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Renewable energy developers are eating into their own revenues.

This is the phenomenon called price cannibalisation, which we keep hearing more about. What is it? And how does it affect decisions by wind investors?

Price cannibalisation starts because of a simple imbalance of supply and demand. On windy days, most or all wind turbines send power to the grid at the same time, and the same happens with solar panels on sunny days.

The result is that the grid can be overwhelmed by too much electricity and, if it is not absorbed by consumer demand, wholesale market prices fall to zero or lower. When wholesale power prices fall below zero, power suppliers have to pay their wholesale customers to buy electricity.

As wholesale prices are highly sensitive to available production and transmission capacity, the problem for project owners only gets larger as more renewable energy projects come online.

The phenomenon is particularly visible in Germany, where renewables currently account for 40% of its energy mix. For example, last Christmas Eve the average hourly intraday wholesale market price fell by as low as -€63.37/MWh, due to an excess of wind energy production. This meant that energy producers had to pay utilities €63.37 to take each MWh of produced power. Not a happy Christmas.

Christian Kjaer, chief executive of the Danish Wind Turbine Owners’ Association, has said that every percentage point increase in renewable share reduces on average the wholesale electricity price by €0.40/MWh in the European Union.

So far, government subsidies including feed-in tariffs have protected wind and solar companies from the negative effects of this phenomenon. The payment of subsidies means that renewables generators receive revenue even when wholesale prices are low or negative. However, as the number of no-subsidy projects in mature markets increases, so does the investment risk for wind firms.

This would be an issue in the UK, for example, where the developers of new onshore wind farms will not be able to bid for government support; in Spain, where the next construction wave of onshore wind farms is set to be subsidy-free; and also for the developers of offshore wind farms to be built in Germany and the Netherlands.

A recent report from consultancy Cornwall Insight showed that for a representative 10MW onshore wind project, the combination of lower wholesale prices and higher output could cut revenues from the wholesale market by as much as 34% by 2033 compared to 2018. The price cannibalisation effect could make really hard for renewables to recover their capital costs through the wholesale market.

But there might be ways for wind companies to protect themselves against price cannibalisation.

For example, Contracts for Difference for renewable energy, such as the ones used by the UK government for offshore wind projects, reduce the exposure of developers and investors to volatile wholesale prices.

Cornwall Insight argued that in a scenario of falling costs to build projects and falling wholesale market prices, companies should be able to bid for a floor price, rather than the fixed price payment, to make the project viable. A floor price would be lower than fixed strike prices currently bid into CfD auctions, representing an incentive for the government while giving protection for developers and investors.

Another solution is corporate power purchase agreements. However, Nigel Williams, channel manager of renewables at UK utility Opus Energy, told A Word About Wind that price cannibalisation represents “a key risk for off-takers and may inhibit their appetite to offer the level of certainty over a developer’s desired term”. In fact, some PPAs already factor price cannibalisation effects into their offer.

Arguably though, the best form of protection should come from the market itself.

In a scenario where renewables represent a growing share of the global energy mix, markets should be able to adapt and respond to the amount of renewable energy flowing into the grid. In order to achieve this, commitment from governments would be key. Investments in smart grid and energy storage systems should be part of the solution too.

A solution must be found quickly as renewable energies risk to become a victim of their own success.

Danish utility Ørsted has been talking for months about a plan to grow its offshore wind-focused arm back into the onshore sector. In February, CEO Henrik Poulsen said the utility was looking at onshore wind, solar and storage to expand its renewables coverage after selling its oil and gas operations.

We didn’t need to wait long for the company to make its first move. Ørsted revealed yesterday that it is buying US onshore developer Lincoln Clean Energy from investor I Squared Capital in a $580m deal. I Squared has owned 90% of Lincoln since 2015, with the Lincoln management team led by CEO Declan Flanagan owning the rest.

The deal is due to conclude by the end of 2018 subject to regulatory approval, and will mean Ørsted owns 100% of Lincoln, which is set to keep operating as a separate unit outside of the utility’s wind division. This may sound like an about-turn from Ørsted given that it exited the onshore sector in 2014, but we think the logic for the deal is simple.

For Ørsted, the attraction of onshore is clear. The company has established itself as a leader in the offshore sector, and this will help it to expand across renewables.

The US is an attractive market too. Ørsted already has a presence in the US, as it is seeking to develop the 800MW Bay State Wind project with Eversource off the east coast. Yes, it missed out on support in the first Massachusetts offshore wind auction in May, but we expect Ørsted to win backing for this scheme as it has for many other projects around the world. It is due to bid in auctions in New Jersey and New York.

And the US offers projects that are attractive to a firm of Ørsted’s size, with revenue of more than $9bn in 2017. We wouldn’t expect it to start mucking around building a portfolio of 20MW onshore wind farms in France, for example. However, as Lincoln’s Flanagan told us in an interview in our North American Power List in May, its projects have been around 250MW-300MW recently. These will make sense to Ørsted.

We can contrast this with Ørsted’s previous foray in onshore wind back in its days as Dong Energy. In 2013, it sold a 196MW onshore wind portfolio made up of 80 sites with 272 turbines; and exited onshore wind in 2014. A portfolio like that takes a lot of asset management and the utility didn’t think it could gain competitive advantage. It makes far more sense for it to focus its onshore efforts on large schemes.

Its approach isn’t novel either. When we first heard this news, the first company we thought of was Copenhagen Infrastructure Partners, which is working on offshore projects globally – including the 800MW Vineyard Wind in US waters with Avangrid Renewables – and also gets involved in large onshore schemes in the US. Iberdrola subsidiary Avangrid is a good example of a US onshore and offshore player too.

And the final benefit we see for Ørsted is the expertise it is buying into. Flanagan is a veteran in the US market. He has been there since 2003, when he set up Airtricity’s US arm that E.On bought for $1.4bn in 2007. He then helped to build E.On into a top five owner of wind farms in the US before quitting to set up Lincoln in 2009.

Ole Kjems Sørensen, EVP at Ørsted and its head of partnerships, M&A and asset management, said Lincoln would provide it with “a strong growth platform in one of Ørsted’s strategic growth markets”.

For Lincoln, one benefit of linking up with a giant like Ørsted is the utility’s financial firepower. As Flanagan told us in May, the developer is looking to secure backing for 1GW of onshore projects between October 2018 and June 2019, and Ørsted can help with that. I Squared wasn’t shy of investing, but Ørsted is in another league.

Speaking in the release on this deal, he said that he looked forward “to replicating [Ørsted’s] leadership [in the offshore wind sector globally] in onshore wind in the US”. He also said it would help Lincoln to execute its projects and increase its growth trajectory.

Ørsted’s focus in recent years has been on selling its fossil fuels operations. Now it has moved onto the next stage: acquisition-led growth.

Typhoons, earthquakes, soil liquefaction and war. These are just some of the risks that wind developers and investors are set to face in Taiwan.

The Asian island nation is currently among the most promising emerging markets for offshore wind, if not the most, and European developers and investors have been competing to secure a piece of the action for themselves.

In April and June, the government awarded the right to connect offshore wind projects totalling 5.5GW to the national grid. You can find out more about the winning projects in our Q3 Finance Quarterly report.

Companies including Ørsted, Copenhagen Infrastructures Partners and Wpd were the biggest winners. European firms have been lured by excellent wind resources – speeds in the Taiwan Strait are around 12m/s – and high guaranteed power prices. As profit margins in their home markets have been squeezed by falling prices and competitive auctions, we understand why these companies have been looking at Taiwan as a very attractive investment opportunity.

But is this tough competition in Europe forcing some to take on risks with that, in an ideal world, they wouldn't? You see, offshore wind in Taiwan has a dark side. European investors will have to face unique risks to succeed.

“There are quite a few risks involved in Taiwan that you won’t see elsewhere”, says Robert Bates, offshore wind underwriter at GCube Insurance. This is because Taiwan has a peculiar natural catastrophe exposure, which includes typhoons, earthquakes and soil liquefaction. Bates explains that soil liquefaction occurs following an earthquake in sandy and clay environments, including the Taiwan Strait. This means that, after an earthquake, the seabed could rapidly transform in quicksand, sucking in wind turbine foundations.

