This month, Fortum completed the purchase of three wind farms in Norway with total capacity of 172MW. This is one of the Finnish utility’s biggest deals in wind thus far.
It is also indicative of a shift at the company towards wind, and we expect Fortum to conclude more deals like this in the coming years. We spoke to the company’s vice president of wind, Philippe Stohr, about Fortum’s plans to grow in the wind sector.
Historically, Fortum has shown a marginal interest in wind. Founded in 1988 with the merger of state-owned Imatran Voima and listed company Neste Oyj, it was not until 2010 that Fortum concluded a significant deal in the wind sector as it bought 40% of the 99-turbine 247.5MW Blaiken scheme in Sweden. It retains 15% of that project.
For the five years after that, until 2015, Fortum preferred to focus on its core sectors of hydro and nuclear, with projects located in Nordic and Baltic countries, Poland and Russia. But since appointing Pekka Lundmark as chief executive in 2015, the firm has shifted its strategy and it is now looking to grow a 1GW wind and solar portfolio.
Stohr says there are a couple of main reasons that Fortum has decided to expand in wind and solar. First, the falling cost of power in both sectors has made them more competitive with conventional fuel sources, and cheaper than nuclear; and second, because it expects competition in the market to keep driving down costs.
“We believe wind will be one of the most competitive ways of generating energy into the future… so we have decided to enter with more force and ambition,” he says.
Fortum’s operational wind portfolio currently measures 69.5MW. Its 15% stake in the Blaiken wind farm, which it developed with Swedish power company Skellefteå Kraft and completed in 2015, represents 37.5MW of this; and it also owns the 32MW Nygårdsfjellet project in Norway, which is one of the three schemes that it bought from Nordkraft earlier this month.
The Finnish firm is set to add 117.5MW to this by the end of 2018.
It is building the first utility-scale wind farm in Russia, the 14-turbine 35MW Ulyanovsk scheme, which is currently under construction; and is set to complete the 22-turbine 75MW Solberg wind farm in Sweden by early 2018. Fortum owns 50% of Solberg, which it is constructing with Skellefteå Kraft. It is also planning to complete work on the 50MW Ånstadblåheia scheme that it bought from Nordkraft this month.
And after this, in 2019, it plans to complete the 90MW Sørfjord scheme in Norway, its third from Nordkraft. Its final project at present is the 200MW Kölvallen in Sweden with developer Arise, though the partners have mulled selling the development.
Stohr says Fortum will continue to invest in new projects in its core markets, and we expect to see more deals over the next couple of years as it targets that 1GW. He says that Fortum’s main rule when choosing which projects to invest in is that they should be the most competitive wind farm in operation in their chosen markets.
He says: “Our strategy is to be an industrial player so, when we are investing, we are conscious about finding where wind will play a good part of our industrial strategy.”
We will only be able to tell how close the company is to delivering on this strategy as we see the deals it completes in the next two years, but it has a solid base on which to build. We will keep a particularly close eye on the Ulyanovsk scheme in Russia.
Fortum is an experienced player in the Russian power market. It owns power plants with total electricity capacity of over 4.4GW, mostly gas-fired power stations, and a 29.5% stake in hydro and thermal power network specialist TGC-1. Meanwhile, its 35MW Ulyanovsk scheme is backed by the Russian power market regulator through a system that gives Fortum a guaranteed return. If Fortum cannot make a success of the project with this backing and its track record, it should be a warning for investors.
But, if it can, that will only help raise its growing profile in wind.
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Wind Watch
Wind Watch is published every Monday and Friday.
In the meantime, have you let us know that you’re planning to attend our breakfast launch event in London on 7th March for theWomen’s Power List? If not, do so now!
We are publishing this special report to tie in with this year’s International Women’s Day, in partnership with finance specialist Green Giraffe. Our aim is to celebrate the wind industry’s top female power-brokers, deal-makers and influencers.
And we will giving attendees at our breakfast launch event on 7thMarch an exclusive first look at the report, as well as a chance to hear from industry thought-leaders. We will be announcing our speakers for the event shortly, so don’t miss out.
This special and exclusive launch breakfast, also sponsored by Green Giraffe, is due to run from 8.30am at the London offices of Reed Smith LLP, and you can reserve your place now.
This event is strictly for Silver, Gold and Platinum members. We look forward to seeing you there.
Feeling the Monday blues? Then don’t read the next paragraph. Seriously, go and listen to ‘Pet Sounds’ or something. Read P.G. Wodehouse. Just don’t read this! You have been warned.
You see, I spent some time last week reading WindEurope’s latest ‘position paper’, called ‘Creating A Business Case For Wind After 2020’, and the first line is a tad bleak. It says that “the European power sector faces a deteriorating investment climate [because] the risk faced by investors in capital-intensive assets is too high… [and] wholesale electricity prices are too low and volatile”.
There are a few reasons for these low electricity prices: oversupply, sluggish growth across Europe, and falling coal and gas prices globally. These are a challenge for all investors in major power projects but are an even bigger headache for those in wind. The price of electricity usually falls when wind farms are at their most productive; and the structure of the grid stops wind competing on a par with conventional sources.
The paper adds the lack of a “level playing field” means the European Union risks failing to achieve its 2030 decarbonisation goals in the most cost-effective way. Still feeling ‘Mondayish’?
The plus side is the paper suggests solutions, and they are good ideas. But we still doubt that they would be widely implemented.
Its first proposal is that the EU should encourage member states to reduce barriers for companies that want to sign power purchase agreements with wind farm owners.
We have seen in the US that these corporate PPAs can give investors the certainty they need to make projects happen but, at present, few European nations are set up for these. The UK, Netherlands and Scandinavian nations are the most advanced.
WindEurope said European countries should reduce legal barriers, and that Europe’s Guarantees of Origin tracking system should be rolled out more widely, to give firms the certainty that the electricity they are buying comes from renewables. It's a good idea.
Its second proposal is that the European Union should encourage its member states to adopt revenue stabilisation mechanisms, including Contracts for Difference and feed-in premiums, which can give investors the certainty they need to invest.
Many of you will already know how these structures work but, for those who don’t, the idea is simple. Wind farm owners sell their electricity on the open market, and then the government tops up that price to a pre-agreed ‘strike price’ that is set by a competitive auction. This gives investors the certainty they need to invest and, crucially, it is not at a high price that is punitive for taxpayers.
If the open market price is above the ‘strike price’ then the government would either pay nothing to the scheme owner, like in Germany, or the owner would pay back the difference to the government, like in the UK’s Contracts for Difference scheme. This helps developers secure the money they need to build schemes cheaply. This is also good.
These ideas make sense and we feel confident that they would help give investors more confidence if they were used around Europe. The EU should support them.
But that does not mean they will be widely used. You see, the EU can back these ideas if it wants, but that doesn’t mean it will be able to encourage member states to do likewise. As so often, this comes back to the vagaries of national energy policies.
We would only expect EU member states to lend their support to ideas like these if they already like renewables, and that will be the biggest challenge. We know that support for clean energy is patchy in Europe. We know that only seven out of 28 EU member states have comprehensive plans for renewables after 2020. And we know that the rise of right-wing parties could bring a rise in climate change scepticism.
There are steps that European nations could take to level the playing field for wind investors, but many won’t. We see plenty of politicians who are happy to keep the sloped playing field – and maybe add driving rain and a three-man advantage.
But let's end on a positive: even if the playing field isn't level, that doesn't mean the side benefiting from it will win. Happy Monday!
