Taiwan’s offshore market has always struck us as something of a curiosity. We are well aware that firms have been setting up offices on the Asian island to establish a place in Asia’s nascent offshore market. But, as yet, the market has not taken off.
Often it takes one project to get people to take a market seriously. In the US, it was the 468MW Cape Wind that established the country as having major offshore plans. Cape Wind may not have happened, but it still boosted the industry’s credibility.
And it looks like Taiwan is now reaching that point.
Last week, Canadian developer Northland Power and Singaporean firm Enterprize Energy’s subsidiary Yushan Energy announced they have formed a 60:40 joint venture to develop an up-to-1GW wind farm in the Taiwan Strait. Both companies have track records of offshore wind farm development, and applying that in Taiwan could give Asia a significant boost.
Northland and Enterprize are not alone. Dong Energy set up an office in Taiwan in August, and wants to help the government deliver 4GW of offshore wind farms by 2030 as well as gain a foothold in the Asia-Pacific offshore market. It has not committed to specific projects but we expect to hear more in the next year.
Meanwhile, Taiwanese state-owned utility Taipower is planning to install 1.8GW of offshore capacity in the next 15 years; and Formosa Wind Energy, part of manufacturing company Swancor, has started offshore construction on the 8MW two-turbine first phase of the 128MW Formosa 1 development in the Taiwan Strait.
Formosa is set to miss a deadline to complete this first phase by the end of 2016, and the developer is now seeking a new contractor after problems with A2SEA. It may be a disappointing delay, but we do not see it as a huge crisis. Formosa is not the first firm to struggle as it seeks to help establish a new offshore market.
The developer plans to complete the 32-turbine 120MW second phase by the end of 2019, but has not said whether problems on the first phase would delay these plans.
But the story here is still largely positive: developers are moving in – and investors are too.
This week, Macquarie Capital agreed a deal with the government to invest $790m in the country’s offshore wind sector over the next three years. We are sure that the Japanese investors who have been completing deals in offshore wind farms in European waters in recent years will be eyeing Taiwan with great interest.
When you take all of these stories together it means that Taiwan has a fast-growing pool of experienced developers, investors and advisers. This gives us great hope.
And this means that companies through the supply chain with offshore experience should see how they can get involved. Taiwan’s offshore sector does not yet have an established supply chain, which is understandable given that there is only one small project being built, but there is an opportunity to work with established developers.
Smaller firms should also not be put off by the fact they have larger competitors. The problems at Formosa show that even large contractors can struggle in a new market, and Taiwan still represents a great opportunity for those looking to grow in Asia.
We are also intrigued to see which manufacturers take the lead in Taiwan, and thus in the Asian offshore market more widely. It should give Chinese firms the chance to further establish their offshore credentials on developments close to home.
But they will find stiff competition from established firms, and notably MHI Vestas, which has made great strides in Europe and is half-owned by Japan’s Mitsubishi Heavy Industries.
We fully expect MHI Vestas to seek to take the expertise it is gaining in Europe and apply it to Taiwan. There is a chance for other firms in the supply chain to do so too.
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Wind Watch
Wind Watch is published every Monday and Friday.
In the meantime, we are currently putting the finishing touches to our fifth annual Top 100 Power People report, which we are due to publish next Tuesday (8th November). This is our rundown of the 100 most influential power-brokers and deal-makers in global wind, and it is free to all of our members and subscribers.
And this year's Top 100 contains more vital market analysis than ever before, as we have interviews with two industry big-hitters: Samuel Leupold, head of wind at Dong Energy, who has played a key role in driving down the cost of offshore wind energy over the last year; and Ian Mays, former chief executive at RES Group, a bona fide wind industry star who gives his views on where the wind market and RES are going following his retirement last month.
Both big names with key insights. You won't want to miss this!
Wind braced for US election result
Just one week to go. Next week, we will find out to whom Barack Obama will pass the US presidency: Donald Trump or Hillary Clinton?
The decision that the American people take on 8 November will have major consequences for the energy sector. The next president will have to decide whether to honour the Paris climate change agreement, and take a stance on issues including the coal industry, controversial pipelines and renewables including wind.
And the two candidates have completely different opinions.
Clinton has pledged that, under her leadership, the US would be able to generate enough renewable energy to power every home in America within ten years. Trump would rather rescind the Clean Power Plan, cancel the 2015 Paris climate change agreement and stop US money going to UN global warming programs.
On that basis, we have to say that the wind industry’s future looks brighter under Clinton – but, with this week’s intervention by the FBI, it will be a close call and the world could easily be heading into 2017 with a President Trump.
Yet despite this political uncertainty, the US wind sector looks very promising.
