms have been made uninvestable.

Furthermore, Polish state-controlled utilities have reneged on deals with international developers, prompting US utility Invenergy LLC to lodge a claim for 700m USD against the Polish government for actions 'tantamount to an expropriation'. We wrote about why this should dissuade investors from the country's wind market, at the time.

But now the Law & Justice Party is softening its stance on wind farms, and this July, the government passed an amendment to the Polish Renewable Energy Act. This removed obstacles to development, for example by altering the prohibitively high taxes on wind farms. That is a reason to be cheerful.

However, certain restrictions on wind developments remain, such as the requirement for wind farms to be located far from homes, at a distance equal to ten times the height of its turbines from the nearest residence.

The government has also introduced an auction system, with the Polish Wind Energy Association (PWEA) expecting onshore wind projects totalling almost 1GW to receive support. A mock auction has just taken place, and PWEA expects the real thing, which will offer winning projects guaranteed subsidies for 15 years, to follow in the coming months.

This has some important ramifications for international investors, and is positive in a way. However, we think they these companies should still tread carefully.

In our opinion, and particularly for companies struggling with contracting markets on their home turf - Germany springs to mind here - Poland could provide an attractive investment option, providing that caution is exercised. The country is still led by the party that did so much damage just three years ago, and could do so again.

For investors keen to enter the market but wary of fickle political support, corporate PPAs could provide some stability. In August, Mercedes-Benz signed Poland's first corporate PPA agreement, agreeing to buy energy from a 45MW wind farm run by VSB Energie Odnawialne Polska. As PPAs grow in popularity across Europe, the Polish market offers opportunities for corporate buyers and wind firms alike.

If the Polish government is serious about winning back investor trust, it must offer investors more security, by providing longer-term forecasts for development. Firms will look warily at the last few years, and continuing battles for developers including Invenergy. They will need solid guarantees that the situation will not be repeated.

Our outlook? Cautiously optimistic, but with more emphasis on the caution.

Do you want to decarbonise Europe’s electricity system? As you’re a member of the A Word About Wind community then you’ll probably answer with a hearty ‘yes’.

And I’m sure you also know that renewables will play a vital role. We know a vested interest when we see one! This week, industry association WindEurope published a report, ‘Breaking New Ground’, in which is said that renewables-based electrification was key to decarbonising the energy used in Europe. The figures are exciting.

WindEurope argued that rolling out more wind and solar farms, supported by energy storage schemes, could increase the share of electricity used in industrial processes, transport and buildings, and cut Europe’s carbon dioxide emissions by 90% by 2050.

It added that the proportion of electricity in Europe’s energy mix could reach 62% by 2050, up from 24% now, with the right support. Impressive stuff.

But this would only happen if countries across the European Union put in place the policies to support the construction of renewables projects – and wind farms in particular. Well, this is a WindEurope report after all!

The report analyses two scenarios by which Europe could increase the share of electricity in energy: an “accelerated electrification scenario”, which only requires the implementation of current policies; and a “Paris-compatible scenario”, which would instead require governments to adopt more ambitious policies.

This second scenario would bring the share of electricity in the European energy mix to 62% in 2050, with over three-quarters (78%) of that 62% coming from renewables. As the International Energy Agency forecasts wind to be the leading source of power generation in Europe after 2030, wind farms are set to make up a major part of that.

Renewables-based electrification would also bring significant economic benefits to EU member states by decreasing the amount of imported energy, WindEurope said. Currently, 20% of all EU’s imports are energy-related and they account for 54% of all the energy that European countries consumes. This costs EU citizens over €1bn per day. Investments in renewables and electrification could bring huge savings.

This sounds great, but can member states achieve this?

Yes, said WindEurope, if they implement its proposed policy recommendations.

These include adjusting their tax regimes in order to incentivise the use of electricity; designing market rules to enable the use of electricity pricing contracts and time-responsive grid tariffs; investing in interconnectors, electric grid and vehicle-charging infrastructure; and defining electrification measures as part of their National Energy and Climate Plans to 2030, in particular for industrial processes and buildings.

This all makes sense, but we wonder whether it is really feasible. Countries including Norway, Germany, France and the UK are taking steps to promote electric vehicles and implement the grid infrastructure to support them, but the commitment of EU member states is mixed.