Growing numbers of people are threatening to boycott Donald Trump’s inauguration this afternoon – celebrities, Democrats, R.Kelly – but we are not among them. We’re strangely excited because, as usual with Trump, there will be plenty to watch.
Indeed, the first days of his presidency could shape appetite for investment in US renewables for the next four years. This might look like a bold statement, but look at his in-tray.
Last week, ten North Carolina Republican lawmakers, including Senate leader Phil Berger and House Speaker Tim Moore, sent a letter to the Trump administration to urge it to shut down a $400m nearly-complete wind farm located near Elizabeth City.
The 208MW, 104-turbine project is being developed by Avangrid Renewables, the US arm of Spanish utility Iberdrola, and Amazon has already committed to purchase the entire output produced by the wind farm to power its Virginia data centres. It would be the state’s first wind project, all the turbines have already been installed and it is now weeks away from completion.
However, according to the lawmakers, the wind farm would represent a threat to the national security as the turbines would interfere with a Navy’s long-range radar located in Chesapeake, Virginia. Avangrid has rejected that claim.
Paul Copleman, a spokesman for Avangrid, said that in 2014 the Navy agreed to let the project proceed after insisting on a reduced size of the project and smaller turbines. But, according to the lawmakers, the Pentagon gave green light to the scheme just because of the “political correctness” of the Obama administration. It is a strange accusation that wind is solely a 'PC' choice.
North Carolina Republican legislator Bob Steinburg, who did not sign the petition, said to Coastal Review Online, a North Carolina news service, that “the letter is less about the military and more about a long-running fight against renewables”.
And North Carolina is not the only US state fighting renewables.
Wyoming has also recently started its own battle against renewable energy. State legislators are seeking to stop utilities selling power generated by solar and wind to local residents. The plan is to protect the coal sector, as Wyoming is the US state with the largest coal production. It really wants to keep its first place.
Wyoming has already in place the only tax in the US, which charges $1 for each MWh of wind energy produced in the state.
Why is this important? Well, first of all, because both assaults on wind have started in the two weeks before Trump take office; and, more importantly, because there is a risk that these actions would damage investors’ confidence. If Trump was to revoke consent for a project nearing completion then it would do major damage to the confidence of investors in US wind, and infrastructure more widely.
This is already happening with Avangrid: “I think we look at this effort as a negative sign about doing business in North Carolina”, a spokesman has said. If Trump does what North Carolina Republicans want, then that negativity would surely spread.
Not that everyone thinks he will. Speaking at the World Economic Forum annual meeting in Davos this week, Innogy’s chief executive Peter Terium said Trump could not deter investment in wind because "all the wind parks are being built locally, maintained locally and operated locally, so it really fits into the policy that he also has set to enhance local value creation”.
This gives autonomy to individual states to decide whether they want renewables or not. However, if more states begin to oppose renewables, that would help Trump build a case against a sector of which he has been heavily critical in the past. And, in that case, investors will turn their attention to other sectors or other countries.
Wind is getting cheaper but it still needs political support.
Of course, we could be worrying about nothing. Trump’s motto to ‘Make America Great Again’ could include the local value creation that comes with wind. Either way, his approach to North Carolina will tell us a lot about his approach to renewables. Investors should watch closely – even if it is through their normal-size fingers.
Wind Watch
Wind Watch is published every Monday and Friday.
In the meantime, we are still looking for nominations for our next special report, which is coming out on 7th March.
In honour of next year’s International Women’s Day, we are set to publish our Women’s Power List. In this special report, we will celebrate the contribution of women to the continued growth and success of the wind industry around the world.
Who do you think we should we include? Nominations are now open, and you can get in touch with the editor directly by Tuesday 31st January and tell us about women that:
- Carry the greatest influence within the industry or their part of it.
- Conclude the biggest deals and investments.
- Lead the biggest and most successful businesses and organisations in wind.
- Demonstrate that they are the industry’s leaders of tomorrow.
If you know someone that fits the bill, then please email editorial@awordaboutwind.com and provide a brief overview of why we should include them. Just give us the hard facts in no more than 300 words and our team will consider them for the shortlist to be put in front of our panel of judges in early 2017.
And if you have any questions or comments, please get in touch.
Trump urged to axe Amazon wind farm
North Carolina legislators have urged Donald Trump to terminate a $400m project for Amazon that is nearing completion.
Ten North Carolina lawmakers have signed a letter to urge to US president-elect Donald Trump, who is set to take office on Friday, to shut down a nearly-complete wind farm that Avangrid is building for Amazon in Pasquotank and Perquimans counties. The lawmakers said the turbines could interfere with US Navy security
systems, which are located in Chesapeake in Virginia.
The US wind industry will watch this case to see how Trump's anti-wind views manifest themselves in office, as scrapping a nearly-complete scheme would damage investor confidence. All of the 104 turbines have already been installed and the project, Amazon Wind Farm US East, is due to be commissioned next month.
Read more about US wind and President Trump in Finance 2017.
UK GIB pays £731m for Lincs stake
The UK Green Investment Bank has bought a 75% stake in the 270MW Lincs offshore wind farm for £731m.
The bank's dedicated Offshore Wind Fund has bought 44% of the project for £429m, while the bank itself has bought another 31% for £302m. Dong Energy owns the remaining 25%.
This deal represents British utility Centrica's exit from the wind sector, as it previously owned half of Lincs. The project consists of 75 Siemens 3.6MW turbines and was commissioned in 2013. The UK GIB's Offshore Wind Fund now manages assets worth £1.1bn.
Read our Wind Watch on UK GIB privatisation here.
New York backs 207MW wind farm duo
New York has awarded support to two wind developments totalling 207MW that are set to be built by Invenergy and NextEra.
The 106MW Number Three wind project in Lewis County is being developed by Chicago-based Invenergy and is due for completion in 2019; while the 101MW Eight Point project in Steuben County is being developed by Florida-based firm NexEra Energy Resources. The amounts awarded have not been disclosed, but the deals are part of a $360m programme that has backed 11 projects.
The announcement came days after New York governor Andrew Cuomo said the US state would back the construction of 2.4GW of wind farms in its waters by 2030.
Enel acquires US storage company
Enel Green Power has acquired US energy storage firm Demand Energy Networks to support its renewable power projects.
DEN specialises in the behind-the-meter storage market and has carried out 24 projects since it was founded in 2008, totalling 3MW/9MWh of installed capacity in the US and Latin America; and it claims a pipeline in excess of 30MW/100MWh. DEN will benefit from the deal by having access to Enel’s 36GW portfolio of projects.
Enel and DEN are set to collaborate to expand deployment of DEN’s Distributed Energy Network Optimisation System, a platform which enables real-time optimisation of energy management.
Renova sells Alto Sertao II for $204m
Brazilian power company Renova Energia has agreed to sell its 386MW Alto Sertao II project to AES Brazil for about $204m.
Renova has entered into a binding agreement to sell the wind scheme to AES Tiete Energia, a subsidiary of AES Brazil, the Brazilian unit of AES Corporation. The deal is part of a drive by Renova to repay its debts and to improve its cash position.
Meanwhile, Brazilian energy minister Fernando Coelho Filho has commissioned studies to prepare a solar and wind tender for the first half of 2017, after he axed the tender due in December 2016.
Wind Watch
By Ilaria Valtimora
Norway is set to be the first country to turn off its FM radio network. I'm just grateful the UK isn’t doing likewise as I’d never have heard Charles Hendry on Radio 4 talking about tidal lagoons while I was driving to work last week. This is highly relevant for wind.