Wind’s share of total US electricity generation has risen every year since 2001, reaching 4.7% of net electric power generation in 2015, a recent study released by the US Energy Information Administration has shown. Wind’s generation share almost doubled since 2010, when it was just 2.3%. Monthly data through July also revealed that wind has provided 5.6% of US generation so far in 2016.
And that figure looks set to grow even further.
According to a quarterly report by the American Wind Energy Association published in October, the size of projects under construction rose almost to record levels in the third quarter this year. There is now 13.6GW of capacity under construction, and at least one-third of this power is being bought by non-utility buyers including Johnson & Johnson, Amazon and Target, which shows the increasing interest in the sector from corporate buyers who want energy security and guaranteed power prices.
Overall, the US wind industry had capacity totalling 74GW at the end of 2015, and this is set to exceed 100GW by 2018. Falling costs of wind power and the extension of the expiration day of the federal renewable electricity production tax credit will both play key roles in this growth.
Companies will play a vital role here, but we should not ignore the fact that support of the government might be essential then to keep sustained the growth of the sector, especially now that an increasing number of investors got their eyes on it.
Will that support be there? That is in the hands of President Clinton or President Trump.
Just one week to go. Next week, we will find out to whom Barack Obama will pass the US presidency: Donald Trump or Hillary Clinton?
The decision that the American people take on 8 November will have major consequences for the energy sector. The next president will have to decide whether to honour the Paris climate change agreement, and take a stance on issues including the coal industry, controversial pipelines and renewables including wind.
And the two candidates have completely different opinions.
Clinton has pledged that, under her leadership, the US would be able to generate enough renewable energy to power every home in America within ten years. Trump would rather rescind the Clean Power Plan, cancel the 2015 Paris climate change agreement and stop US money going to UN global warming programs.
On that basis, we have to say that the wind industry’s future looks brighter under Clinton – but, with this week’s intervention by the FBI, it will be a close call and the world could easily be heading into 2017 with a President Trump.
Yet despite this political uncertainty, the US wind sector looks very promising.
Wind’s share of total US electricity generation has risen every year since 2001, reaching 4.7% of net electric power generation in 2015, a recent study released by the US Energy Information Administration has shown. Wind’s generation share almost doubled since 2010, when it was just 2.3%. Monthly data through July also revealed that wind has provided 5.6% of US generation so far in 2016.
And that figure looks set to grow even further.
According to a quarterly report by the American Wind Energy Association published in October, the size of projects under construction rose almost to record levels in the third quarter this year. There is now 13.6GW of capacity under construction, and at least one-third of this power is being bought by non-utility buyers including Johnson & Johnson, Amazon and Target, which shows the increasing interest in the sector from corporate buyers who want energy security and guaranteed power prices.
Overall, the US wind industry had capacity totalling 74GW at the end of 2015, and this is set to exceed 100GW by 2018. Falling costs of wind power and the extension of the expiration day of the federal renewable electricity production tax credit will both play key roles in this growth.
Companies will play a vital role here, but we should not ignore the fact that support of the government might be essential then to keep sustained the growth of the sector, especially now that an increasing number of investors got their eyes on it.
Will that support be there? That is in the hands of President Clinton or President Trump.
Brexit will have little impact on growth in the global wind sector, and even the impact on UK wind is likely to be limited. That was the verdict of three industry experts in the opening session of our Financing Wind 2016 conference in London last Thursday.
This discussion focused on the major financing issues and trends that are affecting onshore and offshore wind in established markets in Europe and North America. The move to competitive auctions for feed-in tariffs and M&A activity throughout the supply chain are both set to have a bigger impact on the wind sector than Brexit.
Wolfgang Bischoff, head of global equity in the energy finance division at Siemens Financial Services, said that growth in the wind sector was dependent on the energy strategies of individual nations and global agreements like the Paris climate change deal. Brexit is unlikely to have much of an impact on either of these.
“My view is that energy policy to a large extent continues to be national policy. That means every country for themselves, so I don’t see Brexit having a big impact on renewables strategies and policies in continental Europe,” he said.
The change of government in the UK following the Brexit vote in June has delayed plans for a planned auction of support for new wind farms under the Contracts for Difference regime.
The auction, originally planned for the fourth quarter of 2016, has been delayed until 2017; and the government is likely to be sensitive about when it starts the process after criticism from the National Audit Office over high subsidies for offshore wind.
Boris Balan, vice president of Europe at Northland Power, said Brexit could make it more difficult for UK firms looking to do deals in the European Union; or firms from the EU investing in the UK. Only post-Brexit trade deals can give clarity here.
