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In our first Wind Watch of 2017, we made ten predictions on the stories and trends we expected to shape the sector this year. But were we Nostradamus or Nostradamnfools? Let’s look back, and then give ourselves a score out of ten.

US wind to defy Trump: Off to a strong start. President Trump hasn’t backed up his anti-wind rhetoric with tough anti-wind policies, and the result is 30GW of wind farms were being built or developed in the third quarter. Even so, the Clean Power Plan has been axed, the Environmental Protection Agency neutered, and the production tax credit threatened too. The US wind sector has enjoyed a strong 12 months – but the biggest battles are yet to come. 1

China gets tough as crisis deepens: Half a point. We thought China would introduce tough restrictions on wind farms as its financial crisis deepened. It hasn't been as harsh as we said, but we'll claim half a point for correctly saying that the slowdown in China would hit both annual installation and investment figures revealed in 2017. 0.5

Italy and France to unsettle Europe: Brexit may be a worry for those of us in the UK, but we said it wouldn't be the most unsettling issue for Europe in 2017 – and were right. The threat of the far-right Marine Le Pen becoming president of France was hugely unsettling until she was beaten in the general election in May; and problems with Italian banks and bad debts of over €173bn have lurked in the background without escalating into a full crisis. 1

Central banks stay cautious: We’ll claim the point – but feel a bit dirty about doing so! Central banks weren't going to suddenly become gung ho in 2017, but they have made the small increases to interest rates we forecast. The US Federal Reserve has raised its rates to 1.25%-1.5%, and the Bank of England did likewise in November by raising its rate from 0.25% to 0.5%. And the European Central Bank is under pressure to do likewise. An easy point. 1

Consolidation across the supply chain: Yep. We’ve seen plenty of merger and acquisition activity, with the $5bn acquisition of Equis Energy by Global Infrastructure Partners the biggest. Utilities have been in the market for developers as they grow share and manufacturers have brought in specialists. The only thing missing is another major manufacturer deal after Siemens and Gamesa, but Enercon's tie-up with Lagerwey (see news) is intriguing. 1

UK to soften anti-wind stance: Pat on the back time. We expected the UK government’s hostile attitude to onshore wind to soften under new energy secretary Greg Clark and, in recent months, we have seen his fellow ministers talking about how to increase support for onshore wind. We also said that the falling cost of offshore wind would bolster support for wind generally, which has come to pass. 1

Germany auction upheaval: We said Germany’s move to competitive tenders would have a bigger impact on wind than its September election and we were right, although the fallout from the latter is still ongoing. Its government is capping annual onshore wind installations at 2.8GW a year, which is way down from a 4.2GW average for the last five years, and its preference for citizen-led projects in the 2017 tenders has raised big concerns for manufacturers. 1

Offshore cost cuts slow: Ah! Let’s gloss over this one, shall we? No, we'll front up. We thought the sector would take time to adjust to record-low strike prices agreed in tenders in 2016 – but we didn't reckon with the scale of ambition of project developers and manufacturers. The result was the first zero-subsidy offshore projects that won backing in Germany’s first offshore auction, and huge falls in the UK too. A prediction we’re happy to get wrong. 0

Wind awakens to large solar: Half a point. We said we expected more wind developers and investors to diversify into the utility-scale solar sector. It hasn’t played out exactly like this, but we are seeing more utilities and investors that have interests in both looking to put more focus on large solar at the expense of wind. Get set for a battle royale between the two in the coming years. 0.5

Africa leads emerging markets: We said the 310MW Lake Turkana in Kenya would focus attention on deals in Africa, but we underestimated the challenge of building its transmission lines. We will claim half a point as we are seeing developers pursue schemes across the continent. However, it is a stretch to call Africa the leading emerging market given exciting projects in countries in Latin America, southeast Asia and even further afield. 0.5

By that reckoning we give ourselves 7.5/10. A decent score and one we’ll look to improve on when we make predictions for 2018, in our first full Wind Watch of 2018 on 5th January.

Vestas is a good bellwether for what's happening in wind. And so when, on 9 November, we saw its shares lose 21% of their value, we took notice. The drop to DKK421(€56) per share was Vestas's biggest fall in six years.

This was a result of Vestas cutting its profit guidance by 1%, from the region of 12%-14% to 12%-13%, on the basis of a predicted fall in sales of equipment and services due to more competition. Its shares are still trading one-third lower than last May.

This prompted us to look more closely at the share prices of other turbine makers this year. By doing this, we can see that Vestas is not an isolated case.

Nordex’s share price has fallen by 60% in the last 12 months, from a high of €21.32 in January to €8.36 in December. India’s Suzlon has lost around 36% of its value since May, from INR21.25 (€0.28) to INR13.6 (€0.18) in December. And Senvion has lost 33% of its market value since June, from €15 to €10 in December.

In addition, Siemens Gamesa has seen its share price fall by more than 44% since April, which is likely to be the result of both market conditions and the huge merger that concluded in May; and General Electric’s shares have fallen 36% this year as well, although this refers to the full business and not only renewables.

Even so, share prices of wind turbine makers have dropped by around one-third on average this year. Why is this the case?

We believe these results are largely a result of falling prices for wind energy as more countries have adopted competitive tenders instead of feed-in tariffs. Firms now face tougher competition to win support for projects and this has brought the levelised cost of energy (LCOE) in winning bids to record lows.

This has increased pressure throughout the supply chain to keep prices down, especially for equipment manufacturers such as Vestas, Nordex or Suzlon. The effect has been most pronounced in Germany and India, and has forced investors to keep a closer eye on the financial performance of these companies.

Low LCOEs are also taking a toll on manufacturer strategies. To adjust to the market conditions, manufacturers are restructuring and in some cases cutting profit forecast and jobs. Investors have therefore become more sensitive to company announcements, and more of them have decided to sell their shares.

But we don't think this means investors in the public markets are giving up on wind companies.

The wind sector has expanded rapidly in recent years and some of the investors it has attracted are those looking for a quick way to make money. Some of these are now jumping off the train, but this is not indicative of the wider health of the wind market.