The former UK energy minister was asked by the government in May 2016 to assess the case for tidal lagoons, and the role they could play in the UK’s energy mix. In particular, he had to advise the government whether to give green light to Gloucester-based firm Tidal Lagoon Power to build a scheme in Swansea Bay.
The company is in negotiations with the UK Government as it wants £1.3bn of state subsidies to help fund this 350MW trial.
And, last Thursday, Hendry published a report saying that the UK should go ahead with the project, which would be the first of its kind to be built. It would consist of a large U-shaped wall out into the bay with turbines, which would be driven by the regular rise and fall of the tide. Hendry said this would generate power for decades. But at what price?
The former minister says the best way to look at this is to spread the cost of subsidies over the lifetime of the project, which is around 120 years if the projections are to be believed. In this way, he said the cost would be “about a cost of a pint of milk a year on people’s bills”.
One pint of milk a year for every electricity bill payer in the UK for 120 years. For one project?! He's lucky I kept control of the car!
You see, that's the problem: the electricity produced by a tidal lagoon is only really competitive on price only if you assume it is going to have a really long lifespan. Hendry’s findings show that if you look at the price of electricity based on a 30-year period – the average lifetime of a renewable project – would be £120/MWh. That is uncompetitive with the price of offshore wind today.
Despite these cost concerns, the UK government is likely to back the project in Swansea Bay after Hendry's enthusiastic report. So, what are the challenges and opportunities for wind companies?
If projects of this kind are going to be supported by the government, we expect big turbine makers to seize the opportunity to enter this new sector. Offshore wind developers and manufacturers already have the technology and expertise needed for tidal lagoons.
There is also an argument that businesses should welcome any spending on renewables, given that recent analysis by think thank Green Alliance showed that government investment in renewable projects including wind could decline by 95% between 2017 and 2020. This is another reason why wind companies should look to build their expertise in one of the few renewable power sectors that the UK government is apparently be keen to invest in.
But still wonder why the government is prepared to invest in tidal. Usually, governments back schemes and technologies like this at an early stage to help get an expertise that brings the costs down.
This is not be the case here. We have already got effectively the technology to build a project like this and, for this reason, Hendry said we won’t see in these projects the same cost reduction we have seen for example in offshore wind. The only effective way to reduce costs using tidal lagoons is with economies of scale.
There is an argument that the extra spending makes sense because the tides are more reliable than the wind, but forecasting in the wind sector is already very developed; and the use of storage technology will help address those concerns. It is also galling that UK leaders still refuse to back low-cost onshore wind.
This is an interesting project and it could be a way for the UK to diversify its energy while creating a new kind of industry – but it also reinforces a perception that clean power is the expensive option. That is simply not the case anymore.
Norway is set to be the first country to turn off its FM radio network. I'm just grateful the UK isn’t doing likewise as I’d never have heard Charles Hendry on Radio 4 talking about tidal lagoons while I was driving to work last week. This is highly relevant for wind.
The former UK energy minister was asked by the government in May 2016 to assess the case for tidal lagoons, and the role they could play in the UK’s energy mix. In particular, he had to advise the government whether to give green light to Gloucester-based firm Tidal Lagoon Power to build a scheme in Swansea Bay.
The company is in negotiations with the UK Government as it wants £1.3bn of state subsidies to help fund this 350MW trial.
And, last Thursday, Hendry published a report saying that the UK should go ahead with the project, which would be the first of its kind to be built. It would consist of a large U-shaped wall out into the bay with turbines, which would be driven by the regular rise and fall of the tide. Hendry said this would generate power for decades. But at what price?
The former minister says the best way to look at this is to spread the cost of subsidies over the lifetime of the project, which is around 120 years if the projections are to be believed. In this way, he said the cost would be “about a cost of a pint of milk a year on people’s bills”.
One pint of milk a year for every electricity bill payer in the UK for 120 years. For one project?! He's lucky I kept control of the car!
You see, that's the problem: the electricity produced by a tidal lagoon is only really competitive on price only if you assume it is going to have a really long lifespan. Hendry’s findings show that if you look at the price of electricity based on a 30-year period – the average lifetime of a renewable project – would be £120/MWh. That is uncompetitive with the price of offshore wind today.
Despite these cost concerns, the UK government is likely to back the project in Swansea Bay after Hendry's enthusiastic report. So, what are the challenges and opportunities for wind companies?
If projects of this kind are going to be supported by the government, we expect big turbine makers to seize the opportunity to enter this new sector. Offshore wind developers and manufacturers already have the technology and expertise needed for tidal lagoons.
There is also an argument that businesses should welcome any spending on renewables, given that recent analysis by think thank Green Alliance showed that government investment in renewable projects including wind could decline by 95% between 2017 and 2020. This is another reason why wind companies should look to build their expertise in one of the few renewable power sectors that the UK government is apparently be keen to invest in.
But still wonder why the government is prepared to invest in tidal. Usually, governments back schemes and technologies like this at an early stage to help get an expertise that brings the costs down.
This is not be the case here. We have already got effectively the technology to build a project like this and, for this reason, Hendry said we won’t see in these projects the same cost reduction we have seen for example in offshore wind. The only effective way to reduce costs using tidal lagoons is with economies of scale.
There is an argument that the extra spending makes sense because the tides are more reliable than the wind, but forecasting in the wind sector is already very developed; and the use of storage technology will help address those concerns. It is also galling that UK leaders still refuse to back low-cost onshore wind.
This is an interesting project and it could be a way for the UK to diversify its energy while creating a new kind of industry – but it also reinforces a perception that clean power is the expensive option. That is simply not the case anymore.
Ikea has pledged to be a net exporter of renewable power by 2020, so there is good reason to feel confident that it is serious about investing in wind energy.
And that also means we should take it seriously when it says it is not going to invest, as it has this week. Specifically, the Swedish furniture giant has declared that it will not invest in renewables in the UK due to lack of government support for wind.
Ikea is only one company – but, in this area, it is an influential one. The retailer has invested €1.5bn in renewable energy projects across the world in the last 20 years and it plans to spend other €600m by 2020.
Wind is a big part of that. For example, in 2015, Ikea created a €1bn green fund for climate action with the collaboration of its charitable arm Ikea Foundation, which specifically allocated €600m of it to new wind and solar installations.
But according to Joanna Yarrow, UK’s head of sustainability at Ikea, none of that €600m would go to the UK, unless the Government decided to give more support to the onshore wind sector. She says she is baffled by the approach of UK leaders.
“The UK has a fantastic wind profile, it is one of the best places in the world to generate energy via wind, but the context that we’re operating in, the political context, doesn’t encourage that investment. So we’re having to take it elsewhere.” she said in an interview with the Huffington Post.
This is a demonstration that the UK’s approach to sustainability over the last 18 months, since the Conservative Party won a majority in the 2015 general election, is stifling investment in wind even from companies that are big supporters of the sector.
Let’s reiterate the key point here: government figures show that onshore wind is the cheapest form of renewable energy available in the UK, however since 1 April 2016 the Government has decided to stop subsiding onshore wind farms to support instead newer, more expensive technologies like tidal lagoons.
It is up to the government what to do with taxpayers’ money, of course – but Ikea has shown that the attitude of UK leaders is also affecting the investment plans of private businesses and harming private investment in renewables.