But Balan said that competitive auctions would have a far bigger impact on firms across the supply chain, both in onshore and offshore wind. He said that auctions were set to squeeze profit margins on new developments and that, in response, companies across the supply chain needed to find ways to provide their products and services more cheaply. He added this could make it tougher for smaller firms to compete.
“It has happened very quickly, but the trend is clear. Companies in the supply chain have been tightening their belts,” he said.
Bischoff said competitive auctions were a good thing overall because they help to drive down the levelised cost of energy from offshore wind farms, but also increased the risks for developers in the sector: “Today, you have to invest a lot of money to get the project going… and then enter a very aggressive lottery.”
Dominik Thumfart, managing director of infrastructure and equity in the debt capital markets team at Deutsche Bank, said he expected competitive auctions to lead to more consolidation in the sector. Manufacturers and utilities are seeking to drive down the costs of their products and projects respectively, and acquisitions can help both to leverage economies of scale to reach those goals.
And Thumfart spoke more widely about the market too.
He added that banks would continue to be important financiers of new wind projects because many of the institutional investors that have entered the sector would not be comfortable evaluating or taking construction risks.
And historic low interest rates should reinforce the status of stable cash-generating assets like wind farms as attractive investment projects, and thus help to support the flow of money into the sector.
If Brexit uncertainty forces the Bank of England and European Central Bank to keep interest rates low then this should also support that wind needs to maintain its growth. We would never write off Brexit as an irrelevance for wind, of course.
But, for now, it looks like there would be good as well as bad.
The latest edition of the Renewable Energy Country Attractiveness Index, released this week by consultancy Ernst & Young, has buoyed countries across Europe.
It reported that nations including France, Belgium, Sweden, Ireland, Norway and Finland became more attractive investment prospects for investors in renewables including wind farms in the last six months.
But there is one exception in this European love-in: the UK, which fell to 14th position, its lowest in these tables since they were launched in 2003. In one sense, the news that the UK slipped is unsurprising, given the uncertainty surrounding every sector in the economy following the UK people's decision in June to leave the European Union.
The report highlights a few specific political decisions that have contributed to the worsening of UK’s ranking position. The government led by Theresa May (above) gave Hinkley Point C nuclear power station the green light in September, which reinforces the impression that her government is sidelining renewables.
This followed the shutdown of the Department of Energy & Climate Change in July to create a new Department for Business, Energy and Industrial Strategy. According to the report, these moves have affected UK’s attractiveness to renewable energy investors.
The UK has still great potential in offshore wind, illustrated by the recent approval of the 1.8GW Hornsea Project 2, which might become the world’s largest offshore wind farm. However, the RECAI report emphasises an uncertain future for the renewables in the UK as May’s government is due to start negotiating UK’s future relationship with the EU.
It is indeed true that the UK will face many challenges once Article 50 is triggered, which is due to happen in March 2017. In the wind sector, these challenges will take various shapes — and one of these is taking shape before our eyes.
Since the UK voted to leave the European Union, the pound has lost almost 15% of its value against the Euro. Pound devaluation might help UK exporters, but it also makes it more expensive for UK-based manufacturers to import products from the EU.
In addition, much of project capital expenditure, especially offshore, is in Euros: this might increase the currency risk and, therefore, uncertainty as electricity from UK projects is sold in pounds. Post-Brexit political and economic uncertainties could challenge the wind sector and affect its attractiveness to investors even further in the next year.
Will the UK address any of these uncertainties and grow investor confidence again? We hope so, and we will look out for the next edition of RECAI in 2017 to find out.
How can South Africa grow total wind capacity from 1GW now to 30GW by 2030?
That is the main question that those at the South African Wind Energy Association (SAWEA) and Global Wind Energy Council’s WindABA conference in Cape Town next week will be seeking to answer. And, according to new research, such an ambitious goal should be within reach. Wind and solar plants can be built in South Africa at nearly half the cost of new coal, a report by the Centre for Scientific & Industrial Research has shown this month.
The report, which analyses the costs of different forms of new power generation in South Africa, showed that solar and wind are on par on with each other – and are over 40% cheaper than new base load coal plants. Solar and wind are at 0.62 rand/kWh ($0.04/kWh) with coal at 1.03 rand/kWh ($0.07/kWh).
This shows the great potential for South Africa to take advantage of its naturally sunny and windy conditions to address its shortage of power. Indeed, the country is in need of new capacity to satisfy the demands of its growing population and economy.
Such favourable conditions should help attract more investors to South Africa. The country has attracted renewable energy investors, both local and overseas, because of its Renewable Energy Independent Power Producer Procurement Program (REIPPPP). The REIPPPP has encouraged investment by offering developers power purchase deals with state-owned utility Eskom.
However, that is where the picture turns less rosy.