This year, Goldman Sachs has predicted that €3trn will flow into renewables in the next six years, as they get cheaper than fossil fuels. The bank expects wind turbine makers to be the biggest beneficiaries of more spending on renewables, with annual average revenues in the sector growing about 17% a year from 2017 to 2036 and boosting annual net income by 58%.

We aren’t share-pickers – but Goldman suggests more reasons to be positive than the short-term falls would have us believe.

For our final Quarterly Drinks networking event of 2017 last month, we were pleased to welcome Piers Guy as guest speaker. Piers is UK country manager at Swedish utility Vattenfall, and until recently has been its director of offshore development.

He has worked in the industry for over 25 years, and his biggest projects in recent years have included bringing the 92.4MW Aberdeen Bay offshore wind farm to financial close in 2016. The project is set to trial next-generation offshore technology – and has famously provoked the wrath of Donald Trump.

In our Q&A interview with Piers, we heard from him about a couple of the key talking points for UK onshore and offshore wind in 2018. Here are some of the key points:

Support for UK onshore wind: Piers said the low strike prices achieved in the most recent Contracts for Difference auction in September have helped push offshore wind up the UK Government’s agenda, but he is surprised by how positive the reaction has been from the government and media.

For onshore wind, though, it is unclear how this increasing support could translate into tangible policies. Piers said the Government could allow more onshore wind farms to compete in future CfD auctions, which would help developers to stabilise their revenues. He said that onshore wind developers needed this government support to be able to build schemes profitably.

One potential stabilisation mechanism would be a zero-subsidy Contract for Difference – in other words a CfD in which, over the lifespan of the contract, the subsidy would effectively be zero. Under the current low-carbon budget there will be two more CfD auction rounds, but whether the government opens the competition to onshore depends on the success of the industry in arguing the case for value for money.

Vattenfall’s e-mobility plans: Piers argued that the electric vehicles market is inefficient, because consumers need around 15 vehicle charging cards from different suppliers in order to ensure they can charge their car when needed. With major aggregation of the market, the experience of consumers could be much more straightforward, and Piers said he thought the market would end up with three or four main charging point operators, of which Vattenfall intend to be one, as a result of a mixture of partnerships and acquisition.

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Christmas is meant to be a time for joy and celebration – but let's spare a thought for those who find the festive period a lot harder.

Mental health charity Mind has reported one in ten people feel unable to cope at this time of year, including one in three people with a mental health problem. The pressure to have a ‘perfect’ Christmas can intensify financial worries and put people in touch with difficult family members. Meanwhile, the Christmas party season can encourage an unhealthy level of drinking that can in some cases exacerbate other problems.

And yes, I wrote this before our office party last night!

Meanwhile, for some people working in the industry, this will be a tougher Christmas than most. Auctions are putting pressure on profit margins of developers and manufacturers, which is forcing firms to make financial savings including with job cuts. And the consolidation we see in the wind sector often means job cuts too.

In addition, we see a slowdown in key markets such as Germany, and the future of key US subsidies will only stoke anxieties there too. Yes, we should be happy that costs are falling and the wind sector is growing – but let’s not forget the human cost.

Let’s look back at 2017. In November, Siemens Gamesa set out plans to cut up to 6,000 jobs as it overhauls its operations after its merger. Manufacturers including Enercon, Nordex and Senvion have also cut jobs this year; and, last week, General Electric set out plans to cut 12,000 jobs in its conventional power business. The GE cuts are not in renewables but they do show how fast changes are affecting jobs. In many ways this has been a great year for wind, but a rising tide doesn't always raise all boats.

We’re not writing this because we want to be party poopers. We hope to enjoy a great Christmas, and want each and every one of you – our members – to do so too. But we’re also well aware not everyone will enter the season with a feeling of fun and optimism, and businesses should be mindful of how they can give support.

This is why we took an interest in the UK Government’s ‘Thriving at Work’ report in October. It showed the cost to businesses of failing to properly address mental health concerns among its employees.

This report said 15% of people at work show mental health issues, and that this costs employers in the UK between £33bn and £42bn each year. These figures are not specifically related to wind or the energy sector, but people in this industry aren’t immune from this type of pressure. The report also makes decent recommendations about how firms could support staff with mental health issues.

In brief, they are:

Produce, implement and communicate a mental health at work plan
Develop mental health awareness among employees
Encourage open conversations about mental health and available support
Provide good working conditions, work/life balance and development potential
Promote effective people management via line managers and supervisors
Routinely monitor employee mental health and wellbeing

We don't have time to go into all of that here, but I would urge you to read the report. And, on a wider point, helping the world shift to renewables is important work, but that doesn’t mean it is easy.

So if you approach Christmas with excitement, trepidation or a bit of both, we hope you have the best festive period you can.

Turbines have evolved from tiny 50kW machines to 9.5MW giants over the last four decades. This massive change opens up new opportunities for wind farm owners to repower projects – in other words, replace older turbines with bigger newer ones.

Conventional wisdom is that turbines have an average lifespan of 25 years, and the UK’s Engineering & Physical Sciences Research Council has found that mechanical degradation can lead to a 1.6% decline in output each year. As turbines continue to age, they need extra care from wind farm owners to be kept safe and profitable.

Repowering is not yet a huge part of the market. The Global Wind Energy Council estimates 81% of the world’s installed capacity of 487GW has been built in the last decade, with just 7% of projects built between 15 and 20 years ago. Even so, this 7% represents projects of 34GW, and we are set to see owners of these projects taking decisions on whether to repower in the next 5-10 years.

In recent years, it looked as though companies in Germany were set to be repowering leaders given the age of the oldest German wind farms. However, it now looks like the United States could be at the front of a repowering revolution and this, as so much in the US wind industry, is driven by the wind production tax credit.

The PTC is currently under threat from planned tax reforms (see today's news section). Even so, under current rules, wind farm owners have until the end of 2019 to repower old schemes and qualify for an additional ten years of PTC support.

This is a big reason behind NextEra Energy’s plan to invest up to $3bn to upgrade and replace aging turbines at operating wind farms in the US by 2020.