Typhoons are also a big issue. They are generally stronger on the east side of the island. However, off Taiwan's west coast, where these first offshore wind farms are going to be built, wind speeds can reach up to 80m/s. There are big questions about how current offshore wind turbines would survive that.

On top of that, Bates argues that investors must be aware of emerging political risks in the country. Current political tensions with mainland China could expose offshore wind investors to war and asset expropriation risk.

The victory of the Democratic Progressive Party in Taiwan's presidential elections of 2016 has promoted the idea of an autonomous and independent future for Taiwan and challenged the policy of rapprochement with mainland China that was undertaken by the previous ruling party, the Kuomintang. Since then, cross-strait tensions have been rising. The deterioration of Taiwan’s relationship with China has been weighing on private investment, both domestic and foreign, and damaging investors’ confidence.

As exports account for two thirds of Taiwan’s trade-reliant economy, it is also highly vulnerable to protectionist policies from the US and increasing competition from Chinese manufacturers.

Finally, French insurance company Compagnie Française d'Assurance pour le Commerce Extérieur has argued that Taiwan lacks infrastructure compared to other advanced Asian economies, and is increasingly isolated on the international diplomatic scene. These are among the major barriers facing investors in Taiwan.

How will these risks impact the development of this nascent offshore wind market?

First, wind developers and investors could come under pressure when seeking to attract the investment of up to $22bn that is needed to fully build Taiwan’s offshore pipeline. The presence of state bank support is good, though.

Second, where turbines are concerned, some manufacturers have been taking steps to overcome the barriers that the country presents. For example, MHI Vestas said in May that its 9MW offshore turbine platform would be typhoon-resistant for the Taiwanese market by 2020. The manufacturer is also working with DNV GL to ensure its turbines are suitable for the island's harsh offshore conditions.

The main challenge for European developers is that their 20 years' experience of building offshore wind farms thus far is in Europe. That now has to be translated to a very different market, where some may very easily come unstuck.

I was willing to give Brexit a chance. Honestly, I was. I wrote a bleary-eyed piece on the day of the referendum result looking for the positives in a situation I didn’t like.

I wanted to believe the UK government had a plan for Brexit. I wanted to believe that the politicians and voters that decided to take the UK out of the European Union had an idea of how they could do it, without taking an axe to UK companies and jobs. But, as I’m sure we’re all now painfully aware, it appears that nobody in power has a clue.

UK Prime Minister Theresa May’s government is in deadlock with both itself and the EU; and unwilling to do much about it because it could lose another general election to Jeremy Corbyn’s Labour Party. There now appears to be a serious chance of the UK leaving without a deal – or that, if there is a deal, it’ll leave the UK in an even worse position financially than even those of us who wanted to be optimistic had thought.

The nadir of the argument was, as so often, summed up by charlatan-in-chief Boris Johnson in a reported – and not denied – riposte to concerns of business leaders in a private conversation at a diplomatic gathering. That riposte? “Fuck business.” It’s just one comment, but mixed zeal with ignorance and incompetence. Top work!

It is against this backdrop of deep business uncertainty that the government gave the UK offshore wind industry clarity and, whisper it, good news on 23 rd July. It confirmed it would hold a Contracts for Difference auction for offshore wind, remote island wind farms and other technologies next May; and then every two years during the 2020s to support up to 2GW of new capacity each year.

Energy minister Claire Perry said this would support the construction of up to 16GW of new UK offshore wind farms in the 2020s, and means offshore wind farms would generate 20% of UK electricity by 2030. That is on top of the 7GW of wind farms now operational in UK waters, and the additional 7GW in development or being built.

That 16GW assumes that strike prices at offshore wind farms will keep falling from the current lows of £57.50/MWh achieved in the previous CfD auction in September. And more falls should be expected given that some zero-subsidy projects have been agreed in Germany and the Netherlands; and that strike prices in Denmark could fall to around €46/MWh by 2020, according to research from the Danish Energy Agency.

In addition, offshore wind farm owners will find new ways to cut merchant power price risk, including power purchase agreements of the sort agreed by Vattenfall for one-fifth of electricity from the 600MW Danish offshore project Kriegers Flak in July.

The UK government’s announcement is good news. It shows that, far from the “fuck business” slogan, the government is willing to give firms in the offshore wind industry the long-term certainty they need to make investment decisions. It is looking to encourage investment in the offshore wind supply chain in Britain; and develop the skills and products to export overseas. So, a bit like the Brexit we were promised.

However, it could go further. UK leaders should look to give the same certainty to the onshore wind sector, which could help to make onshore wind a bigger part of the UK electricity mix at prices even lower than those seen offshore.

A poll by RenewableUK in July showed that two-thirds of people in the UK wanted an end to policies that have effectively ended government support for new onshore wind farms. This would give certainty to another part of the economy as Brexit looms.

But of course, perhaps the government knows something we don’t. Perhaps the lack of support for onshore wind is a tacit acknowledgement that we won’t need electricity in the dystopian post-Brexit future that some of my fellow Brits are predicting. Maybe it doesn’t want wind farms getting in the way of the cars in the “Mad Max-style Brexit” that former Brexit minister David Davis said in February definitely wasn’t happening.

For now, it’s anybody’s guess.

We all know that big data has the potential to transform many different types of industry: but what are the particular challenges of applying it to wind? Frances Salter investigates

We all know that big data has the potential to transform many different types of industry: but what are the particular challenges of applying it to wind? Frances Salter investigates

Eneco Luchterduinen pic 7 (via MHI Vestas media gallery)

We’ve all heard about how big data will reshape industries across the world – but what you might not know is that the wind industry is one of the most promising for big-data application.

The premise of this is simple: through using big data, companies can foresee and fix problems more easily, as well as streamlining regular maintenance. For these reasons, it’s often a key topic at wind industry conferences.

But what is less clear is exactly how this will look in practise.

How might the industry use big data?

One way businesses in the wind sector are increasingly looking to make use of big data is through the use of ‘digital twins’. This is where wind farm owners use data from a range of sources – turbine specifications, wind speeds, site layouts – to build a digital replica of the project.

Digital twins are used by many kinds of company already, of which General Electric and Siemens are some well-known examples. It’s a development which has been made possible by cheaper and better sensing, processing and data transmission. But, whilst the concept has been in use for several decades, using it to improve the performance of whole wind farms and pull in data from a wide range of sources is still relatively new.

Though the technology being used is still comparatively young, there’s clearly a huge potential market in wind power.

It could allow wind farm owners to gather useful insights on how to optimise the performance of their projects, as Graeme McCann of DNV-GL explained in an interview with us last year.

These insights could include using weather forecasts to determine how well a scheme will perform on a given day, and how hard each turbine should work to maximise performance. He even predicts that advanced wind farm control systems could add up to 1.5% to energy yield.

The benefits of data analytics

According to Romax Insight, collecting data is just one piece of the puzzle: in order to see the full impact of data analytics, the whole operations and maintenance cycle must be integrated into a digital decision-making platform. This is because of the fact that, whilst existing tools can alert a site team to impending turbine failure, they don’t yet have the inbuilt operational logic to assist with cost-effective solutions.

Using big data effectively will also require companies to work together: DNV-GL, for example, launched a platform in 2017 called Veracity, which brings together data from varied sources to model projects’ performance. This requires companies to decide how much performance data they are comfortable sharing, as it could be commercially sensitive.

These are both issues that companies will need to think through in deciding how best to make use of the potential for big data analytics. If used well, it could speed the process of wind becoming an increasingly mainstream and affordable energy resource.

Each year, we host conferences discussing the biggest issues in North American and European wind. Click below to find out more..

The Ancient Greeks were the first to recognise Turkey’s strategic commercial position. This is why they founded Byzantium – which then became Constantinople, and finally Istanbul – on the European side of the Bosporus. Greeks and Romans made of Istanbul a focal point of their empires because of its strategic position, ideal for commerce and trading.

That’s it. This is the only use that I can make nowadays of my studies of ancient Greek and Latin.