We would expect the commitment to a renewable-based electrification system to be very patch as well. We believe that the success of these initiatives mainly depends on investments from the private sector. In our view, technology development led by private companies usually moves far faster than government policy changes – and so, while we expect change, we believe the private sector must take the lead.

For example, the renewables boom in Europe has been mainly driven by private investors: renewable energy, including wind, has attracted them because they make business sense. An increase of the level of electrification in the EU can be possible only if investors believe in its commercial value. Thankfully, a growing number do.

Companies of every sectors, including Renault, Harley Davidson, BP and Iberdrola, have already demonstrated their interest for electric vehicles and battery storage, which would be key to kick off the electrification of Europe. This is a good start.

The support of the governments will be important to drive the change and attract investors, but it is the private sector that will ultimately drive the money and make it possible. Politicians must set the rules so that the private sector can do its thing.

Despite appetite from investors, wind power companies in Europe are still facing uncertainty for the year ahead.

Despite an appetite from investors, wind companies are still facing uncertainty in Europe for the year ahead. Want to learn more about the future of the European market? Take a look at our free report, 18 Predictions for Wind Investors in Europe.

What do wind prospects look like in 2019?

Last year was a record-breaker for wind farm installations in Europe. But are wind energy companies set to break their record this year? We are not that optimistic.

Countries in the European Union ended 2017 with 169GW of installed wind capacity, with developers adding a record 15.7GW onshore and offshore throughout the year. This is figure is up 25% year-on-year, according to industry association WindEurope.

Its annual statistics released in February 2018 showed that Germany, the UK and France all had record years in terms of installations. However, as we approach the end this year, it is a good time to ask whether companies in Europe’s wind sector would be able to repeat itself this year.

Should wind power companies be worried?

Over 70% of last year’s new capacity was completed in Germany (6.6GW), the UK (4.3GW) and France (1.7GW). But a similar rate of growth in these countries this year and beyond seems unlikely.

For example, wind energy developers in Germany completed 5.3GW of onshore wind farms in 2017, compared to 4.2GW in 2016. But this boom was the result of a rush of activity before auctions came into force last year, and won’t be repeated. German consultancy Windresearch has forecast a worst-case scenario where just 1GW of new onshore wind farms would be completed in 2019.

In the UK, the record 2.6GW of onshore wind farms installed last year followed a rush by developers to secure subsidies in 2015 and 2016, after the Conservative government’s move to ban onshore wind subsidies in 2015. RenewableUK has forecast 940MW of onshore wind farms will be built this year, and only 370MW in 2019. It’s not a good situation.

And finally, French trade association France Energie Eolienne warned in July that the development of new onshore wind farms in the country had stalled since the beginning of 2018 because of the absence of an environmental authority.

According to the FEE, at least 170 wind projects totalling 3GW are currently in a limbo, waiting for environmental approval. The French wind sector doesn’t look close to break any record this year.

What does this mean for wind energy investment?

It’s a great shame, as the appetite from investors is still there. In total, investors committed €22.3bn to new onshore and offshore wind farms in 2017, which is a reduction of 19% year-on-year, but still shows healthy activity.

Final investment decisions were taken on 11.5GW of projects last year – 9GW onshore and 2.5GW offshore – and onshore wind financings hit a record level of €14.8bn in 2017. We see no shortage of financial sector interest in wind.

But where will they get the opportunities? Last year, €6.7bn of these deals were in Germany and €5bn in the UK, and so we shouldn’t expect to see that matched this year. After them, €2.6bn was in Sweden, €1.2bn in Russia, and €1bn each in France and Spain. Activity is still concentrated on a selected few countries.

It is a cliché to say it, but what developers and investors need is certainty.

The good news is that European countries have taken steps this year, which are set to reassure wind companies in the long run.

For example, the European Union reviewed in June its Renewable Energy Directive to increase its renewable energy target to 32% by 2030, up from a previous goal of 27%. Those in the wind sector will likely push for an even higher goal, but this already gives important support to the market.

The amended directive also requires state members to provide at least five years’ visibility on public support for renewables, including timing, volumes and budget for future auctions. This is set to give investors the confidence to take long-term investment decisions by providing more visibility on when and where to invest.