And Warren Buffett’s MidAmerican Energy is also planning a $1bn programme to repower about 706 older turbines in Iowa, totalling almost 1GW and representing around a quarter of its total wind capacity in the state. It has picked General Electric to carry out the work and it has estimated that the repowering programme would increase the turbines’ generation capacity of up to 28%.

And across the US we see big potential for repowering. This week we read the ‘2017 IHS Markit Wind O&M Benchmarking in North America’ report by research company IHS Market. The report has analysed nearly 20,000 turbines, installed across 300 wind farms and totalling up to 30GW in North America.

IHS Markit forecasts that operations and maintenance costs for the wind sector are set to exceed $40bn cumulatively from 2015 to 2025. This follows its estimate that the average age of operational wind turbines in North America is set to rise from 5.5 years in 2015 to 7 years in 2020, and to 14 years in 2030, with O&M costs in the first ten years of a turbine’s lifetime averaging between $42,000 and $48,000 per MW.

The PTC may be giving firms an argument to repower now – but, even if that is taken away, the ageing fleet will give them another reason to look again at projects.

Repowering is important for small projects too, and those outside the US. This week, Acciona picked Nordex to repower its 25-year old, 30MW El Cabrito wind farm in Spain replacing 90 older machines with 12 new turbines.

And IHS Markit also reported that at least a quarter of the turbines analysed need replacement during the first decade of operations.

What does this mean for wind businesses? Well, as more project owners prepare to invest in repowering, new opportunities should open up for manufacturers and others that offer these services. Almost every turbine supply contract includes operation and maintenance agreements and, for example, turbine makers such as Vestas and Siemens Gamesa are now building their service offer in the US market.

There could be another option. As the sector grows, wind farm owners could expand their own O&M expertise. Utilities like E.On Climate & Renewables, EDF Renewable Energy and Duke Energy have launched business units servicing turbines. Repowering is rising up the agenda and the battle for dominance is underway

Farewell Cape Wind. The pioneering project that was set to be North America’s first offshore wind farm is now officially dead.

The news last week that developer Energy Management Inc. has cancelled the lease represents a bitter end for the 468MW project, but not a surprising one. Cape Wind was first mooted in 2001 and has spent most of the last 16 years in doubt.

First came the legal fights. Since its inception, the project planned in waters off the coast of Massachusetts attracted objections from people living in Martha’s Vineyard. Backed by the financial clout of the billionaire Koch brothers, their strategy was to delay the scheme in legal battles. By July 2014 the developer had won 26 legal fights, and the project had been scrutinised by US public bodies and regulators for ten years.

It also had funding deals in place with Bank of Tokyo Mitsubishi, Natixis, PensionDanmark and Rabobank; backing from EKF; and power purchase deals. Everything looked good.

But winning legal arguments and funding deals is not always enough. The objectors’ strategy of tying up the project in legal disputes worked. As a result, Cape Wind did not reach financial close in 2014, and enabled National Grid and NStar to walk away from power purchase agreements for 77.5% of the project’s output in January 2015.

That threw the project into a decline from which it never recovered. Yes, the termination last week may be an acknowledgement that the location wasn’t going to work – but it is still a great shame for all of those who worked in vain on Cape Wind for over 16 years, including Energy Management Inc. president Jim Gordon.

And yet, it is too simplistic to see Cape Wind as a failure. It is not going ahead, but it has played a vital role in putting offshore wind on the agenda of US companies and policymakers. The 30MW Block Island may be the first wind farm in US waters, but it was Cape Wind that showed these projects could get the backing they needed to be done at utility-scale – from financiers, politicians, regulators and utilities.

In that respect Cape Wind is a trailblazer. It has helped pave the way for 13 projects we now see in waters off ten states, from Massachusetts and New York to California and Oregon. Steve Lockard, chief executive of blade specialist TPI Composites, said at the WindEurope conference last week that “the momentum and enthusiasm and curiosity from some is growing”. The early work on Cape Wind helped get that going.

And now, in all likelihood, Cape Wind will fade into the background. The main objection to offshore wind on the site will not disappear, and developers are making progress on other projects. Deepwater Wind has been talking since 2010 about the 30MW Block Island being the first phase of a 1GW project.

Meanwhile, Statoil is planning the 1GW Empire Wind in New York waters; Avangrid and Copenhagen Infrastructure Partners are working on the 1GW Vineyard Wind off Massachusetts; and Avangrid is progressing the 1.5GW Kitty Hawk off North Carolina.

In total, projects totalling 9GW are in development off the US coast – but, for the first time in 16 years, Cape Wind is not among them.

We do not expect it to be plain sailing for US offshore wind. There are threats from tax credit reforms, fickle politicians, the lack of a supply chain, and shipping restrictions in the Jones Act that need to be dealt with. But we do expect other firms to succeed where Cape Wind couldn’t and, when they do, it will be partly due to the pioneering work on that development. Gone but not forgotten.

Wind Watch
By Richard Heap

Farewell Cape Wind. The pioneering project that was set to be North America’s first offshore wind farm is now officially dead.

The news last week that developer Energy Management Inc. has cancelled the lease represents a bitter end for the 468MW project, but not a surprising one. Cape Wind was first mooted in 2001 and has spent most of the last 16 years in doubt.

First came the legal fights. Since its inception, the project planned in waters off the coast of Massachusetts attracted objections from people living in Martha’s Vineyard. Backed by the financial clout
of the billionaire Koch brothers, their strategy was to delay the scheme in legal battles. By July 2014 the developer had won 26 legal fights, and the project had been scrutinised by US public bodies and regulators for ten years.

It also had funding deals in place with Bank of Tokyo Mitsubishi, Natixis, PensionDanmark and Rabobank; backing from EKF; and power purchase deals. Everything looked good.

But winning legal arguments and funding deals is not always enough. The objectors’ strategy of tying up the project in legal disputes worked. As a result, Cape Wind did not reach financial close in 2014, and enabled National Grid and NStar to walk away from power purchase agreements for 77.5% of the project’s output in January 2015.