However, the reasons that could enable the development today of a winning offshore wind industry in Turkey are not very different from the ones that brought the Greeks there centuries ago.

In June, the Turkish ministry of energy launched a competitive tender to build 1.2GW of offshore wind capacity. This would be the first step to unleash Turkey’s huge offshore wind potential: Philip Totaro, founder and CEO of US consultancy Totaro & Associates, has estimated that the total market potential for offshore wind in Turkey sits at approximately 41GW. This also includes its potential to build floating offshore wind projects in the southern coastal regions of the Mediterranean Sea.

The launch of an offshore wind auction fits into Turkish government’s plan to promote wind as part of a major expansion of the country’s energy infrastructure. In particular, Turkey has established a target of 20GW of wind capacity to install by 2023, up from its current 6.8GW. Challenging.

As part of this strategy, the country held its first onshore wind tender last year, where a consortium led by Siemens Gamesa and including Turkish firms Kalyon Enerji and Türkerler Holding won the right to build a 1GW onshore wind farm at a strike price of $34.80/MWh.

The government hasn’t provided much detail yet on how it intends promote offshore wind, but an approach similar to the one adopted for onshore wind seems likely. This includes building wind turbine factories in Turkey, a local content of 65% and a requirement to cover at least 80% of expenses for research and development within the country.

To achieve this, the Turkish government would be willing to provide incentives for local manufacturing, including tax breaks, interest rate support, customs duty exemption and social security support.

The government has laid out a very ambitious plan, which is already attracting investors’ interest on the offshore side: “EnBW, who has already been active in onshore development in Turkey, is already poised to get involved in offshore. Siemens Gamesa, Vestas, and General Electric have had contact with domestic onshore developers about the possibility of domestic production and supply of offshore turbines”, Totaro has said. For example, in March Turkish developer Fina Enerji picked GE Renewable Energy as preferred turbine supplier for onshore wind projects of 410MW in the country.

This sounds promising but there are still barriers to overcome.

First, the country needs to be smart about local content. If the government is to require for offshore wind a local content as high as it has requested for onshore wind, it risks to considerably slow down project development.

The country benefits from a geostrategic position, which would make commercial links and imports from Europe easy. This would make Turkey an attractive target for European manufacturers, developers and investors. For the government, it would make sense to take advantage of that to kickstart its offshore market.

Also, a long-term commitment is key. The government needs to lay out a clear plan for following tenders in order to attract European companies’ interest, Totaro has argued.

Finally, Turkey needs to ensure a stable financial environment in order to attract investment. A series of shocks, including the failed coup in 2016, numerous terrorist attacks and political instability have damaged investors’ confidence and affected foreign investment over the last couple of years.

In addition, Totaro has said domestic banks may not be fully resourced to accommodate a significant built-out of the offshore wind market, which could cost up to €185.7bn to fully build its 41GW potential. Of this, capital investment of a minimum of €347m would be necessary in the very short term to build the needed domestic infrastructure to handle offshore wind development.

If the country wants to make a success out of its offshore wind industry, European investors’ support would be key. Without that, Turkey’s plan doesn’t look feasible.

Canada’s wind industry has never enjoyed much support from the prime minister. In the decade to 2015, the country was led by climate change denier Stephen Harper; and the election of Justin Trudeau has done little to change that. Yes, Trudeau has committed to a carbon tax but he’s also backed huge oil pipeline projects too.

Thanks goodness, then, that Canadian wind investors have enjoyed support from the provinces. This has been most notable in Ontario, with total wind capacity of 4.9GW at the end of 2017, as well as Quebec (3.5GW) and current hotspot Alberta (1.5GW).

Not any more – in Ontario at least. In June, the Progressive Conservatives came to power and started to dismantle the province’s renewable energy plans by cancelling 758 renewable contracts at wind, solar and hydro projects, which it said would save C$790m ($600m) from the energy bills of Ontario consumers. This has put investor confidence at risk in both the wind industry – and the international community.

Wind companies in the firing line include Boralex, Invenergy, Pattern Energy, RES and Wpd – and it is the latter’s 18.5MW White Pines project that has been the main focal point for concerned investors. This is because Wpd has been developing White Pines for ten years, has won all the permits, and is currently building the project. For investors, cancelling a project during construction rings loud alarm bells.

That is why White Pines isn’t purely a wind story. This goes to the heart of whether investors in any industry can be confident that their investment is safe. Will they get support from the legal system? Will the national government step in to help?

Both questions are as yet unanswered. Wpd has pledged to take legal action over the C$100m ($76m) it has invested in White Pines so far; and Trudeau warned in June that he would intervene if Ontario premier Doug Ford followed through on his plan to unilaterally withdraw Ontario from Canada’s national carbon reduction plan.

However, there has been little clarity over the future for companies affected by this 758-contract cull, and investors in all sectors will be watching this dispute closely. If their concerns aren’t allayed then it could harm overseas investment in Canada for years to come. It is uncommon for firms to face such risks in established markets.

One thing is for certain, though. There is little chance of the Ontario government or Ford having a change of heart. They have made it a focus of their administration to tackle what they regard as the scourge of renewable energy, which they argue has pushed up the price of electricity in Ontario higher than nearby rivals.

The generous green contracts agreed by Ford’s predecessors have helped fuel this backlash, and the headlines about C$9.2bn ($7bn) being wasted by the province on overly-expensive wind and solar contracts have been hugely damaging too.

What can we read from this? Well, it’s too glib to say it will damage the confidence of investors. Of course it will. Retroactive changes, like in Spain and Poland, always do.

The more interesting angle from our perspective is this is happening at a provincial level rather than a national level. In the US, those in the wind industry have argued that President Trump could not do major damage to the sector because it enjoyed great support at state level. However, Ontario shows that anti-green politicians can damage investor confidence in renewables at the national level if they choose to.

These arguments will also become more common. The rise of Trump and the UK’s palpitations around Brexit show that the liberal world order will not hold forever, and so we should not assume that renewables will always enjoy their current support.

Finally, as in Ontario, we would expect the backlash against renewables including wind to be most extreme in regions that were previously most in favour. These are the regions were renewables including wind have been the most visible, and where the green subsidies have gained most attention for their impacts on consumer bills.

So, if you’re investing in a place that supports wind now, don’t assume it always will and that the argument is one. Progress doesn’t only happen in one direction.

This week has seen positive news for UK offshore wind, reassuring those who have questioned whether the UK government appreciates wind’s economic potential. So how long will it be before the government acknowledges the potential for onshore wind too?

New support for offshore

This week, the Department for Business, Energy and Industrial Strategy announced that the government has plans to more than double the UK’s offshore wind capacity through further rounds of Contracts for Difference auctions. These auctions will take place every 2 years throughout the 2020s, with the first taking place in May 2019. The UK already has over 7.7GW of installed offshore wind capacity, and a further 7GW in development or being built. The new plan could support the construction of up to 16GW of new offshore wind farms, generating approximately 20% of UK power. Clearly, this is excellent news for UK offshore.

Renewable UK welcomed the news, with Chief Executive Hugh McNeal commenting that it represents:

‘a ringing endorsement by the government of our world-leading offshore wind industry and its ability to deliver for UK businesses and British industry. Boosting our ambitions for offshore wind is a win for consumers, as offshore wind is now one of the cheapest options for new power in the UK.’

We’re pleased to see that this government is willing to make major investments in offshore wind, having seen its economic and environmental potential.

So where's the support for onshore?

However, this is still a mixed result for onshore. The government has now given its backing to onshore wind on remote islands, but onshore wind on the mainland is still ineligible for subsidies. This is despite warnings from figures such as Conservative peer Lord Deben, and Keith Anderson, the chief executive of Scottish Power, who recently described the government’s stance as ‘completely bonkers’, adding that “2018 has to be the year we secure the future of onshore wind.”

What’s more, the government’s latest annual energy statistics, published July 2018, show that wind power currently delivers half of the UK’s renewable energy output: 14.8%. Of this, 8.6% came from onshore and 6.2% from offshore. Given this significant contribution of onshore to the power mix, it makes even less sense to exclude new onshore wind projects from the market.