South Africa still needs to fight against domestic problems that could put hurdles in the way of the achievement of its ambitious wind energy target – and the most high-profile at present is Eskom.
Last week, SAWEA lodged an official complaint with the National Energy Regular of South Africa as it argues that state-owned utility Eskom is failing to comply with laws in the country’s Electricity Regulation Act because it is refusing to sign any further power purchase agreements with renewable energy producers.
According to SAWEA, Eskom is not entering into PPAs with preferred bidders, chosen by the government under the REIPPPP, in order to favour its own investment in new power plants.
Eskom has responded to the accusations by saying that it only refused to sign one wind deal, and that was because it was very expensive and would have cost the company around $4bn over the next 20 years. Eskom spokesman Khulu Phasiwe said the firm would keep signing wind deals as it was “government policy”.
Even so, SAWEA’s accusation does raise a concern for both local and overseas wind investors. If Eskom proves reluctant to sign other wind PPAs, it would undermine those schemes and make it very difficult for them to secure project finance.
And, if NERSA finds that Eskom is in the wrong, SAWEA has requested to NERSA to impose the maximum penalty of 10% of Eskom’s daily turnover for each day that it delays the REIPPPP programme. We can only await the regulator’s decision.
But, either way, there is a risk for investors here.
Either Eskom is allowed to continue as it has been doing or it is sanctioned, but there is no guarantee that this would lead to major change in its attitude towards wind or other renewables. This could very easily harm wind investors’ appetite in South Africa and dissuade them from getting involved. If Eskom has final say on whether it can enter a PPA then this is a risk for investors.
Ultimately, if South Africa is to achieve the 30GW target that all those gathering in Cape Town are looking for, then it will be vital to turn Eskom into a supportive partner.
Wind Watch
This Wind Watch was written by Francesco Cornacchia, business development manager at Romax Technology, which is sponsoring our Financing Wind 2016 in London tomorrow.
Wind Turbines: When is 20 Years Not 20 Years?
Learning more about your wind farm can help extend the life of your gearboxes from 20 years to 25 years, and maximise your investment returns, writes Francesco Cornacchia.
It is well-known that many wind turbine gearboxes have a design life of 20 years.
However, it is also well-known that a great number of gearboxes don’t last for 20 years and fail prematurely. Why the discrepancy?
The answer lies in the way that gear and bearing lives are defined. We can’t predict the exact date on which a component will fail, but we can estimate the probability that it will last for a given duration.
A very simple calculation shows that, if we combine the expected life for every bearing in a drivetrain to calculate a ‘system level’ life, the probability of one or more bearings failing within 20 years is up to 93%. So almost all gearboxes in a wind farm are likely to fail within 20 years. It seems shocking, but isn’t far from reality.
This result comes from a simplified calculation and is intended to show the overall trend. In the course of our business, we use very sophisticated versions of this methods to analyse and forecast failure rates. Using design standards and simulations alongside a huge amount of operational data and historical failure rates, we are able to provide very accurate predictions of drivetrain failures.
Managing this risk can help wind farm owners and investors to maximise the value of their projects and reduce downtime. How can they do this?
Technology risk and financial risk
It is of paramount importance to choose the right technology from the early development stage: the turbine must be adequate for the site conditions (wind speed, shear, turbulence, wind farm configuration) and must have a proven track record.
Investors need to assess how sensitive is design to the manufacturing processes, as this can introduce significant uncertainty to the reliability of gearboxes manufactured or refurbished by different suppliers.
The supply chain of major components needs to be considered: components that can only be manufactured by a single supplier can have a financial impact in case of serial defects, manufacturing issues or simply carry longer lead times.
Investors should also consider the maintenance quality. Even the best design in the world will not last if best practices are not followed: we have seen turbines with significant portions of the lubrication system disconnected because they were causing too many alarms. This means that many components were running without any lubrication – certainly contributing to costly failures.
Reasons for gearbox failures that investors should be aware of:
- Inherent design failures
Some technologies have well-known and documented design issues. Technology review and technology analysis is available
that can provide real insight into an assets future potential and future running costs.
- Installation failures
These should and can be addressed during the commissioning sign-off phase of the wind farm construction. In the case of retrofit at the time of new technology installation. Adequate transportation, storage and installation procedures can significantly minimise the risk of premature failures.
- Operational failures
These are possibly the easiest to influence with existing assets. Best practice O&M procedures and regimes based on data-driven CMS, SCADA, oil analysis and others will have major effects on component attrition rates, associated O&M costs and loss of revenue due to downtime.
In-depth asset health assessment and close study of the assets’ historical data combined with a full technology review of turbines and their major components will provide invaluable data for any prospective investor on future potential and running costs.