That threw the project into a decline from which it never recovered. Yes, the termination last week may be an acknowledgement that the location wasn’t going to work – but it is still a great shame for all of those who worked in vain on Cape Wind for over 16 years, including Energy Management Inc. president Jim Gordon.

And yet, it is too simplistic to see Cape Wind as a failure. It is not going ahead, but it has played a vital role in putting offshore wind on the agenda of US companies and policymakers. The 30MW Block Island may be the first wind farm in US waters, but it was Cape Wind that showed these projects could get the backing they needed to be done at utility-scale – from financiers, politicians, regulators and utilities.

In that respect Cape Wind is a trailblazer. It has helped pave
the way for 13 projects we now see in waters off ten states, from Massachusetts and New York to California and Oregon. Steve Lockard, chief executive of blade specialist TPI Composites, said
at the WindEurope conference last week that “the momentum and enthusiasm and curiosity from some is growing”. The early work on Cape Wind helped get that going.

And now, in all likelihood, Cape Wind will fade into the background. The main objection to offshore wind on the site will not disappear, and developers are making progress on other projects. Deepwater Wind has been talking since 2010 about the 30MW Block Island being the first phase of a 1GW project.

Meanwhile, Statoil is planning the 1GW Empire Wind in New York waters; Avangrid and Copenhagen Infrastructure Partners are working on the 1GW Vineyard Wind off Massachusetts; and Avangrid is progressing the 1.5GW Kitty Hawk off North Carolina.

In total, projects totalling 9GW are in development off the US coast – but, for the first time in 16 years, Cape Wind is not among them.

We do not expect it to be plain sailing for US offshore wind. There are threats from tax credit reforms, fickle politicians, the lack of a supply chain, and shipping restrictions in the Jones Act that need to be dealt with. But we do expect other firms to succeed where Cape Wind couldn’t and, when they do, it will be partly due to the pioneering work on that development. Gone but not forgotten.

The plummeting cost of onshore and offshore wind was a major talking point at WindEurope’s annual conference in Amsterdam last week. And, whether you were there or not, this affects us all.

Now, you don’t need to be a genius to know why costs are falling. Governments have been getting rid of centrally-set feed-in tariffs in favour of competitive tenders as they look to reduce subsidies.

The auctions have drawn some very bullish bids from developers, driven in part by ambitious projections from manufacturers. Each new auction seems to bring a new shock. As a result, many more projects will be exposed to market power price risk than in the past.

We should not underestimate the scale of this change. In Europe today, only 25% of wind capacity is exposed to market risks in any way, WindEurope said last week. However, by 2030 around 94% of capacity could be exposed to market prices to some extent: 67% partially and 27% fully. That is a massive change.

And we heard at the conference about various ways that wind farm owners could smooth out some of the fluctuations these will bring.

Gunnar Groebler, head of wind at Swedish utility Vattenfall, argued more European nations should adopt regimes like the Contracts for Difference system used for offshore wind in the UK, as CfDs help both project owners and governments to mitigate power price risks.

Then there are the corporate power purchase agreements, which can give wind farm owners protection from merchant power prices – well, as long as the PPA lasts.

And this new-found appreciation of market power price risk is also raising awareness of hedging products offered by insurers. These aren’t exactly new: we have known for years about the insurance products that protect wind farm owners in case schemes do not achieve either the expected power prices or the volumes of power sales. We just haven’t chosen to write about them as, frankly, they haven't seemed all that interesting!

Until now, that is. In an era where 94% of projects will be exposed to market power price risk, techniques to mitigate those risks – like hedging – could be vital. This is why WindEurope published a report called ‘The Value of Hedging’ last week that gives firms a crash course in what hedging is, and puts figures to it.

So what does the report say? First, it highlights that installed wind capacity in Europe could double to 323GW by 2030 – with 253GW onshore and 70GW offshore. The 170GW of extra wind farms are set to require an additional €239bn by 2030 and, with the increased risks to returns, investors will look for more protection.

That is where hedging products come in. The report says that, by 2030, there could be at least 190TWh per year of market potential for hedging instruments. This is roughly equivalent to electricity demand in Poland today. And it argues that hedging could create €7.6bn of value for new wind installations in the years to 2030.

Some wind farm owners are already using these products to help them cope with the seasonally-fluctuating production from wind farms. Owners can already expect 30%-45% more production in windier winter months than in the summer, and so they use hedging products to smooth out their returns. This is set to be particularly useful for risk-averse investors like insurers and pension funds that rely on steady returns for their own investors.

Now, in one respect, the report doesn't tell us anything that new. It is putting figures on the growth we could see in this relatively niche part of the market, which is useful, but it is also talking about risk mitigation products that have been around for years.

And that’s the point. Hedging products aren’t new, but the fact we are writing about them is. Falling power prices will mean more risks for wind farm operators, and it is the smart investors that will look at all the tools they can to mitigate those risks. If last week has made anything clear it is that these risks are here to stay.

Emerging markets or developed countries?

Many investors face this dilemma while seeking to find the right balance in their portfolios, and Enel is no exception.

Italian utility Enel’s strategic plan for 2018-2020 published last month, shows a shift in geographic focus from Latin America to North and Central America. And potential for growth in wind is among the reasons behind this move. Why is this significant?

Three years ago, in its strategic plan for 2015-2019, Enel set out plans to invest 60% of its anticipated €6bn capital expenditure in emerging markets. It aimed to add 7.1GW of renewables capacity over five years in countries including Brazil, Chile and Mexico.

The strategy has been working. Enel owns a portfolio of 14GW of renewables in Latin America, including hydro, geothermal, wind and solar. Brazil and Chile are Enel’s two biggest wind markets in the region, with 842MW and 563MW installed capacity respectively. Its growth in Latin America in the recent years is why its new strategic plan is worthy of further analysis.

In the three years going from 2018 to 2020, Enel plans to invest up to €8.3bn to add 7.8GW of new renewables capacity globally. It is looking to do this by investing 40% more in Central and North America compared to its previous strategic plan; and cut by 26% investment in South America. But why?