Apple, Facebook and Google are among the big companies who have committed to power their data centres and corporate offices from renewable energy, and they are not the only ones. We are seeing more businesses looking at how they can use wind and other renewables to power their operations, but they can only do so in the UK if there is political will from the country’s leaders.
Ikea’s intervention suggests that there will be a link between support for renewables and inward investment. Is this what is needed to finally make UK leaders take note?
The ‘Vampire Kangaroo’ is looming.
That is the nickname that critics of Australian bank Macquarie have given it due to its relentless focus on profits and its reputation as an asset-stripper. Macquarie is now set to make an impact in wind by buying the UK Green Investment Bank for around £2bn. Well, its biggest impact since last month's £1.6bn Race Bank deal.
The UK Government started the process to sell the GIB ten months ago, on 3 March 2016. The deal is set to involve both the sale of existing shares owned by the Government, and the commitment of additional capital for the GIB by new investors. The Government is planning to announce its winning bidder as early as next week, and is looking to complete the sale process by the end of March.
The sale has come with controversy. Since October, when Macquarie’s status as preferred bidder was first reported, current and former UK MPs and charities have been vocal about their concerns over the fate of the GIB, warning that the new owner may not uphold the bank’s environmental mission. We wrote similar in March 2016.
And the din surrounding these concerns has grown this week.
The Sunday Times has reported that Macquarie is looking to sell GIB’s wind and biomass assets; while Greenpeace has reported that GIB has recently created 14 new companies, all with names of its major assets, including the Galloper, Rampion and Westermost Rough offshore wind farms. The charity claims this shows a programme of asset sales is coming, and that this is likely to be at prices unfavourable to UK taxpayers.
Macquarie has not specifically commented on these claims, though it has shouted about its environmental credentials. A spokeswoman said: “Macquarie – and its managed funds – is one of the world’s largest investors in renewable energy, having invested or arranged more than £8.5bn of investment into renewable energy projects since 2010”. It says that GIB’s mission is in safe hands.
This is a controversy that will run and run – but our first instinct is
to wonder whether a sell-off of GIB’s major offshore wind assets would really be a disaster. Hear us out.
After all, you could argue that GIB has already achieved its goal in offshore wind. In 2012, the bank was created to spur investments in renewables, and has since been a great supporter of offshore wind. Its offshore team, headed by Nick Gardiner, has invested £1.3bn in offshore wind, supporting eight projects totalling 2.9GW in the UK.
Its goal was to lend on commercial terms to projects that private sector investors were too nervous to touch. But, five years on, we see little nervousness in the private sector. Falling costs, improved technology and experienced developers are all good reasons for investors to back UK offshore wind.
The GIB has been a great backer of offshore wind and has helped the UK maintain its position as world leader. But this is 2017, not 2012. Times have moved on.
That said, there are two reasons we believe a break-up of GIB would be damaging.
First, the UK investment landscape is going through a period of uncertainty. Brexit is looming and may make UK infrastructure projects look like less attractive prospects for overseas investors. The GIB could be important if confidence takes a nosedive.
And second, GIB is not all about wind. It backs other emerging sectors too. The UK may now be a world leader in offshore wind thanks in part to the GIB’s support, but we would love to see the bank stick around to invest in new types of technology that the private sector might be too nervous to touch. That could be tidal, storage, grids, green uses for materials like graphene, and so on.
UK offshore wind can survive without the UK Green Investment Bank – but, if a break-up happens, we will lose out on innovation we are not yet aware of. And post-Brexit Britain will need all of the exportable innovations that it can get.
Now let's end with a fact about kangaroos. Like cows, they eat grass and chew it up before spitting it out, and then they finally eat it after chewing it again. Hopefully not an indicator of GIB’s fate.
Wind Watch
Wind Watch is published every Monday and Friday.
In the meantime, have you read our special report, Finance 2017?
If not, do so now. We have interviews with big-hitters including Sandy Reisky, founder and chairman of Apex Clean Energy; and Markus Lesser, who took over as chief executive of German developer PNE Wind last April to lead the firm's new strategy.
We also give our insight on what the rise of far-right parties means for the future of the wind sector in Europe; our take on the timing and impact of interest rate rises; and our Italian banking specialist Ilaria Valtimora reports from her home country on what its looming banking crisis means for the European financial system.
Last but not least, we have a comment piece from Sacha Kamp, head of renewable energy for the EMEA region at Sumitomo Mitsui Banking Corporation, who focuses on the prospects for project finance in the offshore sector in 2017. Check it out now!
Wind industry gets cultural in Hull
Worship the blade! You could argue that, as editor of A Word About Wind, I should take an unhealthy interest in the wind sector – and I do. That is the only explanation for the shrine of wind turbines I keep in the corner of the room. God bless free gifts at industry shows.
But I am not alone. Now people in UK city Hull can make their own pilgrimage to worship at the altar of the mighty blade after German manufacturer Siemens installed one in the city. The idea is to give everyone the chance to bow down and praise clean energy.
Okay, okay… that’s not quite true. Siemens has indeed installed a 75m-long turbine blade in the city’s Queen Victoria Square but the reason is not to be some new religion. It is cultural.
The blade is part of an artwork by Nayan Kulkarni, and is the first installation in the city in its Look Up series. It is part of the celebration of Hull as UK City of Culture 2017. The blade has been mounted on a diagonal slant on specially-constructed supports, which means double-decker buses can still pass under the tip of the blade. It looks like an impressive sight.
Kulkarni chose the blade to celebrate the engineering and manufacturing future of the city, where Siemens opened a factory in November that has created a 1,000 new jobs. And this blade itself is one of the first of hundreds that Siemens is set to produce at the Green Port Hull facility each year for its 7MW and 8MW offshore turbines. It had to be moved three-and-a-half miles from the factory to the city centre at night to minimise disruption.
It is a great idea. It is very hard for landlubbers like us, who rarely venture offshore, to feel a connection with these vast sea-based wind arrays. Putting a blade like this in the heart of the city centre can help to raise awareness of the contribution that wind is making in the UK energy mix, and also raises awareness of the jobs it creates and the investment it brings.
Juergen Maier, chief executive at Siemens UK says the installation would help to make that “engineering and manufacturing excellence… tangible for the people of Hull and visitors to the city”. Anything that seeks to raise awareness of wind gets our vote.
Worship the blade! You could argue that, as editor of A Word About Wind, I should take an unhealthy interest in the wind sector – and I do. That is the only explanation for the shrine of wind turbines I keep in the corner of the room. God bless free gifts at industry shows.
But I am not alone. Now people in UK city Hull can make their own pilgrimage to worship at the altar of the mighty blade after German manufacturer Siemens installed one in the city. The idea is to give everyone the chance to bow down and praise clean energy.
Okay, okay… that’s not quite true. Siemens has indeed installed a 75m-long turbine blade in the city’s Queen Victoria Square but the reason is not to be some new religion. It is cultural.
The blade is part of an artwork by Nayan Kulkarni, and is the first installation in the city in its Look Up series. It is part of the celebration of Hull as UK City of Culture 2017. The blade has been mounted on a diagonal slant on specially-constructed supports, which means double-decker buses can still pass under the tip of the blade. It looks like an impressive sight.
Kulkarni chose the blade to celebrate the engineering and manufacturing future of the city, where Siemens opened a factory in November that has created a 1,000 new jobs. And this blade itself is one of the first of hundreds that Siemens is set to produce at the Green Port Hull facility each year for its 7MW and 8MW offshore turbines. It had to be moved three-and-a-half miles from the factory to the city centre at night to minimise disruption.