Overall, the term “design life” can be very misleading, and overwhelming evidence shows that most gearboxes in the field are failing in less than 20 years. The solution for investors is to employ better methods for assessing the key financial risks, reliability problems and working with an established partner can help.
If you would like to learn more, find me at the Financing Wind 2016 conference in London tomorrow and we can discuss how Romax InSight’s software, products and services could help your business.
Wind Turbines: When is 20 Years Not 20 Years?
Learning more about your wind farm can help extend the life of your gearboxes from 20 years to 25 years, and maximise your investment returns, writes Francesco Cornacchia.
It is well-known that many wind turbine gearboxes have a design life of 20 years.
However, it is also well-known that a great number of gearboxes don’t last for 20 years and fail prematurely. Why the discrepancy?
The answer lies in the way that gear and bearing lives are defined. We can’t predict the exact date on which a component will fail, but we can estimate the probability that it will last for a given duration.
A very simple calculation shows that, if we combine the expected life for every bearing in a drivetrain to calculate a ‘system level’ life, the probability of one or more bearings failing within 20 years is up to 93%. So almost all gearboxes in a wind farm are likely to fail within 20 years. It seems shocking, but isn’t far from reality.
This result comes from a simplified calculation and is intended to show the overall trend. In the course of our business, we use very sophisticated versions of this methods to analyse and forecast failure rates. Using design standards and simulations alongside a huge amount of operational data and historical failure rates, we are able to provide very accurate predictions of drivetrain failures.
Managing this risk can help wind farm owners and investors to maximise the value of their projects and reduce downtime. How can they do this?
Managing the technology and financial risks
It is of paramount importance to choose the right technology from the early development stage: the turbine must be adequate for the site conditions (wind speed, shear, turbulence, wind farm configuration) and must have a proven track record.
Investors need to assess how sensitive is design to the manufacturing processes, as this can introduce significant uncertainty to the reliability of gearboxes manufactured or refurbished by different suppliers.
Reasons for gearbox failures that investors should be aware of
Inherent design failures
Some technologies have well-known and documented design issues. Technology review and technology analysis is available
that can provide real insight into an assets future potential and future running costs.
Installation failures
These should and can be addressed during the commissioning sign-off phase of the wind farm construction. In the case of retrofit at the time of new technology installation. Adequate transportation, storage and installation procedures can significantly minimise the risk of premature failures.
Operational failures
These are possibly the easiest to influence with existing assets. Best practice O&M procedures and regimes based on data-driven CMS, SCADA, oil analysis and others will have major effects on component attrition rates, associated O&M costs and loss of revenue due to downtime.
In-depth asset health assessment and close study of the assets’ historical data combined with a full technology review of turbines and their major components will provide invaluable data for any prospective investor on future potential and running costs.
Overall, the term “design life” can be very misleading, and overwhelming evidence shows that most gearboxes in the field are failing in less than 20 years. The solution for investors is to employ better methods for assessing the key financial risks, reliability problems and working with an established partner can help.
Learning more about your wind farm can help extend the life of your gearboxes from 20 years to 25 years, and maximise your investment returns, writes Francesco Cornacchia.
Learning more about your wind farm can help extend the life of your gearboxes from 20 years to 25 years, and maximise your investment returns, writes Francesco Cornacchia.
It is well-known that many wind turbine gearboxes have a design life of 20 years.
However, it is also well-known that a great number of gearboxes don’t last for 20 years and fail prematurely. Why the discrepancy?
The answer lies in the way that gear and bearing lives are defined. We can’t predict the exact date on which a component will fail, but we can estimate the probability that it will last for a given duration.
A very simple calculation shows that, if we combine the expected life for every bearing in a drivetrain to calculate a ‘system level’ life, the probability of one or more bearings failing within 20 years is up to 93%. So almost all gearboxes in a wind farm are likely to fail within 20 years. It seems shocking, but isn’t far from reality.
This result comes from a simplified calculation and is intended to show the overall trend. In the course of our business, we use very sophisticated versions of this methods to analyse and forecast failure rates. Using design standards and simulations alongside a huge amount of operational data and historical failure rates, we are able to provide very accurate predictions of drivetrain failures.
Managing this risk can help wind farm owners and investors to maximise the value of their projects and reduce downtime. How can they do this?
Technology risk and financial risk
It is of paramount importance to choose the right technology from the early development stage: the turbine must be adequate for the site conditions (wind speed, shear, turbulence, wind farm configuration) and must have a proven track record.
Investors need to assess how sensitive is design to the manufacturing processes, as this can introduce significant uncertainty to the reliability of gearboxes manufactured or refurbished by different suppliers.