Back in 2014, Renewable UK warned of the need for politicians to realise the economic significance of wind, through publishing a report by BIGGAR Economics about the contribution of onshore wind to the UK economy. The 2014 election created uncertainty for the wind sector as, whilst some of the parties may not be fans of wind power, they would be foolish to ignore its economic potential.

The ‘Onshore Wind: Economic Impacts In 2014’ report said 69% of total spending on onshore wind farms in the UK stays in the nation, including 98% of spending on developing a project and 87% of spending on operations and maintenance. Of construction spending, only 48% remains in the UK because most developers have to get their turbines from suppliers based in mainland Europe.

However, even in that case, not all of that remaining 52% of construction spending is lost from the UK, as those turbine manufacturers will often use parts from UK companies. Renewable UK said this is a success story that is often ignored by parties including the Conservatives and UKIP.

Maria McCaffrey, of RenewableUK, said the contribution of onshore wind to the UK economy has grown by two-thirds over the last two years, which is a rise of £358m.

“Despite these facts, onshore wind projects are under threat from misguided Tory and UKIP policies aimed at stifling their development, blatantly disregarding rational economic evidence and consistently high levels of public support,” she said.

Even after this warning, the government ended subsidies to onshore wind in 2015 – so we’re pleased to see at least a small measure of support return in 2018, by allowing onshore on remote islands. But until the government supports mainland onshore wind, how much economic and environmental potential is being lost?

French secretary of state for ecology, Sébastien Lecornu, set out a ten-point plan in January 2018 to reduce wind development times in France - but we've not seen much progress since then. What are the remaining challenges for French wind developers and investors?

The World Cup may have energised France, but French wind investors are still losing. Want to learn more about the future of European wind? Take a look at our new report, 18 Predictions for Wind Investors in Europe.

Winning the World Cup could benefit France socially and economically, according to a short video by the World Economic Forum.

The WEF argued that winning the World Cup had positive social effects as it helped strengthen bonds and overcome cultural differences. (The analysis didn’t include the rise of the National Front in France despite the previous World Cup win in 1998!) It also said the win could support France’s economy by boosting consumer confidence.

Goodness knows, investors in the country’s wind sector could do with a confidence boost themselves.

The challenges facing French wind power

Shortly after Emmanuel Macron won the French presidency in 2017, we analysed wind investment in France in our first Finance Quarterly report and we noted that the wind sector in the country has been steadily growing despite administrative and bureaucratic issues including a long permitting process. Lead-times for wind farms in France can last up to seven years, for example.

The French government is well aware of the hurdles facing wind investors in the country and has committed to fix them.

Secretary of state for ecology Sébastien Lecornu set out a ten-point plan in January 2018 to speed up wind development. He did this following an announcement by ecology minister Nicolas Hulot in July 2017 that administrative hurdles would be reduced for wind projects.

However, the government has been slow to transfer its good intentions into practice and wind investors have now being put under pressure by new administrative issues.

New issues arising for wind investors

Industry body France Energie Eolienne (FEE) warned in July that the development of new onshore wind farms had stalled since the beginning of 2018. This is because of the absence of an environmental authority.

This is what happened. Until the end of last year, the prefecture of each region acted as environmental authority and decision-making authority, giving the final approval to wind developers to build the projects. It was a slow process but worked fairly well.

However, in December 2017, France’s Council of State suspended this approach to comply with European Union rules that there should be separation between these two functions. It hasn’t introduced an alternative system.

This means that for more than seven months, every new wind project proposal has been frozen. According to the FEE, at least 170 wind projects totalling 3GW are now in limbo, waiting for environmental approval.

What is the government doing to address this?

The government is taking measures to combat this issue. In July, it presented a draft of a decree that is set to be put to public consultation imminently. This would appoint France’s General Council of the Environment & Sustainable Development as environmental authority. However, it does not say which entity should issue the final authorisation for the projects, and it is unclear if regional prefectures would be still able to do so.

The FEE said the first consequences of this regulatory uncertainty would be seen in the country’s second onshore wind energy auction this year. This is because, to be eligible to participate in the auction, developers must obtain environmental approval and authorisation to build the project. In absence of an environmental authority and a decision-making authority, developers have not been able to submit their proposals and hence they did not apply for the auction.

The FEE has estimated that the second 500MW call for onshore wind projects would be undersubscribed, with bids totalling less than 300MW. This compares to its first 500MW onshore auction in February, where projects of 900MW were in the mix.

We appreciate that the decree draft is a first step to resolve the situation. However, it will take time before the draft is agreed and becomes law. And even then, the new environmental authority will have to examine all the delayed 170 projects and any other project that might come, adding new delays. In addition, it still remains the uncertainty surrounding the decision-making authority.

What other obstacles do investors have to face?

The French wind market does not need to add further obstacles to the already-long permitting process and all the other administrative hurdles that developers need to jump over. For example, almost 70% of the authorisations issued for projects are subject to appeal in administrative tribunals and the FEE has estimated that up to 2GW of authorised projects are currently subject to “a high risk of cancellation by the administrative courts”. These can take years to resolve, which delays the completion of projects.

And, as WindEurope said in March 2018, this has a knock-on effect on the levelised cost of energy.

Giles Dickson, chief executive at WindEurope, said that: “once you apply for your permit at the start of the process it’s almost impossible to update it later on with the latest technology”.

This means that wind developers in France aren’t able to use state-of-the-art turbines, and the cost of their projects have to reflect that.

“Also the tip height of turbines is often limited to 150m or less in case of radars and aviation constraints, which undermines the deployment of the latest technology,” he added.

Speeding up the development process will free up developers to use these more sophisticated machines, and the levelised cost of energy should fall too.

Are current government commitments enough?

To address this problem, Lecornu proposed in February the removal of a level of jurisdiction, and abolishment of the ‘electrical work approval’. His plan also included some changes to make wind farms more attractive to local communities, thereby reducing the need for court appeals.

For example, it would guarantee 20% of the wind part of the ‘fixed taxation on network enterprises’ to the municipality where the wind turbines are being planned. Last year, this generated €7,400 for each megawatt of wind installed, which mainly went to government institutions. Guaranteeing the 20% of this wind tax to local areas should make them more attractive to the communities.

However, we have seen no progress since then.

Lecornu’s plan made us optimistic about the wind sector in France, as it showed the government’s commitment to support wind by helping businesses to reduce costs and keep local people happy. However, development times of up to seven years and new administrative issues continually arising are now putting wind developers and investors’ patience under constant pressure.

So before many of these projects complete, France might have won the next World Cup, in 2022.

Winning the World Cup could benefit France socially and economically, according to a short video by the World Economic Forum that I saw on LinkedIn. This caught my attention even though my enthusiasm for the World Cup this year was very limited – non-existent actually. Italy didn’t qualify so what’s the point?!

The WEF argued that winning the World Cup had positive social effects as it helped strengthen bonds and overcome cultural differences. (The analysis didn’t include the rise of the National Front in France despite the previous World Cup win in 1998!) It also said the win could support France’s economy by boosting consumer confidence.

Goodness knows, investors in the country’s wind sector could do with a confidence boost themselves, after being put under pressure by new administrative issues.

The administrative and bureaucratic hurdles facing wind investors in France are well-known. The French government is well aware of them too and has committed to fix them, but it has been slow to transfer its good intentions into practice.

In the latest chapter of this saga, industry body France Energie Eolienne (FEE) has this month warnedthat the development of new onshore wind farms had stalled in the last seven months. This is because of the absence of an environmental authority.

This is what happened. Until the end of last year, the prefecture of each region acted as environmental authority and decision-making authority, giving the final approval to wind developers to build the projects. It was a slow process but worked fairly well.

However, in December 2017, France’s Council of State suspended this approach to comply with European Union rules that there should be separation between these two functions. It hasn’t introduced an alternative system.

This means that for more than seven months, every new wind project proposal has been frozen. According to the FEE, at least 170 wind projects totalling 3GW are now in limbo, waiting for environmental approval.

The government is taking steps to fix it. This month, it presented a draft of a decree that is set to be put to public consultation imminently. This would appoint France’s General Council of the Environment & Sustainable Development as environmental authority. However, it does not say which entity should issue the final authorisation for the projects, and it is unclear if regional prefectures would be still able to do so.