It is a great idea. It is very hard for landlubbers like us, who rarely venture offshore, to feel a connection with these vast sea-based wind arrays. Putting a blade like this in the heart of the city centre can help to raise awareness of the contribution that wind is making in the UK energy mix, and also raises awareness of the jobs it creates and the investment it brings.
Juergen Maier, chief executive at Siemens UK says the installation would help to make that “engineering and manufacturing excellence… tangible for the people of Hull and visitors to the city”. Anything that seeks to raise awareness of wind gets our vote.
Our Finance 2017 report is finally out!
Drawing on in-house research and in-depth interviews with key industry figures, this report analyses the potential effects of a number of threats and opportunities for the wind sector across Europe and the US in the next 12 months. We give a particular focus to the political and economic challenges facing the sector over the next twelve months.
While the exact nature of some threats – such as Brexit – is as yet unknown, the report outlines how the sector can best cope in the face of such uncertainty.
For example, in the US this month President Donald Trump is set to become a reality. This time last year, the US wind sector was celebrating an unexpected five-year extension of the production tax credit, which promised to power growth in this sector until 2020 and beyond. Now we are asking where wind power fits into the new world order.
It is a timely question for Europe too. Finance 2017 examines what the rise of right-wing politics across Europe will mean for both national energy policies and the future of the European Union – a significant driver of wind's development across the continent.
In turn, the economic ramifications of this political uncertainty may be keenly felt by those working in wind. While wind has historically benefitted from low interest rates, the report details why these may be about to come to an end – and what this will mean for those with an interest in the sector.
The report includes insights from industry figures who are similarly optimistic. As Sandy Reisky, founder and chairman of US developer Apex Clean Energy, says in the report: “With the favourable cost of energy and compelling value proposition of renewables, we are confident that our industry will continue to grow.”
He further discusses the financial changes facing the sector, and how he became a serial renewables entrepreneur, having previously founded, built and sold Greenlight Energy.
Additional interviews with Markus Lesser, CEO of PNE Wind, and contributions from thought leaders including Sacha Kamp, Head of Renewables for the EMEA region at Sumitomo Mitsui Banking Corporation, provide further insight into what 2017 may have in store for those working in wind worldwide.
Finance 2017 presents a detailed analysis of the strategic threats facing the wind industry as a whole. In addition to our own research, we have scoured the wind world for other views, and the report should therefore prove an invaluable source of intelligence and insight to our members over the next twelve months – which certainly promise to be anything but boring.
For further information, and to obtain a copy of Finance 2017, please visit: http://www.awordaboutwind.com/reports/wind-investment-report-finance-2017/
Economic conditions in Spain are tough, and the opportunities for new wind farms in the country are pretty much non-existent. But they are providing a perfect testbed for a scheme that could help change the idea of wind as destabilising the power grid.
Here’s the history bit. In 1997, the Spanish government introduced a programme to spur growth in renewables, and it succeeded.
By 2007, Spain was the world’s third-largest nation in terms of installed wind capacity, with 15.1GW. It thought it needed this extra capacity as, by 2007, electricity demand in Spain hit 45GW.
All looked bueno. And then it didn’t. Dramatically.
One year later, the global financial crisis hit. This led to a collapse in the Spanish property market and pushed the country’s economy into a deep recession. Spain officially entered recession in 2008 before emerging in 2010 – and then slipping back into recession in 2011, until 2014. This economic turmoil means electricity demand hasn’t exceeded its 2007 level, and there is oversupply.
This has been bad for wind, of course. Spain cut subsidies in 2010, and then in 2014 it retrospectively cut payments for the operators of existing schemes. This has damaged confidence among wind companies and investors, and it is yet to recover. We will have to see who is brave enough to bid in Spain’s upcoming 3GW auction.
But this crisis has also led to creativity. It forced more Spanish firms into emerging markets. The planned acquisition by Siemens of Gamesa is testament to this trend.
And we have seen another example over the Christmas break.
Spanish utility Acciona said on 28 December that it is using wind farms with total capacity of 2GW to provide grid balancing services, as required by grid operator Red Electrica de Espana.
Grid balancing services enable the grid operator to match the supply of electricity with demand, and are conventionally provided by the fossil fuel-based sources, which are not as intermittent as wind and solar. This was the case in Spain too until early 2016.
On 10 February 2016, REE allowed renewables firms to offer these services too – and why not? Spain has a high percentage of renewables in its grid – around 40% – and its utilities are able to provide more clean energy as needed.
Acciona started by providing balancing services from 1GW of its wind farms in Spain, where it has total wind capacity of 4.7GW, and it is now looking to do so from projects of 3.5GW.
Acciona says that the efficiency of prediction software means it has a very good idea of how much power its wind projects will produce at any time, and can therefore help the Spanish grid to run effectively. It controls these wind projects from a central hub.
This approach might mean that Acciona does not run all of its wind farms at their full capacity all of the time, but it sees the benefits when it is able to sell power into the grid for higher rates at short notice when REE needs it. It makes business sense.
So why do we think this important?
For one thing, it means that renewables are sometimes providing 70% of the power required by the Spanish grid without negative impacts. This is a notable milestone as the sector constantly faces questions of how much wind is too much.
It also shows wind farms can play an important role in solving issues of grid stability, rather than cause them. Acciona is making a case that wind companies do not always need their fossil fuel counterparts in the background, ready to ride to the rescue.
There are caveats. This is only one case study and Spain is in many ways unique. It went big on renewables thanks to strident politicians, and experienced a deep crash from which it has not recovered. But it still shows how wind is a key part of the mix.
And every technological shift needs its trailblazers.
Wind Watch
By Richard Heap
Economic conditions in Spain are tough, and the opportunities for new wind farms in the country are pretty much non-existent. But they are providing a perfect testbed for a scheme that could help change the idea of wind as destabilising the power grid.
Here’s the history bit. In 1997, the Spanish government introduced a programme to spur growth in renewables, and it succeeded.
By 2007, Spain was the world’s third-largest nation in terms of installed wind capacity, with 15.1GW. It thought it needed this extra capacity as, by 2007, electricity demand in Spain hit 45GW.
All looked bueno. And then it didn’t. Dramatically.
One year later, the global financial crisis hit. This led to a collapse in the Spanish property market and pushed the country’s economy into a deep recession. Spain officially entered recession in 2008 before emerging in 2010 – and then slipping back into recession in 2011, until 2014. This economic turmoil means electricity demand hasn’t exceeded its 2007 level, and there is oversupply.
This has been bad for wind, of course. Spain cut subsidies in 2010, and then in 2014 it retrospectively cut payments for the operators of existing schemes. This has damaged confidence among wind companies and investors, and it is yet to recover. We will have to see who is brave enough to bid in Spain’s upcoming 3GW auction.
But this crisis has also led to creativity. It forced more Spanish firms into emerging markets. The planned acquisition by Siemens of Gamesa is testament to this trend.
And we have seen another example over the Christmas break.
Spanish utility Acciona said on 28 December that it is using wind farms with total capacity of 2GW to provide grid balancing services, as required by grid operator Red Electrica de Espana.
Grid balancing services enable the grid operator to match the supply of electricity with demand, and are conventionally provided by the fossil fuel-based sources, which are not as intermittent as wind and solar. This was the case in Spain too until early 2016.