The supply chain of major components needs to be considered: components that can only be manufactured by a single supplier can have a financial impact in case of serial defects, manufacturing issues or simply carry longer lead times.
Investors should also consider the maintenance quality. Even the best design in the world will not last if best practices are not followed: we have seen turbines with significant portions of the lubrication system disconnected because they were causing too many alarms. This means that many components were running without any lubrication – certainly contributing to costly failures.
Reasons for gearbox failures that investors should be aware of:
- Inherent design failures
Some technologies have well-known and documented design issues. Technology review and technology analysis is available
that can provide real insight into an assets future potential and future running costs.
- Installation failures
These should and can be addressed during the commissioning sign-off phase of the wind farm construction. In the case of retrofit at the time of new technology installation. Adequate transportation, storage and installation procedures can significantly minimise the risk of premature failures.
- Operational failures
These are possibly the easiest to influence with existing assets. Best practice O&M procedures and regimes based on data-driven CMS, SCADA, oil analysis and others will have major effects on component attrition rates, associated O&M costs and loss of revenue due to downtime.
In-depth asset health assessment and close study of the assets’ historical data combined with a full technology review of turbines and their major components will provide invaluable data for any prospective investor on future potential and running costs.
Overall, the term “design life” can be very misleading, and overwhelming evidence shows that most gearboxes in the field are failing in less than 20 years. The solution for investors is to employ better methods for assessing the key financial risks, reliability problems and working with an established partner can help.
If you would like to learn more, find me at the Financing Wind 2016 conference in London on 27th October and we can discuss how Romax InSight’s software, products and services could help your business.
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In Australia, an argument is raging that could damage the wind sector worldwide. It all kicked off last month.
On 28 September, one of the worst storms to hit the state of South Australia in 50 years knocked out the state’s whole electricity grid, plunging people into darkness for days. It was not long before pundits, including Prime Minister Malcolm Turnbull, found their scapegoat. He said the outage was caused by the large amount of wind power in South Australia, which has distorted the power grid.
It is an easy connection for the likes of Turnbull to make. South Australia gets more than 40% of its electricity from wind farms, and has been closing its coal-fired power stations. This is well ahead of other Australian states, and puts South Australia ahead of nations including Germany, where wind supplies 32.5% of electricity.
The coal industry has also seized on the opportunity to spread misinformation. Well, who doesn't love a bit of trolling, right?
But it is wrong to lay the blame squarely on wind. The Australian Energy Market Operator released a report last week that said damage to the electricity grid had knocked out 23 transmission towers and caused a series of other grid disturbances.
These led to the shutdown of nine of the 13 wind farms in operation at the time, and shifted their 445MW capacity to the Heywood interconnector with the neighbouring state of Victoria. Heywood could not cope with the demand. The result: blackout.
Wind farms did play a part in the electricity system collapse, but so did the damage wrought on the transmission grid by a once-in-50-years storm. So did the Heywood interconnector, which left South Australia unable to buy electricity from its neighbour.
And, if the state had coal-fired power stations instead of wind farms, then the result would have been the same. They would have shut down in the same circumstances.
But it has been nearly one month since the blackout happened, and we continue to see wind-blaming headlines despite the analysis from experts including AEMO that has largely absolved the sector. This is worth noting because, like it or not, politicians and the public will take notice of such headlines, and it will hit appetite for wind. This may be an Australian argument for now but with the potential to cause damage globally.
So what can the industry do?
The first step is to keep making the case, loudly and clearly, about why wind farms were not the biggest problem here. That will help, but only up to a point. We are well aware that it is often easier for a simple lie to gain traction than a complex truth. Look at the lies in the Vote Leave campaign for the UK’s referendum on European Union membership. Look at Donald Trump.
The second step, then, is to not get too caught up in Australian politics. The country was once a renewables leader and, when it comes to bold targets, South Australia still is.
But there is also still a deep hostility to wind in parts of the political class, from previous prime minister Tony Abbott, his predecessor Turnbull and others. There is only so far that wind investors can change the minds of those unwilling to listen.
And the third – most important – step is to keep doing what firms
in the wind sector are already doing: investing in new types of technology, including storage, to help bolster grid resilience. Energy storage systems can provide a vital source of back-up electricity, and make the type of arguments above irrelevant.
As more countries install more wind farms, we can expect more of the blame stories we are seeing in Australia today. Further investment can help to neutralise them.
The British public believes in wind energy even more than previously thought, research published this week has shown.
The British public believes in wind energy even more than previously thought, research published this week has shown.
Climate charity 10:10 commissioned ComRes to carry out the poll to tie in with the launch of its campaign, Blown Away, which aims to demonstrate to the UK Government that British people back wind energy, and secure more high-level support for the sector. ComRes found that 73% of British public supported onshore wind farms, which is higher than the 69% in official government figures, and just 17% opposed.