And finally, the 28 member states have agreed on the need to cut barriers to corporate power purchase agreements in Europe. This would hopefully give energy producers and buyers the clarity they need to finalise power purchase agreements and take schemes to financial close.

Unfortunately though, it will take time before we see the effect of these measures on the market and a contraction of the wind sector in terms of installations this year still seems the mostly likely outcome.

However, as European countries implement new rules to promote renewable energy and wind becomes more competitive, new markets in Europe are set to emerge and wind prepares to break news records in the upcoming years.

Interested in learning more about European wind? We host an annual European conference - our 2019 event will be on the 3rd November. Click below for more details.

Wind Watch

Free report download: How important is your reputation?
By Adam Barber

A Word About Wind acted as an expert judge on the Renewables Reputation Index, which is a free 22-page special report produced by our sister business Tamarindo Communications. Tamarindo Group founder Adam Barber explains why brand strength is key for renewable supply chain firms and how to download your copy.

Perceptions of brand strength are not easy to quantify financially, but we all know that having a solid name in any industry is worth its weight in gold. And in a sector such as wind, a rapidly growing global business where there is often little time for project partners to get to know each other, reputation really is everything.

That is why in one of The Tamarindo Group’s businesses, the specialist renewable energy PR and communications agency Tamarindo Communications, we thought it was time to take a deeper look at the subject.

What’s more, we purposefully opted to steer clear of major original equipment manufacturers (OEMs), because when it comes to players such as Siemens Gamesa or Vestas then sales success is often a good proxy for reputation.

What interested us was the next tier of the industry: the companies that provide invaluable services to the renewable energy sector but would probably claim to be from other industries, be it consultancy, engineering, finance or shipping. It is here that the question of brand strength is particularly important.

A good consultancy or engineering, procurement and construction (EPC) contractor can make or break a project, yet these companies rarely have the opportunity to shine. Their achievements are all too often obscured by headlines around turbine supply deals or financing. So they have to work hard at establishing trust.

The extent to which they succeed is the subject of this report. Using a unique and rigorous methodology, we have sought to provide an objective measure of brand strength to names across the sector for the first time.
This report aims to serve as a benchmark to renewable supply chain marketers and a stimulus for companies to build their brands further. We intend to publish it on an annual basis and remain at your service to help improve perceptions of your brand in the future. You can download your free copy here.

We look forward to hearing from you.

The offshore wind sector in China is often surrounded by a sense of mystery. Very little news about its expansion
has reached us in the past few years, but this could be about to change as it embraces competitive auctions.

Developers in China installed 1.16GW of offshore wind farms in 2017, which brought the cumulative total to 2.8GW. These figures represent only a tiny part of its huge potential, which amounts to over 500GW for projects with both fixed and floating foundations, according to organisation Carbon Trust.

The country also has a target of 5GW of installed offshore wind capacity by 2020. To help China to reach this and unleash its potential, in late May the National Energy Administration announced a shift from its feed-in tariff scheme to competitive auctions for utility-scale renewables projects.

This means that, from next year, onshore and offshore wind farms in China will go through competitive bidding based on the cost of construction and power prices. To promote cost reduction, the NEA would also require project prices to be lower than the average wind FIT guaranteed by the government, which is currently CNY850/MWh ($124/MWh). This is part of the government’s plan to reduce the subsidies it is paying, and ensure that its wind sector achieves “grid price parity” with traditional energy sources including coal.

In our view, these competitive auctions should help international investors to finally enter the Chinese offshore wind market.

International players often find China a tough market to break into. The country has invested heavily to develop its in-house technologies and domestic supply chain in every sector in the past decade to boost its economic growth. Wind is no exception.

This has worked particularly well in the onshore wind sector, where the country is the largest globally with 186GW of installed capacity, but not for offshore wind.

This is mainly because offshore wind farms off the Chinese coast require a high level of investment and expertise, due to challenging conditions including the weather and seabed. Building onshore wind farms has been an easier and cheaper solution for Chinese firms for expanding the country’s renewable energy sector. In contrast, the offshore wind supply chain has lagged behind.

However, in the last couple of years, China has loosened its restrictions on foreign investors, and this has given international firms the possibility to form partnerships with local businesses to enter the market. If China wants to build a large offshore wind market, commercial partnerships will be important – but won’t be enough to support the growth of the sector on their own.