In our view, one reason has to do with the risk of investing in Latin American countries.

Brazil is still struggling to recover from the deep recession that hit three years ago, and political turmoil over the last year has not helped. Brazil is also ranked 125th out of 190 countries in the World Bank’s latest Ease of Doing Business rankings.

Yes, Enel got into wind in Brazil a couple of years ago when the economic situation was worse than it is now, but the big difference is that rival markets look more attractive. Countries including Mexico and the US are both offering attractive propositions.

Last month, the Enel sold an 80% stake in a 1.7GW renewables portfolio in Mexico, including eight wind and solar projects, for $1.35bn. The deal enabled the company to participate to last month’s Mexico renewables auction, in which it won the rights to build 593MW of new wind capacity at new record-low prices.

Mexico is attractive for investors, and its government’s supportive wind policies are starting to bear fruit – though how firms can develop wind projects at $17.70/MWh is raising some questions.

The US has also become a key market for Enel, with 3.5GW installed wind capacity. Its recent deals in the US include the acquisition of the 320MW Rattlesnake Creek wind farm last month from its long-term US partner Tradewind Energy, which also includes a power purchase agreement with Facebook.

Wind capacity in the US has been growing at a sustained pace over the last couple of years, with new wind installations increasing by 27% this year compared to 2016. Enel wants to get a bigger piece of that and so shifting its focus makes sense.

And there is another reason why we think Enel wants to reduce its exposure to Latin America: competition. When it first went big on the market three years ago, it looked like a bold move. Since then, more players have moved into the market. This has increased competition and means Enel has to fight harder to win projects.

Returns on projects in South America can still be appealing but,as the region's economic and political risk remains high, it makes sense for the firm to invest over a wider geographical area.

No country is without risk, of course. Concerns about tax reform in the US is an example of that. But playing in a wider set of markets should help insulate Enel from problems that affect any one.

After all, there is another concern that regularly affects investors – a desire to not be over-exposed.

Continuing our coverage of WindEurope 2017,

Wind innovators could end up as victims of their own success.

Turbine innovations by manufacturers have helped wind farm developers to drive down the projected costs of schemes to the record lows we have seen onshore and offshore this year. However, these lower prices mean manufacturers must deliver turbines more cheaply, which hits profit margins. In turn, this could end up reducing the amount they can reinvent in future innovations. This topic was central to the ‘Technology Across the Wind Value Chain’ session at the WindEurope conference in Amsterdam on Tuesday afternoon.

Marc de Jong, chief executive at blade specialist LM Wind Power, said LM invests €100m per year on technological innovation, adding that further innovation on blades could help cut a further 30% of the cost of wind energy.

He went on to say that companies in the wind sector needed to collaborate more closely on turbine innovations to achieve savings that would benefit the whole industry, as happens in solar. This could help developers meet what he described as the “crazy low prices” that some companies are bidding – and winning with – in competitive tenders.

In de Jong’s view, part of this should involve sharing project and turbine performance data: “If everyone wants to keep the proprietary data [to themselves]… then, essentially, we end up dead in the water,” he argued. He said that industry-wide specifications for some parts and industry-level testing, where firms collaborate on designs, could support innovation in an environment where firms find it difficult to fund their innovations individually.

Alfonso Faubel, Chief Revenue Officer of Energy and President of Europe at Sentient Science, said that price pressure was not a new phenomenon – “There were price pressures forever in the past, not only now” – and that developing digital turbines could help project owners to make major savings. But, he said, it is “useless” for firms to gather data if they do nothing with it.

And Sven Utermohlen, chief operating officer at E.On Climate & Renewables, said that wind faced a serious challenge in developing the technology needed to keep making savings at a time when margins are squeezed: “That makes innovation more difficult,” he said. “What you invest has to be funded out of your operating margins. If those margins get thinner and thinner, we have to be careful that we don’t dry out our innovation power as an industry.”

Utermohlen added that he was sceptical about the prospects of some of the low-cost auction-winning projects actually being built: we expect some to fall by the wayside. That said, costs are falling and manufacturers will have to find ways to fund turbine innovation in a market where margins are smaller and money is harder to come by.

Finding the funds to keep innovating will require some innovation of its own.

Continuing our coverage of WindEurope 2017, A Word About Wind considers whether the UK's Contracts for Difference model may have a wider application in Europe.

One of the central themes to emerge from the opening day of WindEurope 2017 was the notion that European nations should follow the model of the UK’s Contracts for Difference regime: this could support the wind industry as power prices fall.

Speakers at the conference have welcomed the record-low prices with which wind firms are winning support for wind farms in competitive tenders around the world. Just last week, we saw that Italian utility Enel won support for four projects totalling 593MW in a tender in Mexico, with a winning bid of $17.70/MWh. However, these mean that projects owners are more exposed to fluctuating power prices on the open market.

Gunnar Groebler, head of wind at Swedish utility Vattenfall, told the opening session of the conference on Tuesday that the falling cost of energy from wind farms shows that the industry is delivering on its promises to reduce costs. But, he argued, the wind sector still needs politicians’ support, even if it is not in the form of subsidies.

“We don’t have an open field yet. The support for the energy transition has to remain for some time,” he said. Groebler argued that more countries should look to support wind by using systems like the Contracts for Difference regime used for UK offshore.

Under CfDs, governments award support for projects at a certain strike price. If the wholesale power price is lower than that strike price, the government pays the wind farm owner the difference between the two prices. If the wholesale price is higher than the strike price, the owner pays the difference to the government. This gives long-term price certainty to both the project owner and the government.

Groebler said this certainty would enable wind companies to continue investing to drive down the cost of wind energy, while still being a competitive model. Potentially, these could replace centrally-fixed feed-in tariffs across Europe and beyond.

Similarly, Luca Bettonte, chief executive of Italian developer ERG Renew, said he would welcome any move to make tendering regimes more compatible between countries. He said it was problematic for developers in the European Union to have to deal with conflicting tendering regimes in different nations.