The FEE said the first consequences of this regulatory uncertainty would be seen in the country’s second onshore wind energy auction this year. This is because, to be eligible to participate in the auction, developers must obtain environmental approval and authorisation to build the project. In absence of an environmental authority and a decision-making authority, developers have not been able to submit their proposals and hence they did not apply for the auction.

The FEE has estimated that the second 500MW call for onshore wind projects would be undersubscribed, with bids totalling less than 300MW. This compares to its first 500MW onshore auction in February, where projects of 900MW were in the mix.

We appreciate that the decree draft is a first step to resolve the situation. However, it will take time before the draft is agreed and becomes law.

And even then, the new environmental authority will have to examine all the delayed 170 projects and any other project that might come, adding new delays. In addition, it still remains the uncertainty surrounding the decision-making authority.

The French wind market does not need to add further obstacles to the already-long permitting process and all the other administrative hurdles that developers have to face. For example, the FEE has reported that a further 2GW of authorised projects are subject to “a high risk of cancellation by the administrative courts”. We reported in February of a government’s proposal to eliminate a level of jurisdiction for resolving this issue, but we have seen no progress since then.

Development times of up to seven years and new administrative issues continually arising are putting wind developers and investors’ patience under constant pressure.

France might have won the next World Cup, in 2022, before many of them complete.

It’s love on the Danske floor. This month, Norwegian utility Equinor has spotted the Danish energy trading company Danske Commodities standing by itself at the edge of the disco. The Norwegian firm then sidled over, scooped the trader into its arms, Dansked the night away – and then consummated a €400m takeover deal.

That’s how I like to think it happened anyway.

Yes, this is the news that Equinor – the oil and gas giant that was called Statoil until it re-branded in May – has bought Danske Commodities. The Norwegian giant has been making a big deal about how its re-branding showed that it was going greener. This €400m takeover shows that it’s supporting those nice words with actions.

Equinor explained more in its statement about the deal. The utility is seeking to build a ‘material industrial position’ in renewable energy projects, and plans to invest 15%-20% of its capital expenditure in these ‘new energy solutions’ by 2030. This statistic has drawn the ire of environmentalists, which Equinor has responded to here.

So far, it has invested in the wind sector with offshore projects including the 402MW Dudgeon, 385MW Arkona, 317MW Sheringham Shoal, and 30MW floating pioneer Hywind Scotland. It is also working on schemes in the 4.8GW Dogger Bank zone in UK waters and the up-to-1GW Empire Wind project off the coast of New York.

Of course, wind is a tiny part of the Equinor business compared to oil and gas, but it is with deals like the Danske acquisition that it will be able to re-dress the balance. The buyout gives Equinor a platform in the electricity-trading space, alongside its oil and gas trading operations, meaning it can own and operate wind farms long-term.

As for Danske Commodities, the firm is not well known in the wind sector. Founded in 2004 and based in Aarhus, it is an electricity trading business that operates across 37 countries and traded 318TWh in 2017 – which is the equivalent of over double the annual electricity consumption of Norway – and traded 389TWh of gas in 18 nations.

Irene Rummelhoff, EVP of new energy solutions at Equinor, said buying it would help Equinor gain more value from its renewables assets including wind farms, and get a better understanding of national energy markets globally. This is set to be increasingly important as renewables are exposed to more merchant price risk.

That latter point is key. Equinor wants to compete with other utilities in offshore wind, but is at a disadvantage compared to those with experience of trading electricity. It is seeking to fix that by buying a platform that will help it manage energy price risk.

Gunnar Herzig, managing director at finance advisory CLIFI, says the deal is needed to “make sure [Equinor is] on a level playing field with the other trading companies”.

For these reasons, we don’t think this deal is the start of a trend. We may see other oil and gas giants like Shell and BP building out their electricity-trading platforms too, either organically or by acquisition, but such deals should be few and far between. In addition, Equinor's snake-hipped Danske move should help it grow in other renewable sectors including solar, much like Engie has done since changing its name from GDF Suez.

Our view is that the Danske deal is an important step for Equinor to make good on its high-profile move to embrace more renewables, and show people that re-branding isn’t the same as ‘greenwashing’. If this marriage can help it do that, it’ll be singing ‘He’s The Greatest Danske’ for years to come. Or ‘Danske For The Memories’.

That’s it for the bad puns, I promise.

Big corporates including telecom giant AT&T, and tech giants Facebook and Google, have driven wind power purchase agreements in the US over the last year, despite the lack of support to the sector from President Donald Trump. The table gives an overview of the most significant deals. For a complete list of corporate PPAs in the US, please get in touch with our team at editorial@awordaboutwind.com.

US Wind's most significant PPAS over the last year:

A closer look at the top deals:

AT&T

Telecoms giant AT&T has agreed to buy 820MW of wind power in the last 12 months. The deals have all been signed with US developer NextEra Energy Resources and include the power produced by the 300MW Torrecillas wind farm in Texas; the 220MW Minco 5 scheme in Oklahoma; as well as the entire output produced by two wind farms in Wilbarger and Hardeman counties in Texas. These PPAs are part of AT&T’s plan to develop energy solutions that deliver carbon savings ten times the footprint of its operations by 2025.

Facebook

Social media giant Facebook has signed deals for 536MW of wind power over the last year. These include a 200MW PPA at Enel Green Power’s 320MW Rattlesnake Creek signed in October; and a deal agreed in March to gradually increase its commitment to purchase electricity produced by the project’s remaining 120MW by 2029. The power produced by Rattlesnake will be used to power Facebook’s Papillion Data centre in the state of Nebraska. The company has also signed two wind PPAs with Avangrid Renewables and NextEra Energy for the entire output produced by two wind farms in New Mexico to power its data centre in Los Lunas.

Google

Tech giant Google is head to head with Facebook, having also signed 536MW of wind PPAs over the last 12 months. In December, Google agreed to buy the electricity produced by four wind farms, including the entire output of EDF Renewable Energy’s 200MW Glaciers Edge in Iowa; the whole output of Avangrid Renewables’ Coyote Ridge and Tatanka Ridge wind farms, totalling 196MW, in South Dakota; and 140MW of the power produced by Enel’s 300MW Red Dirt wind farm in Oklahoma. The agreements have enabled Google to reach its target of 100% renewable energy for its global operations last year.

Kimberly-Clark

Personal care firm Kimberly-Clark signed in September two PPAs totalling 245MW for the power produced by two wind farms. The deals cover 78% of the electricity produced by EDF Renewable Energy’s 154MW Rock Falls wind farm in Oklahoma, and 42% of the power generated by Invenergy’s 300MW Santa Rita wind farm in Texas. The PPAs are set to help Kimberly-Clark to achieve its goal of a 25% reduction of its greenhouse gas emissions by 2018. Kimberly-Clark owns tissue brand Kleenex, as well as other brands including Andrex and Huggies.

General Motors

Car giant General Motors signed power purchase agreements totalling 200MW over the last 12 months for electricity produced by two wind farms. The deals cover the energy produced by Starwood Energy’s 100MW Northwest Ohio wind farm; and 100MW of the output produced by the 185MW Hill Topper wind farm in Illinois. GM signed the 100MW PPA for Hill Topper with developer Swift Current in September, but the project was then acquired in April by Italian utility Enel Green Power. The car giant is set to use the power produced by the two schemes to meet the electricity needs of its manufacturing facilities in Ohio and Indiana.

Want to learn about the European PPA market too?

Each year, we host a one-day conference covering European wind's biggest issues - here are the questions people most commonly ask about the event. Have a question you don’t see here? Email us at events@awordaboutwind.com

Each year, we hold a one-day conference to discuss European wind's biggest questions - featuring the industry's most interesting speakers. Our next European event will be on the 3rd November - for details and to find out more about past events, visit our conference site.

Am I eligible for a ticket?

If you’re already a gold, silver or corporate member, then yes. All you need to do is register to reserve your place.

We do also have a limited number of tickets available to non-members, including early bird discounted tickets until the end of July. Click here to register.