Interestingly, people did not know the level of support for wind farms across the country.
Just 10% of the 2,037 adults interviewed in the UK said they thought it was more than 70%, and, on average, respondents thought it was a lowly 42%. Blown Away is seeking to change this perception, while also making UK leaders aware of the wide support that wind energy has in the country, in order to convince them to increase support for renewable energy.
The government should already be well aware of such consensus as its own polls show similar numbers. The latest survey, published by the now-defunct Department of Energy & Climate Change in April 2016, showed 81% of the 2,105 people interviewed supported the use of renewables in the UK, including 69% support for onshore wind.
By contrast, opposition to renewables was very low at 4%, with only 2% strongly opposed.
Both polls draw the same encouraging picture. They show increasing awareness and sensitivity in the British public to the green energy question. If only UK leaders would listen.
Campaigns like Blown Away could actually be good news also for investors and manufacturers. They could play an important role in convincing the government to fund more wind projects instead of putting all the resources in nuclear and shale energies. The charity’s partners in the private sector include Abundance, Good Energy, Google and retailer Lush.
Will they succeed? It’s questionable. Since coming to power in May 2015, without a coalition partner, the Conservative Party has been cutting support for renewables including onshore wind; and has faced tough questions, including from the National Audit Office last week, about the level of renewable energy subsidies it has paid under its Levy Control Framework. New incentives for onshore wind are not likely to be on the UK Government’s agenda any time soon, but it could relax planning rules to encourage development.
And wind also faces a big challenge from the mainstream media. A research conducted by the Imperial College of London showed that more than two-thirds of newspaper comment and editorial articles about onshore wind energy in the last five years were negative.
Max Wakefield from 10:10 said Blown Away could help to change this perception.
"The UK public love wind power and they don’t even realise,” he said. “It’s plainly not true onshore wind is unpopular with the UK public. It’s time our politicians caught up."
Because if there is one thing we can say about the Government’s approach to onshore wind in the last 17 months, it is this: we haven’t been blown away.
The Global Wind Energy Council this week published its sixth annual ‘Global Wind Energy Outlook’ report. This draws an ambitious and optimistic picture of the future of the global wind energy industry out to 2020, 2030 and up to 2050.
The report concludes that, in the medium- to long-term, wind is on track to meet even the most optimistic predictions. The report’s ‘advanced scenario’ track – in other words, the most bullish one – indicates that the wind industry could reach 2,110 GW installed capacity by 2030 and supply 20% of the world`s electricity.
So far so good. If the wind sector can achieve this level of growth, a fivefold increase in total capacity from the 433GW at the end of 2015, it would bolster developers, investors and manufacturers.
It would also more than double the number of people working in the wind sector: the report estimates that the number of people employed in the industry could rise to 2.4million by 2030. That does raise the potential of skills shortages in some parts of the sector but, as it is a by-product of success, it would be a nice problem to have.
But we question whether that 20% figure will be met by 2030.
A deeper look at the assumptions underlying the ‘advanced scenario’ raises some serious questions.
The scenario assumes that government and institutions would invest an estimated €200bn in new wind capacity each year to meet the ambitious targets set in the climate change deal agreed at United Nations talks in Paris last year.
And it also assumes that there would be no new-build nuclear or a large take up of carbon capture and storage technologies.
Those are very bold assumptions and, with that in mind, the outlook looks just too good to be true. The steady growth and development of the renewable energy sector is still extremely reliant upon government policies, where there is always doubt.
It is, of course, hard to predict the future of the wind energy, but the industry could yet be undermined by economic and political uncertainty around the world.
China, the largest overall market for wind power since 2009, has suffered a worrying economic slowdown. The International Monetary Fund expects China`s GDP to slow towards 5.8% by 2021, well below the government`s target of 7%.
The US, the single largest market in terms of installed capacity after China, has to deal with the outcome of the presidential election – and the toxic campaigning that has surrounded it. Doubts over the Clean Power Plan could undermine investors’ future decisions, despite the five-year extension of the wind production tax credit.
And, in Europe, the political situation in some of the largest wind markets is also unsteady. Germany, which accounted for 47% of all new wind installations in the European Union in 2015, will face the political uncertainty related to its general election next year.
Meanwhile, the UK, which is the globally largest offshore wind market today, could easily see negative impacts on investments and growth following Brexit talks.
Governments and institutions in all of these countries will be busy in the following years. All face levels of upheaval. And, against that backdrop, an unambiguous commitment to renewable industry`s recommendations is unlikely to be a high priority.