We think one solution could be to allow foreign companies to bid in competitive auctions.

The launch of competitive auctions is set to put local developers and turbine makers under pressure to bring down the costs of building offshore projects. However, their relatively limited experience could make this difficult, and make it attractive to team up with European firms. After all, we see no shortage of European investors and manufacturers who would be keen to enter the market. For example, in March 2017 GE entered the Chinese market by securing an order for three of its 6MW Haliade offshore wind turbine.

In fact, one example of how China could benefit from the European expertise is on the manufacturing side. Turbine makers including MHI Vestas and Siemens Gamesa are adapting their turbines to the harsh conditions of the Taiwanese market, which include typhoons and earthquakes. Chinese offshore wind farms would be located in similar areas with similar risks. It would make sense to take advantage of a technology that European manufacturers are already developing, which would also bring positive effects on cost reduction over time.

Above all, the country’s commitment to lower its barriers is key to attract foreign investors. According to the China Investment Report published by the International Energy Charter last year, the government is taking measures to increase its ease of doing business and the transparency of its investment framework. This is good and those in the offshore sector may see the results in next year’s auctions.

Donald Trump’s recent comments on the unreliability of wind energy are a load of hot air. Frances Salter explains

Donald Trump’s recent comments on the unreliability of wind energy are a load of hot air. Frances Salter explains

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It’s a common question for people who are wondering about wind power - as well as the world’s most famous NIMBY, President Donald Trump. In a speech given in New York, August 2018, Trump identified the problem of low wind supply as being one his main reasons for dismissing wind power:

“Think of it, coal is indestructible. You can blow up a pipeline. You can blow up the windmills. Bing, that’s the end of the windmill. That’s if the birds don’t kill it first. You look underneath some of those windmills, it’s like a killing field of birds. But that’s what they were going to. They’re going to windmills. You know, don’t worry about - when the wind doesn’t blow. I said, what happens when the wind doesn’t blow? Well, then we have a problem.”

We hate to break it to him but, according to the evidence, he’s wrong on both counts.

As we’ve written previously on this blog, wind turbines are responsible for approximately 0.01% of bird deaths caused by human activity, according to a 2013 meta-study by the RSPB. People’s pet cats, meanwhile, account for nearly three-quarters. Not to mention the fact that non-renewable power projects are amongst the top 6 killers.

The issue of what happens when the wind doesn’t blow is a little less cut and dried. Wind farms do have ways of managing periods of low supply, though there are still technological improvements to be made.

So how do wind farms cope with periods of low supply?

The National Grid strategy for dealing with dips in renewable power provision currently relies on fossil fuel back-up generation. At the moment, fossil fuels are still a large enough part of the energy mix that they can compensate for dips in renewables production. As gas emits less carbon than coal or diesel, it’s a preferable back-up option as the government phases out coal power stations.

In the future, developments in energy storage, interconnection, and demand-side flexibility (shifting non-essential demand away from peak times) may make back-up fossil fuels redundant.

Does it matter for the energy grid as a whole?

Not really – there are systemic ways of managing less windy periods.

Times of limited wind supply can be balanced by other energy sources. A more diverse electricity grid means that if something goes wrong with one part of the system, it’s less likely to cause an overall outage.

Climate change activism group 10:10 claims that Denmark, which sources 42% of its electricity from wind, is one of the most reliable energy systems in Europe, with four times fewer power cuts than the UK. This is because demand management, energy storage and interconnection (within the country and with other countries) are used to help manage times when wind supply is diminished. In the UK, interconnections already enable projects to provide over 4GW of wind capacity.

Does it matter for investors?

Low wind supply might not be a disaster for the National Grid, but what if you’ve invested in a wind project and you’re concerned about its profitability?

Well, you’re right to be aware of the risk. According to a 2017 study by GCube Insurance Services, resource risk is the most pressing concern for stakeholders in the wind energy sector, and this is not likely to change for a number of years.

In fact, it’s responsible for an estimated $56 billion shortfall in asset values around the globe.

But investors can protect themselves against these risks by putting in place good revenue protection mechanisms, such as Weather Risk Transfer. This means that periods of low supply needn’t affect the profitability of the investment overall.