What happens if I sign up but then I can’t make it?

Don’t worry – we can easily transfer your ticket to a colleague or client. Let us know the name and email address of the person you’d like to transfer your ticket to, by emailing events@awordaboutwind.com, and we’ll do the rest.

Who else will be there?

Financing Wind attracts senior professionals from across all areas of the wind industry – financiers, tech specialists and owner-operators – but has a special focus on the financial side.

We limit tickets to 200-300, which means that it’s a much more selective event than major trade shows. It also means you’ll be meeting useful contacts in a focussed environment, perfect for relationship-building.

What else is included in the ticket price?

If you’re not yet a member of A Word About Wind, by purchasing a ticket you’ll also have access to the benefits of an A Word About Wind membership for the whole year. You can come along to our quarterly networking drinks in both London and New York, and attend our New York conference too.

Plus, we send our members 150 intelligence briefings a year, as well as special reports such as the Top 100 Power People and the North American Power List.

As Matt Smith, Sales Manager at ZephIR Lidar, said at our 2017 conference: “This event alone is worth the membership.” But we think you’ll enjoy the other benefits of membership too!

Are there group deals in case I want to bring colleagues?

There are a couple of options if you’d like to bring colleagues. Our gold membership package provides five passes for each of our conferences and networking events in New York and London. If you’d like even more colleagues to be able to join, you can access an unlimited number of tickets by signing up for a corporate membership.

These packages have a higher up-front cost than simply purchasing a one-off ticket, but offer great value if your company would benefit from sending multiple people.

You can view a comparison chart of all our membership options here.

What’s on the agenda?

To get a sense of what topics we choose, you can download the full agenda from our 2018 conference. We'll be announcing our 2019 agenda shortly.

Where and when?

We’ll be at the Crystal, London E16 1GB, on 3rd November 2019. The Crystal is one of the world’s most sustainable buildings: it’s an all-electric building, using solar power and a ground source heat pump to generate its own energy, as well as state-of-the-art technologies such as rainwater harvesting to increase efficiency. We’re looking forward to hosting the conference in such a unique venue.

So, to find out more, click below...

The wind community has welcomed the National Energy Independence Strategy approved by the Lithuanian government last month.

With its new energy plan, Lithuania aims to produce 70% of the electricity it uses by 2030, with 45% from renewables. By 2050, the country wants all of its electricity to be produced by renewables, with wind set to account for up to 55% of it.

This sounds like a very ambitious plan, considering that wind currently accounts for only 3.9% of the country’s energy needs. It has total capacity of 493MW and did not add a single turbine last year, though plans to do more onshore and offshore.

However, Lithuania’s new plan should be the incentive for wind investors to do more. WindEurope has estimated that it should lead to installed wind capacity in the nation growing to 750MW by 2022, 1GW by 2025 and 1.3GW by 2030.

For Lithuania, increasing the amount of renewables in its energy mix is not the only goal. Most importantly, the new strategy makes renewables a key tool to reduce the country’s reliance on Russia: Lithuania’s energy dependence rate in 2017 was 73%, well above the European Union average of 53%. In fact, energy has always been a powerful reminder for Lithuania of its past as part of the Soviet Union.

The country has been struggling with its dependence on other countries since 1990, and this worsened with the decommissioning in 2009 of the Ignalina nuclear power plant, which used to meet 77% of the country’s electricity needs.

As a result, Lithuania has had to import almost all of its energy from Russia. These imports are mainly made up of natural gas, for which the Baltic country pays some of the highest prices in Europe. The construction of renewables projects for Lithuania means independence and lower energy tariffs.

This also means that the government must show more commitment in promoting renewables than it has so far.

For example, the country’s onshore wind sector has stalled since 2015. That year, the government held an auction for onshore wind capacity in order to comply with its target of installing 500MW of onshore wind capacity by 2020. Having reached the 500MW target, nothing has happened in the country since.

Offshore wind has shared a similar fate. In 2016, the government announced its intention to back offshore wind farms and it approved amendments to the country’s renewable energy law to open up to offshore wind. It carried out an evaluation of offshore wind potential, which showed that the country could build up to 7.2GW of wind capacity off its coast. But again, nothing has happened since. Let’s hope it can deliver the planned 250MW offshore wind auction in 2019.

As the country strives for energy independence, this energy strategy is just a first – even though very important – step. Many more are needed to change an energy system that has relied on Russia and imports for decades.

These include the reduction of administrative and grid-related hurdles; a stable regulatory system to attract investors; investments to optimise the country’s energy infrastructure; and the full integration of the country’s energy into the EU market. To achieve that, for example, Lithuania and the other Baltic countries including Poland, Latvia and Estonia are working together to synchronise their electricity networks to continental Europe.

And there’s another issue – arguably the most difficult to solve – that the government would need to address to promote renewables in the country. Corruption.

For example, Lithuanian politician Artūras Skardžius is under a parliamentarian investigation over allegations that his family profited from land deals related to wind projects developed by state utility Naujoji Energija, the country’s largest wind owner. Skardžius has denied any wrongdoing, but corruption scandals don’t help create a good reputation for wind with the public opinion.

That support will be crucial if the Lithuanian government is to push through its plans.

It's Bastille Day tomorrow, so let's talk about a revolution.

This week, we published our third Finance Quarterly special report of 2018. This report, called Europe’s PPA Revolution, looks at why wind farm owners in the Scandinavian nations Norway and Sweden have been so successful at securing power purchase agreements with large corporates in the last 12 months.

This has put the region at the forefront of a move in Europe to promote the use of PPAs with corporates. They have been well-used in the US since 2012, and will be more important for European investors too.

Governments have been cutting feed-in tariffs, which forces project developers and investors to take greater risks on the fluctuations of national power prices. PPAs can be a more stable alternative.

But all this talk of revolution. Bit over the top, isn't it?

Well, no. We're sure there'll be a revolution in the use of corporate PPAs in the European wind market over the next five years, with Scandinavia at the vanguard along with other early adopters including the Netherlands and the UK. However, we expect the revolution to be slow rather than swift, as there are major obstacles to be overcome. It's not exactly the storming of the Bastille.

Let’s look at the US situation. These PPAs grew up in part because large corporates wanted to cut their energy costs by dealing directly with wind farm owners. The wind farm owners embraced them because they gave stability in a market that, until 2015, was subject to frequent changes to the wind production tax credit support regime.

Having done these deals, US corporates looked to export this model to other nations – and Scandinavia has been an early beneficiary. When online giants Facebook and Google wanted to set up data centres in Europe powered with renewables, Norway and Sweden made sense. Large wind farms, supportive politicians, cool temperatures to help the centres work better, and low power prices were all vital.

That doesn’t mean the rest of Europe can follow suit yet.

Yes, we’ve seen a handful of these deals in the UK and the Netherlands but, in the main, the energy system in Europe isn’t set up to support these agreements. The continent is still a patchwork of regulations that mean each country has its own subtle barriers to corporate PPAs.

This is a problem the European Union is grappling with. In June, it published the re-draft of its renewable energy directive, in which is tasked countries with identifying barriers to the signing of corporate PPAs and removing them. Of course, it is then up to national governments whether they do anything about it.

If countries are interested in growing the use of corporate PPAs, they also need systems to prove that the electricity that the corporates buy actually comes from green sources. The EU confirmed there would be no central auctioning of Guarantees of Origin that give energy buyers that confidence. Member states will need to do this themselves.

One positive point is that the EU said wind farm owners should have the freedom to use corporate PPAs alongside government support schemes. That should make things easier.

So the EU’s keen on corporate PPAs, as are corporates and the project owners. A challenge for those in the wind industry will be explaining the model to politicians and getting them to embrace it too.

In Europe, the use of feed-in tariffs has made PPAs a comparatively unattractive model for developers and investors. This has to change. There will be cultural and regulatory hurdles in each nation that would need to be overcome, but the interest in corporate PPAs from a wide range of industries should help.

And a final challenge we predict is that many in the industry are lobbying for Contracts for Difference in European onshore markets, of the type used in UK offshore. It was a big talking point at last November’s WindEurope annual conference to give investors certainty. However, it could also undermine the case for PPAs for the simple reason that governments are usually regarded as less likely to default on their bills than corporate energy buyers.