On 10 February 2016, REE allowed renewables firms to offer these services too – and why not? Spain has a high percentage of renewables in its grid – around 40% – and its utilities are able to provide more clean energy as needed.
Acciona started by providing balancing services from 1GW of its wind farms in Spain, where it has total wind capacity of 4.7GW, and it is now looking to do so from projects of 3.5GW.
Acciona says that the efficiency of prediction software means it has a very good idea of how much power its wind projects will produce at any time, and can therefore help the Spanish grid to run effectively. It controls these wind projects from a central hub.
This approach might mean that Acciona does not run all of its wind farms at their full capacity all of the time, but it sees the benefits when it is able to sell power into the grid for higher rates at short notice when REE needs it. It makes business sense.
So why do we think this important?
For one thing, it means that renewables are sometimes providing 70% of the power required by the Spanish grid without negative impacts. This is a notable milestone as the sector constantly faces questions of how much wind is too much.
It also shows wind farms can play an important role in solving issues of grid stability, rather than cause them. Acciona is making
a case that wind companies do not always need their fossil fuel counterparts in the background, ready to ride to the rescue.
There are caveats. This is only one case study and Spain is in many ways unique. It went big on renewables thanks to strident politicians, and experienced a deep crash from which it has not recovered. But it still shows how wind is a key part of the mix.
And every technological shift needs its trailblazers.
We published our top ten predictions for 2017 on Monday. If you only got back to the office in the last few days, lucky you – and we suggest you read the piece now!
It is natural with these articles that some of the predictions come easily, while others will keep us awake at night for the next year. That could be a sign that we take it a bit too seriously.
And there is one of our predictions that we expect to be particularly worrisome in the coming 12 months. That is our prediction that the UK Government’s hostility to wind farms may start to thaw a little this year. It does not tally with the evidence we see today.
First, the Renewables Obligation support regime for onshore wind is due to end on 31 March, and we see little evidence that Prime Minister Theresa May and co. are planning to replace it. We have seen some firms call for a new support regime, but it is more likely there will be no public financial support for onshore wind from April.
Second, the planning system is still a big hurdle. The Government says that local councils can allow wind farms on sites designated in their local plans but, as of last summer, around 60% of councils did not have these plans. Planners also need to be happy that projects have community support, which opens the door for protestors.
The result is that annual investment in UK renewables is set to fall by 95% between 2017 and 2020, according to think tank Green Alliance UK. It’s all very gloomy.
So why have we made a positive prediction?
The first reason is simple: things are so bad politically that surely the only way is up. It has to be if the UK is to meet its policy goals.
The UK Government has committed to decarbonising the UK economy in the lowest carbon way possible. Guess what: the Department of Business, Energy & Industrial Strategy published research in November that showed onshore wind has the lowest levelised cost of energy compared to all forms of new electricity generation. It is true now and right through to 2030. If the government is serious wind must have a role.
Then again, May still needs to keep hostile Conservative colleagues on side as she starts Brexit negotiations. Continued hostility to wind could keep some of them happy.
The second reason that things might be looking up is because of businesses. We have watched the growth of corporate power purchase agreements in the US over the last four years, and see that similar models could work in the UK. This could help support any wind developments without taxpayer money, if they can get planning consent.
Again, that’s a big ‘if’ – but at least the UK’s energy minister understands planning. Greg Clark became secretary of state at BEIS after the Brexit vote last June and, in a previous role, he was the mastermind of the Cameron government's short-lived localism agenda that sought to return planning powers to local people.
Now, that policy gave vocal locals more power to object to schemes that they don’t like such as – ooh, let me think – wind farms. In wind, Clark should be a pariah.
But he has also suggested he is more open to onshore wind than his predecessors. He said in a speech to Energy UK in Novemberthat fears about the intermittency of wind farms is “overblown”; and that the government needed to use “every industrial policy we have” to decarbonise the economy and hit climate change targets.
That suggests to us that not only is there a little more political support there, but also that Clark has the nous to address some of the issues with the planning system if he wanted.
Since winning an outright majority in the 2015 general election, it is fair to say that the UK’s Conservative Party has not just been cool about onshore wind, it has been glacial. But if Clark can translate his words into actions then there should be a role for onshore wind in any future UK industrial strategy.
Is that a glimmer of hope? Or just the remnants of the Christmas tinsel? We will know next time the Christmas tree goes up.
Wind Watch
Wind Watch is published every Monday and Friday.
In the meantime, let's look ahead to some key dates this month. We're planning to start the year with a bang, and build from there!
On Tuesday, we are set to publish our special report Finance 2017, on some of the big trends that are set to shape wind over the next 12 months. You won't want to miss that, and we still have a couple of slots left for advertisers if you're quick. Get in touch now.
If you can't wait for that, you should read Monday's Wind Watch on our top ten predictions for wind in 2017. Simply log in to the website now, have a read and then let us know what you think.
And we are still looking for nominations for our Women's Power List, which we are due to publish in March alongside International Women's Day. We are closing to nominations at the end of this month. Email today if you'd like to nominate or know more.
They’ve gone! We’ve shut out the relatives; hidden the noisiest toys; and eaten the last shards of the chocolate mountain. Yes, the festive period is now officially over, and it is time to get back to business.
And, after a rollercoaster 2016, we fully expect more thrills and spills in 2017. But what exactly? Here are our top ten predictions for the trends and stories we expect to shape wind this year.
1. US wind to defy Trump: The election of a wind-hating climate change denier as US president will raise the industry’s anxiety levels, but we expect US wind to stay strong in 2017 despite Donald Trump. Wind still makes financial sense – though the Clean Power Plan, Environmental Protection Agency and production tax credit could all be watered down. It will certainly make compelling viewing.
2. China gets tough as crisis deepens: The Chinese slowdown will worsen in 2017 and exacerbate government fears of energy oversupply. China’s leaders have already moved to rein in approvals for coal-fired power stations, and we expect tougher restrictions to follow for the wind sector. The upshot is set to be lower levels of installations and investment in the sector globally this year.
3. Italy and France to unsettle Europe: The UK is set to launch the process to leave the European Union in March, but Brexit will not be the most unsettling issue for Europe this year. The Italian banking crisis will raise tough questions about the future of euro; and the rise of right-wing parties in France could also help re-shape Europe. Both are set to act as a drag on European growth.
4. Central banks stay cautious: Central banks in the UK, US and Europe have kept rates at historic lows for almost a decade, which has helped developers to keep their capital costs low; and makes wind farms look like better investments than government bonds. The US Federal Reserve has started to raise rates and the Bank of England might too, but caution is still the watchword.
5. Consolidation across the supply chain: Siemens is due to carry Gamesa over the threshold in March, and we could well see another big manufacturer marriage in 2017: Enercon, Envision and Senvion are all worth watching. We also expect to see more M&A across the supply chain as manufacturers seek to buy specialists that can help them to improve their machines and cut costs.
6. UK to soften anti-wind stance: We will not see UK prime minister Theresa May perform a major U-turn on her government’s hostility to onshore wind: the Renewables Obligation will disappear
and businesses will find life tough. But the approach of new energy secretary Greg Clark looks set to be less belligerent than his predecessors; and cost-cutting should bolster support for offshore.
7. Germany auction upheaval: Forget Germany’s elections. Those in wind will keep an even closer eye on its new competitive auctions for the sector. There is little sign that its leaders have learnt the lessons of its solar auctions, which achieved record low prices but at levels that made it difficult for developers to actually build schemes and left a supply gap. What’s German for ‘déjà vu’?