We think Trump’s question is a fair one – but he’s wrong about the answer. That will come as good news for consumers and investors alike.

Jake Gray is the co-founder of Clir Renewables, who make energy optimisation and reporting software for wind farms. We caught up with him about the challenges of applying AI to wind farm data, new market opportunities, and more…

To understand more about the risks of investing in new markets, download our Emerging Markets Attractiveness Index.

In the simplest terms, what does your company do?

Clir is a software that allows renewable energy owners, operators and other stakeholders to understand the technical performance of their assets and get clear actions to increase the output and minimise operational risk. Everything from tracking the wind or sun through to degradation in the blades and panels.

Of the deals you’ve worked on, which has been your favourite?

To give you some background, my career prior to working with Clir was in project development for wind farms, and a fair bit of that was working on acquisitions of operating wind farms. I worked for a company called Capstone Infrastructure, and probably the most exciting deal was a merger with a company called Sprott Power. The exciting part was that it was a sizeable portfolio, and about half the size of the company - so the company grew by 50% overnight. This was back in 2014.

Is Clir a new company?

Yes, it started late 2016. It started because Gareth, my co-founder, had been working in operations optimisations within wind engineering, and dealing with a lot of the big operators globally, he was witnessing the same kind of problems with every wind farm. The same issues were causing performance problems around the world and the existing internal or third party platforms weren’t addressing these problems. The biggest issue is renewables is unique to other big data problems. The resource is usually poorly defined and the data provided by equipment manufacturers can be complicated making it difficult to easily identify what is going on. That’s why we developed a system that takes advantage of the latest software and data science trends, combined with leading industry knowledge on renewable energy to give our customers the information at their fingertips to increase output.

Are you primarily working in Canada?

Canada, US and Europe currently – but we’ll be adding some sites in Australia, East Asia and South America in the near future, as well as additional sites in our current markets. It’s an exciting time to see so much traction when we have only just started the project.

In which markets do you see the best opportunities right now?

Wind farms around the globe are underperforming for various reasons. For Clir we see great opportunities in the US, Canada and Europe, while the APAC region is also a potential growth area for us.

What’s the biggest challenge for the industry?

It’s now shifting from an industry that was reliant on government policy or subsidy, to one that isn’t. With that comes a shift towards consolidation into a small number of major manufacturers, and also within the main service providers. Whenever you have consolidation, there’s a bit of pain that tends to happen through the industry. In terms of people’s biggest challenges to date it’s probably finding staff – especially finding wind farm managers and people at the ground level. It’s hard to find qualified staff. Climbing turbines is a significantly different job than turning pipes in a coal plant, and they’re not necessarily in the same places, so it’s not as simple as retraining people.

Which trends do you think will affect the wind sector the most?

There’s a trend towards electrification that will impact things greatly if it actually leads to net load growth. But in most developed countries, there’s been decreased load growth in relation to efficiency gains. It’s really tricky to predict if there will be load growth or not – but if there is substantial electrification of the transportation sector then we will see significant load growth that will impact wind, as wind will be the cheapest source of that new energy.

Thinking of your own career, which are the most important lessons you’ve learned?

The world’s a small place and people talk, so work hard and be nice to everybody.

Did you have a mentor?

Yes, Mike Chapin. He is currently a Partner at Twenty First Century Utilities. He taught me everything about the power space. He’s been a senior executive within power development since there was an IPP sector in the US in the early 80s. Most of what we did together was either green field development of wind farms or acquisitions of portfolios.

Clir uses elements of AI – could you explain more about that?

That’s a bit of the ‘secret sauce’ stuff! AI generally is hard to use on wind data, so we have to be very careful on which applications we choose to use it. The reason is because it is not possible to build a generalised data set applicable to all wind farms. Every turbine on every site has a different profile. In order to train AI algorithms you need a set of data that is suitable for all the future data it will be dealing with – the differences between turbines make that very difficult. We have some very clever ways of getting around this for a few of our analytics tools.

Will that always be a problem then – or as the industry grows, is there the possibility of bigger data sets?