We expect a PPA revolution in Europe. Investors will make it happen. But we expect it to be a creeping revolution rather than a swift bloody battle.

Sweden is on track to reach its 2030 renewables target by the end of 2018. But why is this?

Sweden is close to hitting its 2030 target for installed wind capacity 11 years early – and corporate PPAs are playing a vital role in this growth. Tabitha Kennedy reports

When the European Union published an updated version of its Renewable Energy Directive in November 2016, to coincide with the ratification of the Paris Agreement on Climate Change, it included a binding target that 20% of EU energy consumption should come from renewables by 2020. That seemed challenging but achievable.

Two years later, most EU countries are on track to meet their national targets – and, specifically, Nordic nations including Denmark, Norway and Sweden are among the most enthusiastic adopters of green projects.

For Sweden, that 2020 target isn’t enough. The Swedish Wind Energy Association reported in July 2018 that the country is on track to reach its 2030 renewable energy target of 49% energy from renewable sources by the end of 2018.

In physical terms, meeting that 2030 target required installed capacity of 7.5GW from an estimate 3,681 turbines producing 19.8TWh of wind power each year. At the end of 2017, the country has installed capacity of 6.7GW, so that 7.5GW is in reach.

On top of that, an extra 18TWh of renewable energy, including from wind farms, is due to be installed by 2030 according to SWEA. Sweden also has targets to achieve 100% renewable energy production by 2040 and net zero emissions by 2045.

How has Sweden achieved this?

So how have the Nordic countries, and Sweden in particular, stormed ahead with their renewable energy targets?

One answer lies in corporate power purchase agreements (PPAs).

We explored this topic in our Finance Quarterly special, called Europe’s PPAs Revolution, in July 2018.

If you’re new to the term, a corporate PPA is a long-term contract under which a business agrees to purchase electricity directly from an energy generator. PPAs have been around in various forms for as long as electricity producers have been selling their electricity, and they were until recently dominated by utilities.

However, over the last five years, corporate PPAs have been growing in popularity in the US – and also, to a lesser extent, in Scandinavia too.

From the perspective of the energy buyer and seller, corporate PPAs give them the financial certainty they need to make their business decisions. They help electricity buyers to reduce their bills by cutting out the middle man – in this case, utilities – and they help developers by giving them the certainty they need to build schemes.

These PPAs will be even more important as governments reduce the subsidies they pay to wind farm owners. In Sweden, we are seeing how developers can use these corporate PPAs to make sure they can build new wind farms, and this has helped to put Sweden within touching distance of that 2030 target. But why Sweden?

There are three main reasons Sweden has seen a proliferation of corporate PPAs.

First, Sweden is experiencing low power prices due to a fall in the price of fossil fuels and the growing supply of renewables. Consequently, a continued surplus of power production is likely. As a result, developers are looking to corporate PPAs to obtain the financial certainty they need to develop projects.

Second, Sweden has become an attractive location for data centre operators, as has the wider Nordic region. This is partly due to the cool climate, which helps to keep the data centres from overheating, and links to other significant European nations. These data centres require a huge amount of energy, which wind farms can deliver.

For example, Google signed its first PPA in Europe in 2013 at OX2’s 72MW Maevaara wind farm in Sweden; followed this with several ten-year PPAs in 2014 with another Swedish developer, Eolus, for the entire electricity output from several wind farms in the south of Sweden totalling 59MW; and yet another deal in 2015 with Eolus for a 76MW wind farm at Jenåsen in Västernorrland County.

And the third big reason for the proliferation of corporate PPAs in Sweden is that the government has given support to wind farm developers. It has cut energy taxes, has maintained a predictable regulatory system, and has supported projects, such as the 4GW Markbygden onshore wind complex. The developers of these projects need to take their projects to financial close – and corporate PPAs help them to do so.

In Sweden, this has supported the development of large wind farms, which is putting the country on the cusp of hitting its 2030 renewables target already. Other nations in Europe can learn a lot from Sweden’s winning combination of certainty, cost and buyer demand – but whether they can emulate it is another matter.

Corporate power purchase agreements are a mutually beneficial tool for both corporations and wind developers. But up until now, we've mostly seen them in North America - what can Europe do to catch up?

Red M&M has emerged as an unlikely advocate for the wind industry following the announcement by Mars that wind will play a key part in a $1bn sustainability drive. What does this tell us about corporate interest in wind power purchase agreements in Europe? Richard Heap reports

The invite is out.

There’s a handful of celebrities that came out in late 2017 to rave about wind farms – Dr. Who and Emma Thompson to name just two – but there is one big name we really want at our Financing Wind Europe conference: Red M&M.

Yes, Red M&M. He’s be perfect. He’s chocolatey; he’s been on TV; he’s redder than the button in the White House over which Donald Trump’s angry hand is constantly hovering; and he likes wind farms. Through to the end of 2018, M&Ms owner Mars is running a global campaign to raise awareness of a $1bn sustainability drive, which includes buying wind power – and Red M&M is its star.

Mars is also notable in the world of corporate power purchase agreements (PPAs) with wind farms, as it has done deals in the US and Europe. Corporates use these deals because they enable them to hit their green targets while giving certainty over the cost of their energy. Even so, they’re still largely a North American phenomenon and Europe is struggling to catch up.

But why?

That is a question that we are due to discuss at Financing Wind Europe this year, as the European Union looks to unleash a PPAs revolution. In June 2018, the European Union agreed a revised version of its renewable energy directive, which said that EU member states should look to identify and remove obstacles to corporate PPAs.

But now it is up to member states to listen and act. The pressure is on the politicians.

In Europe, wind corporate PPAs have mostly been a feature of the market in Nordic nations such as Norway and Sweden, as we wrote in our Finance Quarterly special report – Europe’s PPA Revolution – in July 2018. But why has take-up been so slow in the rest of Europe and what can be done to address this?

There are a couple of significant reasons for this slow take-up.

One reason we have seen less of these PPAs in Europe than the US is because the incentives for renewables are so different. In Europe, governments have historically backed projects including wind farms with centrally-set feed-in tariffs. This has given owners guaranteed income, and little reason to go to corporate buyers.

The Contracts for Difference regime used for UK offshore wind farms poses a similar challenge. With CfDs, the government pays a subsidy on top of the market price of electricity to ensure that the project owner gets a guaranteed income that can make their scheme viable. Helpful, but also a disincentive to go elsewhere.

In contrast, the US has been more supportive for PPAs. The production tax credit has helped the wind industry to bring the cost of electricity below the project cost of traditional energy in many areas, and made renewables attractive to large firms.

But change is coming.

In 2016, renewables PPAs totalling over 1GW were signed in Europe, and governments are ditching centrally-set FITs in favour of auctions where they can pay less in the way of subsidies. We expect more project owners to look at PPAs as a way to mitigate the risks of fluctuating power prices.

Corporates in Scandinavia are also showing how these deals can work well, as are a handful of companies in the UK and the Netherlands. Check out this report for more.

A second obstacle to the growth of PPAs in Europe is that there has been no clear framework from the EU to support corporates that want to sign PPAs – but, with FITs in place, there has been little demand for such a framework. The revised renewable energy directive should help to address this by removing some barriers for would-be buyers – but this is still a work in progress.

These two factors have enabled US companies to make more progress on signing PPAs than European counterparts, and we have seen a mix of technology giants (Amazon, Google, Microsoft) and others (Ikea, Mars, Wal-Mart) entering the fray.

And a third reason for the slow take-up in Europe is, arguably, cultural. Over many decades we have seen a tension in countries like Germany over whether the growth of renewables should be led by top-down government targets or the bottom-up work of activists. Corporates would inevitably get some people's backs up.

Even so, we expect PPA activity in Europe to pick up with the move away from FITs, changes to the RED, and the Scandinavian example. And this should help investors in wind. These PPAs give developers and investors the security of income they need to start work on new schemes; and that certainty is also attractive for investors that might buy the development post-completion.

But we’ll let Red M&M go into more detail on that.

Free electricity. Who wouldn’t want free electricity?