8. Offshore cost cuts slow: Dong, Shell and Vattenfall led on cost-cutting in offshore wind in 2016 as they won tenders at record low prices. The pace of these reductions will slow in 2017 as the industry adjusts to levels set at Borssele and Kriegers Flak. This is beneficial for cash-rich utilities who do not need to raise external finance for projects, but the fact a consortium won the Borssele 3 & 4 tender last month shows project financiers can still play a role.
9. Wind awakens to large solar: Onshore wind is the cheapest new source of electricity generation in some parts of the world, and solar is claiming the title in other parts. Auction-based tenders mean that wind is going head-to-head with solar in more parts of the world, and we expect a few wind developers and investors to wake up to the opportunity this presents for diversification.
10. Africa leads emerging markets: The 310MW Lake Turkana in Kenya is due to complete this year and, if successful, will reinforce in the minds of investors that there are opportunities across Africa. We expect more action in Ethiopia, Ghana and Kenya, as well in the established wind markets of Morocco and South Africa. The exception is Egypt, where investors want more protection.
Have we missed something? Let us know. We will look back at the end of 2017 to see if we were right, and you can read more analysis on the next 12 months in our Finance 2017 report, out next week.
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Wind Watch
By Richard Heap
They’ve gone! We’ve shut out the relatives; hidden the noisiest toys; and eaten the last shards of the chocolate mountain. Yes, the festive period is now officially over, and it is time to get back to business.
And, after a rollercoaster 2016, we fully expect more thrills and spills in 2017. But what exactly? Here are our top ten predictions for the trends and stories we expect to shape wind this year.
1. US wind to defy Trump: The election of a wind-hating climate change denier as US president will raise the industry’s anxiety levels, but we expect US wind to stay strong in 2017 despite Donald Trump. Wind still makes financial sense – though the Clean Power Plan, Environmental Protection Agency and production tax credit could all be watered down. It will certainly make compelling viewing.
2. China gets tough as crisis deepens: The Chinese slowdown will worsen in 2017 and exacerbate government fears of energy oversupply. China’s leaders have already moved to rein in approvals for coal-fired power stations, and we expect tougher restrictions to follow for the wind sector. The upshot is set to be lower levels of installations and investment in the sector globally this year.
3. Italy and France to unsettle Europe: The UK is set to launch the process to leave the European Union in March, but Brexit will not be the most unsettling issue for Europe this year. The Italian banking crisis will raise tough questions about the future of euro; and the rise of right-wing parties in France could also help re-shape Europe. Both are set to act as a drag on European growth.
4. Central banks stay cautious: Central banks in the UK, US and Europe have kept rates at historic lows for almost a decade, which has helped developers to keep their capital costs low; and makes wind farms look like better investments than government bonds. The US Federal Reserve has started to raise rates and the Bank of England might too, but caution is still the watchword.
5. Consolidation across the supply chain: Siemens is due to carry Gamesa over the threshold in March, and we could well see another big manufacturer marriage in 2017: Enercon, Envision and Senvion are all worth watching. We also expect to see more M&A across the supply chain as manufacturers seek to buy specialists that can help them to improve their machines and cut costs.
6. UK to soften anti-wind stance: We will not see UK prime minister Theresa May perform a major U-turn on her government’s hostility to onshore wind: the Renewables Obligation will disappear
and businesses will find life tough. But the approach of new energy secretary Greg Clark looks set to be less belligerent than his predecessors; and cost-cutting should bolster support for offshore.
7. Germany auction upheaval: Forget Germany’s elections. Those in wind will keep an even closer eye on its new competitive auctions for the sector. There is little sign that its leaders have learnt the lessons of its solar auctions, which achieved record low prices but at levels that made it difficult for developers to actually build schemes and left a supply gap. What’s German for ‘déjà vu’?
8. Offshore cost cuts slow: Dong, Shell and Vattenfall led on cost-cutting in offshore wind in 2016 as they won tenders at record low prices. The pace of these reductions will slow in 2017 as the industry adjusts to levels set at Borssele and Kriegers Flak. This is beneficial for cash-rich utilities who do not need to raise external finance for projects, but the fact a consortium won the Borssele 3 & 4 tender last month shows project financiers can still play a role.
9. Wind awakens to large solar: Onshore wind is the cheapest new source of electricity generation in some parts of the world, and solar is claiming the title in other parts. Auction-based tenders mean that wind is going head-to-head with solar in more parts of the world, and we expect a few wind developers and investors to wake up to the opportunity this presents for diversification.
10. Africa leads emerging markets: The 310MW Lake Turkana in Kenya is due to complete this year and, if successful, will reinforce in the minds of investors that there are opportunities across Africa. We expect more action in Ethiopia, Ghana and Kenya, as well in the established wind markets of Morocco and South Africa. The exception is Egypt, where investors want more protection.
Have we missed something? Let us know. We will look back at the end of 2017 to see if we were right, and you can read more analysis on the next 12 months in our Finance 2017 report, out next week.
In our first Wind Watch of 2016 we made ten predictions on the stories and trends we expected to shape the wind sector this year. How accurate was our crystal ball? Let's rank ourselves out of ten.
- Chinese slowdown but no disaster: Correct. We have seen a slowdown in the Chinese economy, which is stifling growth in demand for electricity and is forcing China's leaders to rein in wind development plans. But turbulence in its stock market has not yet sparked a global contagion.
- Oil to stay below $50 a barrel: Oil prices have crept up in 2016, from $40 a barrel at the start of the year, but stayed under $50 a barrel for most of the year because of Saudi Arabia’s refusal to cut production. It went over this last month after a deal with Opec – but we’re claiming the point!
- New global brands to sign wind PPAs: We have seen giants like Amazon, Facebook, General Motors and Google keep signing major power purchase deals with wind farms in 2016. They have been joined this year by firms including 3M, Johnson & Johnson and Target. One more for us.
- Brexit risk unsettles EU but no vote yet: Hands up! We got this one wrong – but we weren’t totally off the mark. We said former UK prime minister David Cameron would not hold a referendum on membership of the European Union during 2016 because he would fail to win major concessions from the EU. We were right on that failure, but he called the referendum anyway, and you know the rest.
- Increased activity in North America: The surprise five-year extension of the US wind production tax credit in late 2015 has been a big shot in the arm for the sector; while Canada’s Justin Trudeau agreed new clean energy targets for 2025 with Barack Obama. But how much will survive under President Trump?
- Senvion future to lead takeover talk: Only half a point. Takeovers were a major talking point in 2016, but Senvion’s IPO in March did not end up being hugely exciting. Our pick of the M&A deals are the planned wind merger by Siemens and Gamesa; and GE’s €1.5bn acquisition of LM Wind Power. Both are due to complete in 2017 – and both larger than Nordex’s €785m Acciona deal.
- Confidence erodes in UK offshore: It has been a game of two halves – and only half a point again. The Brexit referendum sowed uncertainty in the first half of 2016 but, in the months since, the UK has committed to new support for offshore wind in its Contracts for Difference regime; and cost-cutting in new projects in Danish and Dutch waters give good hope for the sector’s longer-term prospects.
- Listed US yieldcos go conservative: Things could hardly have gone worse for US listed yieldcos after a tough second half of 2015, but we are seeing the likes of NextEra, NRG and Pattern Energy leading a small recovery. The collapse of SunEdison will serve as a warning to others to stay conservative.