Bigger data sets don’t necessarily solve the problem of creating training data that is universal. I don’t want to say that something is impossible. I would say it poses a significant challenge to using all AI. That’s not a problem that will necessarily go away in the future, without fundamentally different forms of modelling and clearly understanding the domain space. Clir is focused on solving these problems in our domain and has found some fantastic opportunities to exploit AI and automation. I’m excited to see what we’ll be able to do going forward.

About Jake Gray: Jake is a seasoned business development professional with over eight years of end to end management of wind, solar and natural gas plant development. He drives value by using both his extensive industry experience and significant network within the utility sector to find and execute opportunities. Currently, he serves at the COO of Clir Renewables where he manages the strategic structures of the company.

About Clir Renewables: Clir is a renewable energy AI software company whose industry-leading cloud-based tools help asset managers and owners maximize production, and give owners clarity on performance. Founded in late 2016, the company now serves over 2 GW of assets, raised over $5M funding in 2018, and boasts alumni from major owners, investors, developers, consultancies and software developers among its staff (DNV GL, Wood, Vattenfall, Natural Power, Amazon, among many others).

Thus far, offshore wind development has been largely concentrated in Europe, with emerging markets such as Taiwan and the US. But recent stirrings in India, already the fourth largest onshore wind market in the world with just shy of 35GW of capacity installed, indicate that a new player is entering the game.

In June of this year, the Indian government announced that it wanted to support the development of 5GW of wind farms in its waters by 2022, ramping up to 30GW by 2030. To kick-start the process, it has been pushing ahead with plans for two initial offshore wind farms - with total capacity as yet undecided - starting with the 1GW First Offshore Wind Project of India (FOWPI).

FOWPI is set to be situated off the coast of Gujarat, near the Pakistani border on the country’s west coast. Thirty-four parties expressed their interest in developing the project, including established names such as Ørsted and Equinor – and the government is due to give more clarity on the development process and timetable in early October. All being well, FOWPI is set to be followed by a project in the waters off the coast of the southern state of Tamil Nadu.

It’s easy to see why FOWPI has attracted such interest from European investors. With 17% of Indian households lacking electricity, and a growing middle class, India has an increasing appetite for power that offers good opportunities for the developers of new energy projects.

Meanwhile, low-cost Indian manufacturing already supports a successful solar and onshore wind market, with many components made locally. This could be attractive for offshore wind project investors if those savings can be rolled out to the offshore sector - although, with a lack of a track record, that is far from certain.

So far, so promising. However, Indian offshore wind is not without its challenges.

“It’s become clear in the last two to three years that wind speeds in India can’t compete with those in the North Sea,” says Charles Yates, founder of CmY Consultants Limited, who spent four years advising the Indian government on its offshore wind policy. Yates says the Indian market may need customised turbines with longer blades to optimise projects.

Meanwhile – like in fellow emerging market Taiwan – companies working offshore in India would need to contend with the risks introduced by extreme weather such as typhoons. Manufacturers MHI Vestas and Siemens Gamesa have announced plans to develop ‘typhoon ready’ turbines in preparation for the Taiwanese market, and this technology will be needed in India too.

Finally, there are political and regulatory challenges. There have been worries from Indian officials that the proximity of FOWPI to the Pakistani border would leave the project vulnerable to politically motivated crime.

There is also the uncertainty caused by the country’s upcoming general election. Prime Minister Narendra Modi and his Bharatiya Janata Party are favourites to retain power but Yates says that, if they were to lose out to the Congress Party, “there is a real risk that the offshore wind programme will stagnate”.

Despite these challenges, India is a promising offshore market for developers and investors. The interest shown by experienced global players show that the Indian government should be confident that it can meet its short-term offshore goals.

If you ask us, India is the next offshore wind market to watch.

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So how do wind farms cope with periods of low supply?

Does it matter for the energy grid as a whole?

Does it matter for investors?

In the simplest terms, what does your company do?

Of the deals you’ve worked on, which has been your favourite?

Is Clir a new company?

Are you primarily working in Canada?

In which markets do you see the best opportunities right now?

What’s the biggest challenge for the industry?

Which trends do you think will affect the wind sector the most?

Thinking of your own career, which are the most important lessons you’ve learned?

Did you have a mentor?

Clir uses elements of AI – could you explain more about that?

Will that always be a problem then – or as the industry grows, is there the possibility of bigger data sets?