Last month we found out the answer: people in Maryland coastal resort Ocean City. Developer US Wind is looking to build a 268MW wind farm off the shoreline, but has faced opposition since early 2018 from local people that say the project would harm property values and tourism. US Wind recently offered free electricity to Ocean City residents in exchange for relaxing their opposition to the scheme, but they refused.

We spoke to Paolo Sammartino, executive vice president at US Wind, who said that he couldn’t say much about the dispute as he is still in talks with locals – “We are still working on it” – but that he’s still positive about the project, and offshore wind in the US. The scheme is part of a 2.2GW project portfolio off Maryland and New Jersey.

So how did US Wind get into US wind? The question might look odd, but it isn’t as stupid as it sounds. US Wind isn’t actually as American as its name might suggest.

Rather, the developer is the US arm of Italian renewable energy company Renexia, which is part of Italian construction group Toto Holding. Renexia owns an onshore wind portfolio of 200MW in Italy and North Africa; and is working on Italy’s 30MW first offshore wind project in partnership with Belgian developer Belenergia.

Three years ago Renexia decided to diversify its portfolio, and Sammartino said that investing in offshore wind looked like the smartest choice to take advantage of Toto’s experience in building large infrastructure projects.

“Around three years ago, we looked at investing in offshore wind in the UK and in the German North Sea,” he explained. “However, in Germany we were discouraged by grid connection delays. In the UK, we thought that the country’s ROC (Renewable Obligation Certificate) system was too volatile”.

The result was that Renexia started looking at the emerging offshore wind market in the US – and early successes for its subsidiary gave it a foothold.

US Wind was successful in two offshore tenders. In Maryland, it secured the right to build an offshore project of up to 722MW, of which the current 268MW Ocean City scheme is the first stage; and, in New Jersey, it won rights to build an up-to-1.5GW project, which is still at an early stage of development.

The 268MW first phase of the Maryland project is set to consist of up to 32 turbines, and due to complete in 2021: “We have so far invested $25m of our own resources to develop the project and we are now looking at its financial close,” he said.

Sammartino added that this inward investment should help the offshore wind sector to appeal to the famously anti-wind President Trump: “Offshore wind projects in the US require an element of local content. For example, in Maryland, we are obliged to build steel manufacturing facilities in order to build our scheme. This generates investments that benefit the local economy and add economic value. We believe this is of interest to the current federal government”, Sammartino has argued.

But he added that the US offshore sector still has some challenges to overcome.

The most important one – no surprises here – is the development of an adequate supply chain, that would give developers and investors the access to the products and services they need to take projects to financial close, and then complete them.

He also said it was key to put in place a system of a power purchase agreements: “The US is a very competitive market. You have to compete for site control and then you have to compete for a revenue contract. It is important that the states put in place a PPA system to support the projects”.

This is especially relevant given the high initial cost that developers would have to sustain to build the schemes. For example, the New York is currently deciding how the state will be buying its first 800MW offshore wind, and PPAs and offshore wind renewable energy credits are both on the table.

And finally, there are objections from local residents – as the firm’s Maryland project shows. Negotiating that is the first hurdle to delivering its planned 2.2GW.

A Word About Wind is due to hold its annual Financing Wind Europe conference in London on 1st November. Editor-in-Chief Richard Heap shares all the details that you need to know.

A Word About Wind is due to hold its annual Financing Wind Europe conference in London on 1st November. Editor-in-Chief Richard Heap shares all the details that you need to know. We'll be hosting the conference in association with our gold sponsors Ventient Energy, Chatham Partners, and DNV-GL, plus silver sponsors Augusta & Co and Tamarindo Communications.

What is Financing Wind Europe? Only one of the highlights of my year.

I'm being serious. It’s the chance to talk to some of the biggest names in wind and catch up with our awesome members. What could be better?

On 1st November, A Word About Wind is due to host our seventh annual Financing Wind Europe conference in London. We will bring together a host of top speakers to discuss the most important financial issues for wind investors in Europe.

This is our flagship European event. Indeed, some of our members sign up purely for the insights and business development opportunities they can get on the day.

But should you join them? That’s up to you – and, to help you decide, here are the basics that you need to know. We’ll fill in any gaps in future blog posts over the coming months, and you can always look at our dedicated conference site.

So, in journalistic style, here’s the ‘who what when where why’. Let’s get stuck in…

What?

Financing Wind Europe is a one-day conference in central London for people who want to know about the financial side of the wind sector in Europe.

The clue's in the title. But that doesn't give all the details.

The event includes panel discussions, on-stage interviews and networking in the lunch and coffee breaks. We make sure to get a balance between the conference bit and the networking bit – there’s no point getting a 250-300 good people in a room if you then don’t have time to talk to each other.

We’re still working on the agenda but we expect it to cover five core areas:

Investment trends: Who’s investing where and why?
Emerging markets: Where should you invest next?
Offshore wind: What’s happening and how are investors shaping the market?
Market risk: What are the big risks for your portfolio?
Energy buyers: How can we support the rollout of corporate PPAs in Europe?

Take a look at the agenda by clicking here.

Who?

This event is exclusively for A Word About Wind members.

Our 2,500-strong community is made up of people who work on the financial side of the wind industry, and those in other parts of the industry who need to know what investors are thinking. We’re open to all.

In practice, that means the audience on the day will include a mix of investors – institutions, private equity, fund managers and bankers – and utilities, developers, advisers, insurers and others working on the technical side of the industry. But all with an interest in finance.

We expect to attract 250-300 people on the day. We believe it's good to be more intimate than a large trade show, because it means you can track down the people you want to speak to more easily than in vast conference hall.

We’ll also have sole use of a café if you want to follow up with a more formal meeting on the day – or simply find a quiet corner for a call or emails.

As for speakers, we’re lining up an agenda that features a host of the industry’s best-known and most interesting people. We haven’t announced our Financing Wind Europe speakers yet, but the big names are our recent conferences in London and New York have included…

Keith Anderson, Scottish Power
Mark Dooley, Macquarie Capital Europe
Carol Gould, MUFG
David Jones, ex-Allianz Capital Partners
Raymond Wood, Bank of America Merrill Lynch
Lorna Shearin, Jefferies
Susan Nickey, Hannon Armstrong
Steve Lockard, TPI Composites
Alicia Barton, NYSERDA
Declan Flanagan, Lincoln Clean Energy
Mortimer Menzel, Augusta & Co.
Juliet Davenport, Good Energy

You get the point. We’ll announce our speakers later this summer, so watch out.

When?

On 1st November in London.

We opened registration at last year’s event on 8am, kicked off at around 9.15am, finished our last discussion at 2.30pm, and finished at 4pm. We’ll go into this in more detail at our agenda.

And don’t worry, there's plenty of time for networking in the breaks and at lunch.

Where?

The Crystal, 1 Siemens Brothers Way, Royal Victoria Dock, London, E16 1GB

This is one of the world’s most sustainable buildings and events venues. It opened in 2012 as part of a sustainable cities initiative by Siemens. Check it out here: https://www.thecrystal.org/

Why?

The easiest question of the lot.

We believe that the wind industry can make an important contribution to developing a cleaner and fairer world, for current and future generations.

That can only happen if businesses can make smart investment decisions – and that’s where we come in. We share up-to-date market intelligence in three ways:

Email intelligence briefings:

We share three global email intelligence briefings by email each week. These include the most important news stories and a piece of market analysis, so we can give our members a quick and regular rundown on the financial side of the market.

Special reports:

Our programme of special reports enables us to go into more depth on our five key areas. In addition, our flagship Top 100 Power People and North American Power List tell our members who really holds power in this sector – and who they need to know.

Face-to-face events:

Our conferences and other regular networking events enable members to hear from some of the wind industry’s most influential people; and develop new business opportunities with each other. It may be impossible to escape social media, but we believe that wind is still a people industry and best done face-to-face.

By helping wind professionals to make smart decisions, we can make a real difference to the futures of the planet and the people to live on it.

To find out more about Financing Wind Europe, check out www.financingwind.com – and, if you think A Word About Wind can help you, get in touch. We’d love to help.

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