“We could accept these differences [in tendering systems] if they represent a move to a more homogenous situation across Europe,” he said. Bettonte added that the European Union should encourage member states to align behind standardised tendering models. This could open the door for a wider rollout of CfDs.

Joao Manso Neto, chief executive of EDP Renovaveis, agreed government CfDs are necessary to ensure that the cost of wind power continues to fall: “We need state CfDs for the time being. Without these, we will not reach the objectives,” he said. While corporate power purchase agreements will play a key role, we cannot rely on them in Europe.

The UK may be in the process of giving up its place in the European Union – but, on wind tendering at least, we see the influence and collective importance of the UK's approach. Now wind firms just need the EU to pay attention.

Continuing our coverage of WindEurope 2017, A Word About Wind considers the impact of political uncertainty on German wind.

German turbine makers face three tough years as the competitive tenders launched in onshore wind this year continue to bite, a leading figure in German wind has said.

Hans-Dieter Kettwig, managing director of Enercon, told the opening session of the WindEurope annual conference in Amsterdam today that the German government’s target of an average of 2.8GW installations a year until 2020 had raised uncertainty among manufacturers like Enercon. The average for the last three years is 4GW.

Kettwig highlighted some of the problems with the rules of this year’s auction. First, they gave priority to community groups by allowing them to bid for support without having all of the permits in place. Other developers had to bring permitted projects.

And second, community-led groups have around four-and-a-half years to complete their schemes, around two more than other developers. Kettwig said this results in a system where manufacturers like Enercon are unsure which projects will actually get to the construction stage, and when. This affects manufacturers’ production plans.

These rules also helped community-led groups to dominate the auctions this year. For example, community-led groups were responsible for projects that represented 99% of the winning capacity in the latest 1GW tender last week. As a result, Kettwig argued that manufacturers in Germany would “lose 2,500MW in terms of installations in the next two to three years”. We are already seeing companies such as Enercon, Nordex and Senvion restructuring their operations in response to this slowdown.

Kettwig explained that the average of 4GW in recent years meant that manufacturers could spend more on hiring new staff and training them up. This is now in jeopardy.

But he also brought a potential solution. Kettwig argued that Germany could afford to increase its target of 2.8GW new onshore wind installations on average in the years to 2020, and 2.9GW annually in the decade to 2030, because wind has got cheaper and now competes with coal and nuclear. This means the country can aim for more wind because it will not drive up costs: “They can increase the numbers,” he said.

The problem with that is political. Chancellor Angela Merkel is struggling to form a government and has been in coalition negotiations since September. It now looks likely that the country will be without a government until at least early 2018.

But, when there is, Kettwig said the government should do more to re-balance the auctions system. Political leaders in Germany are already taking steps to make the system fairer – by removing the favourable conditions for community-led groups – and Kettwig said it is right that they should compete on equal terms with others.

“I think the system was good in their mind, but we see now that it was not the right way,” he said. The problem is that the future of this system is now intertwined with Merkel’s negotiations. Manufacturers want certainty, but only once there is clarity over the government can there also be clarity over future energy policy.

Without that, an uncertain system looks set to only get tougher.

In his opening address at WindEurope 2017, Ivor Catto offered his thoughts on the impact of EU and national policies on the future of European wind.

Wind subsidies may be tumbling but political support is still vital

The European wind industry has made great strides in the last year to cut the cost of electricity from wind farms. Yet the future still isn’t certain: policies from the European Union and national governments risk undermining the growth of the sector after 2020.

This was one of the key messages from Ivor Catto, chief executive of RES Group and chairman of WindEurope, in his opening address at WindEurope’s annual conference in Amsterdam this morning. He spoke about findings from the body’s new report, ‘Local Impact, Global Leadership’, which describes the importance of the wind industry to the European economy. This includes the €36bn contribution that wind made to EU GDP in 2016.

He also highlighted that the wind sector in the EU now supports 263,000 jobs, generated €8bn of exports outside Europe, and that its tax contributions to governments totalled €4.9bn in 2016. Altogether, wind was a "very important part of Europe’s industrial base".

However, Catto said that companies in the wind sector needed clearer policies from governments across the EU region. Currently, just eight of 28 EU member states have policies for the growth of renewables after 2020, while the European Commission’s Clean Energy Package is still making its way through the European parliament.

He called on the EU to aim for 35% of the European power mix to be comprised of renewables by 2030 - and, just hours after Catto's speech, the Committee of the European Parliament backed a binding target of at least 35% renewables by 2030 as part of a post-2020 Renewable Energy Directive. This will now be put to the commission's Industry Committee, and go to the EU Council in December.

“With costs falling, this makes economic sense,” he said. Without this, he argued that Europe could miss out on investment of €92bn from 2020 to 2030, as well as 141,000 jobs. Catto added that EU states need detailed renewables plans leading up to 2030, and should give three-year visibility over volume and budgets of government support.

He also warned that the EU should maintain ‘priority dispatch’ rules for renewables schemes that are already in operation.

European grid regulators spoke out against these rules, which give renewables schemes priority access to sell their electricity to the grid ahead of fossil fuel schemes, earlier this year. But Catto said that reining in such support for existing schemes would do major damage to investment plans: “Removing this would be extremely damaging to the economics of existing projects,” he said.

Wind in Europe may have made great strides in 2017 – but firms will need continued political support if they are to keep striding ahead in the next decade.

This month, Macquarie’s Green Investment Group and General Electric have partnered to acquire what is set to become Europe’s largest single-site onshore wind park, once completed by the end of 2019. As well as its size, the project is significant for what it tells us about corporate support for wind and the market in Sweden.

Here's the background. GIG has bought the 650MW Markbygden 1 project in Sweden in association with GE. This is its first equity deal since its £2.3bn acquisition by Macquarie in August 2017.

This massive project is located west of Piteå, in northern Sweden, and was originally developed by local company Svevind over the course of 15 years. Markbygden 1 is the first stage of development on a site of 450 sq km that could host an estimated 1,100 turbines.