- Wind will prevail in Latin America: We expected demand for wind to stay strong in Latin America in 2016, and tenders in Argentina, Chile and Uruguay show that governments in the region are still positive on wind. We lose half a mark for singling out the ailing Brazil as a resilient market. Whoops.
- Battery storage pioneers take shape: Battery storage is crucial. We know that because we hear it at every event we go to! And the likes of EDF, General Electric, Invenergy, NextEra and RES Group are among those who want to take a leadership position – but we want more projects.
So the results are in and we make it… 7.5/10. We’ll be aiming to beat that when we give our predictions for 2017 in the first Wind Watch of the new year, on 2nd January.
Have a great festive period. We look forward to catching up in the new year – and helping your business thrive in a turbulent 2017.
Wind Watch
Wind Watch is published every Monday and Friday.
In the meantime, have you checked out the latest posts on our blog? If not, you should. This is where we put the analysis that we can't fit in our newsletters and special reports.
Have you got a pencil and paper? Yes, a pen will do. Now make a note of this number: 2.8GW. It is going to be significant.
Next month, Germany is set to overhaul how it procures wind power. It will ditch feed-in tariffs set by central government and move to competitive auctions. It is looking to award support for 2.8GW support of onshore wind projects via auctions next year, starting in mid-2017; and 1.6GW in an offshore auction on 1 March.
The idea is to drive down the cost of wind power and curtail subsidy payments. This makes sense. It is the right approach, we support it – and it could be a huge failure.
Here is why. Competitive auctions have the potential to drive companies across the supply chain to be more efficient. They help to drive down the levelised cost of wind energy, which is crucial if the sector is to keep enjoying support from politicians and the public, and therefore keep growing. That is good and necessary.
The drive for efficiency will open up business opportunities for inventive manufacturers and development partners. It will put some firms under pressure too but, hey, that’s the way of the world. Wind is a business, so we can have little complaint about that either.
The problem here is that Germany has operated a similar system for solar over the last two years and it has caused disruption that has undermined a once-booming sector.
More than 7GW of solar capacity was added to the German system in 2012, 3GW in 2013 and 2GW in 2014. This shows German solar was on a downward trend before the new rules came into force in 2015. However, since then, things have got even worse.
Of the 300MW of solar capacity tendered in the first two auctions in April and August 2015, only 26% of that had been commissioned by the middle of July 2016. The proportion of finished schemes will be higher now, but it does not hide the problems with the system.
We see the makings of these issues in some figures that initially look impressive. In the first of the six auctions held so far, Germany tendered new solar schemes at an average price of €91.70/MWh. This fell to €72.30/MWh in the fifth auction, in August 2016, and then again to €69/MWh in the sixth auction that completed last month. The German government is achieving its intended cuts.
But it comes at a cost. These cuts have forced developers to be competitive, but the system rewards those who have bid most aggressively. Some of those winning bidders are now finding it hard to complete their projects, which is leading to shortfalls in the amount of solar capacity that is actually commissioned.
Those are some of the key issues that have come up in the first two years of solar auctions, which was meant to be a ‘pilot’ project. But we see little evidence that they have been addressed, or that they have forced the government to change its approach. What is the point of a pilot that shows up problems that then go unaddressed?
The other element for wind developers to be aware of is the high number of losing bids – between 62% and 81% in the solar auction rounds – which means that there is a big risk that developers and investors will spend time and money entering the auction process before coming away with nothing to show for it.
The principle of the auctions is right, but there is a serious risk that Germany could fall well short of the target 2.8GW. We hope we are wrong and believe in the professionalism of German wind firms.
Even so, the sometimes frenzied nature of these auctions will mean some companies end up being hit by ‘bid fever’ and end up winning the auction at prices they will struggle to deliver.
In that case even the auction winners can end up as losers.
There are few similarities between China and the Republic of Ireland. However, the Asian superpower is becoming an increasingly important trading partner for the Irish.
Exports from Ireland to China have doubled over the last five years to almost €8bn a year, while people in China have embraced many Irish clichés: Riverdance, themed pubs and ageing boy bands. An estimated 40,000 Chinese tourists visit Ireland each year.
The relationship between the pair may come under some strain because of negative headlines in the Irish press about human and animal rights in China. But Ireland will be keen to ensure that economic cooperation with the superpower keeps thriving.
And that is why a recent deal in the wind sector in Ireland is significant outside the energy sector.
Last week, CGN Europe Energy, the renewable energy investment arm of China General Nuclear Power group, finalised the purchase of ten operational wind farms and four development projects from Irish developer Gaelectric. Under this deal, Dublin-headquartered Gaelectric will sell 230MW of wind projects on the island of Ireland to CGN. No transaction fee has been disclosed, but the schemes are estimated to have an equity value of up to €350m.
Seven wind farms are located in Northern Ireland and seven in the the Republic, but the deal is significant because it does start to establish a relationship between CGN and Gaelectric; and gives China a stake in the nation’s electricity sector.
Gaelectric is set to provide asset management and power-offtake services to CGN for all the 14 wind farms after their sale. The pair will have to work together on these assets.
China’s interest in Ireland is also relevant given how often we are seeing Chinese firms seeking deals outside of their home market.
The country's economic slowdown has undoubtedly played a big role in the investment decisions made by Chinese firms. Bejing is fighting to prevent a massive escape of capital from China, after the market turmoil the country experienced in the summer of 2015, when the Shangai Stock Exchange lost a third of its value within a month. And the situation looks still far from improving, as just in the first 10 months of 2016, capital outflows from China rose to $530bn.
In that context, we can see why CGN would want to buy assets with a reliable long-term cashflow while outsourcing the management to Gaelectric. It gets returns without having to manage the projects.
The deal also tells us some interesting things about Gaelectric’s strategy. At first, it could look counterintuitive when considering the firm’s overarching strategy. Last year, the company announced its intention to hit a 400MW target of operational wind farms by 2017 and it is now selling 230MW of its 320MW capacity. Surely that puts it back to 90MW with only 12 months to hit its target?
But Gaelectric chief executive Barry Gavin says this is not the case. He says that selling these 230MW of assets would actually enable it to hit its 400MW target more quickly, and by the end of next year. Selling these projects means that the company can pay down debt, supporting the group’s balance sheet, and helps it to recycle cash in order to quicker hit its target with new deals or acquisitions.
We might well see Chinese companies get more involved in such deals in the year to come.
The International Monetary Fund has forecast that growth in China's GDP will further slow, to 6.2% in 2017, from the 6.6% expected to be achieved by the end of 2016. It is reasonable then to expect more capital flows and key investments from Chinese companies in the coming months.
Politicians in the Republic of Ireland will hope their country can take advantage by deepening the pair’s current bonds.
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In the meantime, have you heard about our new special report, which is coming out on 7th March? We need your help.
In honour of next year’s International Women’s Day, we are set to publish our Women’s Power List. In this special report, we will celebrate the contribution of women to the continued growth and success of the wind industry around the world.
Who do you think we should we include? Nominations are now open, and you can get in touch with the editor directly by the end of January and tell us about women that:
- Carry the greatest influence within the industry or their part of it.
- Conclude the biggest deals and investments.
- Lead the biggest and most successful businesses and organisations in wind.
- Demonstrate that they are the industry’s leaders of tomorrow.
If you know someone that fits the bill, then please email editorial@awordaboutwind.com and provide a brief overview of why we should include them. Just give us the hard facts in no more than 300 words and our team will consider them for the shortlist to be put in front of our panel of judges in early 2017.