The acquisition coincided with the project’s €800m financial close, for which the two partners each invested around €150m of equity. The remaining €500m has been provided by financial institutions: this includes a €180m loan from the European Investment Bank, and other loan agreements totalling around €320m, provided by the Export Credit Guarantees of the Federal Republic of Germany, NordLB, KfW IPEX-Bank and HSH Nordbank.

In addition, GE is set to supply 179 of its 3.6MW turbines, which will be equipped with an ice mitigation system provided by GE’s blade specialist LM. The size of the scheme has attracted interest but, arguably, that is the least interesting thing about it.

For one, GIG and GE have signed a long-term power purchase agreement with hydro and aluminum company Hydro Energi for an annual fixed volume of power produced by Markbygden 1.

Hydro Energi is a fully-owned subsidiary of Norwegian aluminium company Norsk Hydro and is set to purchase 1.65TWh of wind power from the project each year from 2021 to 2039, to power its manufacturing aluminium facilities in the region.

This is the world’s largest corporate PPA with a wind project to date, and hugely significant for Europe. Corporate PPAs are seen as key for the future development of large-scale wind projects, but they are not as developed in Europe as in the US, where giants like Amazon, Google and Microsoft have lead the way. In our view, the fact that the largest wind PPA to date is in Europe is a clear sign that PPA activity in Europe is starting to gain momentum.

In addition, the size of the deal and the PPA indicate that there is a promising market for wind in Sweden. We are already seeing activity on other large onshore schemes in the Nordic nation.

For example, in June, Dutch investment company ABP teamed up with Swedish developer Vasa Vind for the construction of the 288MW Åskalen wind project in the Jämtland county. And Reuters reported this month that GE is planning more up-to-100MW wind farms in Sweden and Finland in the near future.

Renewables already have a strong track record in Sweden, where they account for 20% of total energy use, but there is still great potential for growth in wind. The Swedish Wind Energy Association has reported that the country ended 2016 with 3,378 wind turbines installed, totalling 6.5GW. Around 1.1GW of new capacity is under construction and a further 9GW seeking Government consent.

And the Government is keen. In June 2016, it committed to gain 100% of its energy consumption from renewables by 2040 and wind is well-placed to play a key role. The geography of Sweden works well for wind: the interior areas of the country have good wind resources and are scarcely populated, making them ideal locations also for large wind schemes. Also, the country hosts a large number of manufacturing facilities for companies including ABB, SAAB and Volvo, that would be ideal target for PPAs.

But there are still challenges. For example, a municipal veto can stop projects at a late stage, even when funds have already been invested. This could put at risk even large projects where major investment decisions have been taken. Swedish leaders are currently looking at a proposal which seeks to abolish this veto.

This commitment to renewables and the interest of corporates makes us think we may hear of more deals similar to Markbygden 1 in the not-too-distant future.

Can we expect major growth in the floating offshore wind sector? The answer you get largely depends on the company you keep.

Our view is the technology has great potential. This is why four people with interests in the floating wind sector features on our sixth-annual Top 100 Power People report.

There was also a rallying cry for the sector at the Floating Offshore Wind UK 2017 conference in Glasgow this week. Attendees at the event, which was run by industry associations RenewableUK and Scottish Renewables, heard RenewableUK CEO Hugh McNeal declare that: “No one should be in any doubt about the size of that possibility, of the prize that we are discussing today, or the benefits it could bring to Scotland [and the UK].”

Industry experts at this event said that floating wind projects have the chance to follow a similar cost-reduction trajectory as fixed-foundation developments. They argued that projects using floating foundations could benefit from advances in offshore turbines that play a key role in driving down the cost of fixed-foundation projects; and they could also benefit from the savings of assembling turbines onshore before towing them to sea. In short, it is exactly the sort of positivity we would expect from a dedicated floating event.

However, speakers at our sixth-annual Financing Wind conference in London two weeks ago were rather more reserved. They said there is potential in the technology, but that the fast pace of fixed-foundation projects would prove to be a major obstacle.

Keith Anderson, chief corporate officer at Scottish Power and CEO of Scottish Power Renewables, said he had “great faith and belief” in the ability of engineers to commercialise floating offshore wind; and he had “no doubt that somebody will be able to get the cost down and make it reasonably cost-competitive at some point”.

But he added that Scottish Power Renewables is still focused on fixed-foundation projects.

He said: “I’m not sitting here thinking there’s some miraculous bit of innovation that’s going to come along and completely change
the industry, but you’re seeing innovation at every part of the project… right across the whole value chain."

Jérôme Guillet, managing director at Green Giraffe, agreed that it was going to get tougher to bring disruptive innovation in the wind sector because costs are already so low, and any innovation was likely to be focused on incremental improvements.

“Offshore fixed has come down very fast and offshore floating looks very expensive in comparison,” he said. “Will the governments have the guts to pay €200/MWh for a few years to make sure that floating actually works, and can be done at scale, when they can already do fixed bottom at €50/MWh?”

Guillet added that there are places where it would work, including off the west coast of the US and in some Asian waters, notably in Japan. However, in Europe he argued there are “several hundred thousand square kilometres” of the North Sea where fixed projects still make sense: “Fixed will dominate most of the world. Floating will happen in a few markets where you can’t do fixed,” he said.

There are huge areas where floating wind projects could be built: an estimated 80% of potential offshore wind resources in Europe and Japan are in waters deeper than 60 metres, for example.

But whether they will be exploited comes down to questions about whether businesses will invest in commercialising the technology, and whether governments will back developments even before it reaches commercial maturity.

We are pretty positive on both. We are seeing firms like Statoil, Masdar, Ideol and Principle Power investing in the technology. It
is even attracting the attention and expertise of pioneers such as Danish turbines guru Henrik Stiesdal. It may be a niche interest at present, but it is starting to attract mainstream attention.

And, as Guillet said, there are areas where the technology makes sense. We expect to see those governments prepared to back schemes, even if they are costly at first.

Finally, let’s remember how fast offshore costs have dropped in recent years. Most commentators, including those working in the industry, have been too conservative on cost cuts, and have been proved wrong. Floating could repeat this trick.

A Word About Wind spoke to Ward Thomas, CEO of Sentient Science, about how materials science could make wind 13% cheaper.

For our Top 100 Power People 2017 report, A Word About Wind editor Richard Heap spoke exclusively to Ward Thomas, CEO of report sponsor Sentient Science, about big data and key technology trends. Here are some highlights. If you'd like to read the full interview, it's also included in our complimentary ebook, 5 Lessons in the North American Wind Business, downloadable here.

The publication this week of the Top 100 Power People has already provided some great talking points within the industry. As well as being the definitive guide to the most influential people in wind energy, the report provides an overview of the year's most important trends, such as the rapidly-falling costs of offshore wind and the emergence of floating turbine technology. It also contains a series of big interviews. Here are some key take-home points from our conversation with Sentient Science's President and CEO, Ward Thomas:

Materials science could help make wind 13% cheaper. Thomas outlined how Sentient Science's prognostic models combine data science and materials science to provide accurate predictions of when and where failures will occur within turbines. For example, they are currently providing savings equal to 2% - 3% of revenue by focusing on gearboxes specifically: this represents a fifth of the predicted savings that will come from applying the technology to the complete turbine.
Wind is the ideal starting point for commercialising this technology. This is the first commercial application of technology originally developed in the aerospace sector, whilst Sentient Science worked with the U.S. Department of Defense. Wind represented an an exciting opportunity to apply its approach to live machines. "Once we got into wind, we fell in love with it. To lower the cost of energy so our children can breathe clean air, and to make it equal to fossil fuels. We're very proud to be doing our bit," said Thomas.
President Trump may have had an unexpectedly positive effect on wind energy. Despite Donald Trump's well-known scepticism towards renewables, the US wind sector has gone from strength to strength this year. Thomas said Trump's unwillingness to harm the wind sector may be an acknowledgement of the need for competitively-priced renewables: "He knows we need to produce a whole bunch of electricity for manufacturing to come back to the United States," he said.

If you would like to read the complete interview, members can read the full report here. Not yet a member? You can look at membership options here, or sign up for a free trial of our newsletter in order to be in with a chance of receiving one of 15 complimentary copies.

We are all aware of the huge steps made in offshore wind in the last 18 months. Falling costs resulted in record-low strike prices in the UK's Contracts for Difference auction in September, and zero-subsidy bids in Germany’s offshore wind auction in April.

But these astonishing results will make developers and investors more reliant on volatile and unpredictable market energy prices to get their returns, and increases the risks for banks and financial institutions when they finance new offshore projects.

So how will financing structures in offshore wind have to change following the falls? This is a question that panellists grappled with in the second session of our Financing Wind 2017 conference in London last week, with the UK proving an interesting case study.

This low-subsidy world is causing some concerns. Michael van der Heijden, managing director at Amsterdam Capital Partners, said bidders should “calm down” as the market might be close to a point where low strike prices hurt the sector rather than help it.

He said: “This risks growing out of control… The worst thing that can happen right now is that someone puts in a number and then he can’t get it done.”

Van der Heijden added that “saying banks need to take on board all the merchant risk is not going to be the answer”, and argued that the system needed a newer and more balanced approach in order to bring deals to successful financial close.

Carol Gould, head of power and renewables for the EMEA region at Japanese group MUFG agreed. She said higher exposure to merchant risk was the biggest risk that offshore wind is facing, and could push commercial banks into “wait and see” mode.

If this was to happen, Gould said there would be room for export credit agencies (ECAs) to get involved in financing new offshore projects. This is because ECA-backed funding would be better placed to adapt to the current changing financial environment – and is particularly useful in the UK with the spectre of Brexit.

Specifically, the UK offshore wind sector faces a loss of funding from the European Investment Bank.

The UK was the fifth-largest recipient of EIB loans in 2016, with most funding going to infrastructure projects. The largest portion of EIB’s funds - around 30% - went to energy projects, and the EIB has been important in backing UK offshore wind.

For example, the EIB provided a £525m loan for the construction of the 588MW Beatrice wind farm in waters off Scotland, and participated in the funding of the 353MW Galloper offshore wind farm with a £225m loan agreement. But the EIB’s aim is to invest in projects in the EU which, after Brexit, will not include the UK.

In September, UK Brexit secretary David Davis said he wanted the relationship with the EIB to continue after Brexit, we don’t see on what basis this would happen.

Gould said that “the UK should give some consideration to the support of the ECAs” to replace the missing support from the EIB.

We expect the UK offshore wind sector to grow strongly after Brexit, but this adds extra challenges for sure. The record-low strike prices in the last Contracts for Difference tender are a big step in the industry’s maturation, but they mean more merchant risk for commercial banks. Developers are already reducing risks so they can keep their investors happy, but they should also look at how ECAs could provide support.

Denmark’s EKF and Germany’s KfW are among the most active ECAs in the wind sector, and might be a solution for the Danish and German manufacturers that plan to export to the UK. Even with Brexit and low strike prices, we are positive that UK offshore wind offers plenty of opportunities for overseas companies.

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Wednesday 3rd January 2018

How did we do in our 2017 predictions?

Wednesday 20th December 2017

Falling turbine makers' shares should not discourage investors

Vattenfall's Piers Guy on UK Onshore Wind

Let's remember those facing a tough Christmas

Wednesday 13th December 2017

US gets set for wave of repowering

Cape Wind is gone but its legacy remains

Friday 8th December 2017

Wednesday 6th December 2017

Firms will hedge bets as prices tumble

Why Enel's geographic shift is significant

WindEurope 2017: squeezed margins for manufacturers could restrict innovation

Wednesday 29th November 2017

WindEurope 2017: the European significance of Contracts for Difference

WindEurope 2017: German manufacturers prepare for tough three years

WindEurope 2017: Ivor Catto on why wind in Europe still needs political support

Five big questions for the WindEurope conference

GIG and GE team up for Swedish giant

Wednesday 22nd November 2017

Financing Wind 2017: Floating wind's cost conundrum

Interview with Ward Thomas, Sentient Science

Financing Wind 2017: Merchant risk raises offshore concerns