The wind industry is still on GWEC’s advanced track for now. And the industry has exceeded optimistic predictions before – so it could yet surprise us.
Wind Watch
Wind Watch is published every Monday and Friday.
In the meantime, we have an announcement: we are growing!
On Monday, we hired our second full-time member of editorial staff, Ilaria Valtimora, to further increase the quality and quantity of wind industry analysis that we provide throughout the year.
And we are very excited with the contribution that Ilaria is going to make in our news, comment pieces, reports and events over the coming months. This investment means that your subscription or membership now gets you much more than it ever has before.
Ilaria moved from her native Italy to the UK three years ago, and has spent her time since then at foreign exchange consultancy Fidelis. She brings great experience in analysing and providing commentary on global FX markets, which she has done for private clients and organisations including Bloomberg.
Now she is looking at wind, and getting stuck into her first analysis articles. We're sure you’ll get to know her name in the newsletters, and meet her at our annual Financing Wind conference in London next Thursday; and at our final Quarterly Drinks event of 2016 with Swiss Re Corporate Solutions on 27th November.
So please, welcome Ilaria, and here’s to a strong year ahead.
In three months the US presidency of Barack Obama will be over.
And, in three weeks' time, we are planning to stay up all night to see if Hillary Clinton or Donald Trump wins the right to take over.
Those in the US wind industry will hope that Obama’s influence on energy will remain after he is gone, via his Clean Power Plan. The US Environmental Protection Agency unveiled the plan in August 2015 to encourage states to reduce their carbon emissions by 32% from 2005 levels by 2030. It is due to come into force in 2020.
The wind sector is looking to the plan for long-term certainty. The five-year extension of the wind production tax credit in December 2015, to run until the end of 2019, has given the industry certainty over incentive levels until the end of this decade.
While the PTC extension includes a gradual reduction of support, it has also given developers the confidence to build schemes and enables manufacturers to invest heavily in R&D.
The Clean Power Plan is expected to continue this certainty when the PTC stops, as long as it survives an ongoing court battle.
Twenty-seven states and a host of other groups have challenged the plan because they say it oversteps the limits of the regulatory authority granted to the US Government by the Clean Air Act. In February, the Supreme Court put the plan on hold pending the result of this legal battle.
The battle reached a further landmark last month.
On 27 September, the US Court of Appeals heard oral arguments about the plan, and it will be tough for the nine judges to reach a verdict. The plan would be one of the most expensive pieces of regulation imposed on the US energy industry, and the February decision was made on just a 5-4 majority. The plan could finally be approved or rejected on a similar tight margin.
And a tight margin like that means the court case is likely to keep rumbling on. Even if it goes all the way to the Supreme Court, court action could be over by 2018, but we should never underestimate the power of objectors to keep the fight going to delay regulations. The fact that the Clean Power Plan cannot come into action when the court case is ongoing can only embolden these objectors.
And, unsurprisingly, the incoming president will play an important role too. Clinton said she would protect the plan whereas Trump would scrap it. Well, at least it’s a clear distinction.
If the plan came into force then it would be good news for the wind industry. It would enshrine the commitment in the US to make its energy system cleaner, and that will open up opportunities for new wind developments, as well as sources like solar.
But what if the plan doesn’t happen?
In our view, it would not be the end of the road for wind's strong growth, as long as the industry takes the right steps in the coming years. The nation is experiencing a wind development boom as companies are able to keep benefitting from the full rate of the PTC. If this boom is to continue in the years to 2020 and beyond then firms will need to keep reducing the cost of wind power.
General Electric has said that its €1.5bn acquisition of LM Wind Power would help it to reduce the costs of turbines faster. This is because it will have LM’s blade tech in-house, which gives it faster cost-cutting potential than if the pair kept operating as separate companies. Other manufacturers in the US, Europe and elsewhere are also focusing on this crucial goal.
We do not expect the industry in the US to stand still. The PTC extension has given the industry a golden opportunity to build more, push down costs and end up making wind energy even
more economically competitive than it is now.
Getting the Clean Power Plan in place from 2020 is important – but, as with any regulation, the industry would be very unwise to pin their hopes on it. We could still get President Trump.
General Electric was unsuccessful in its bid for Areva-Gamesa joint venture Adwen in August. But it turns out that the US giant had its sights on something bigger. This week, GE announced that it has agreed to acquire blade manufacturer LM Wind Power for €1.5bnfrom private equity firm Doughty Hanson in the first half of 2017.
It is an important deal as it shows how manufacturers including GE are looking to add more technical and engineering capabilities, so they can help to further reduce the levelized cost of wind energy.
And, ultimately, this is all about increasing market share.
Jérôme Pécresse, president and chief executive of GE Renewable Energy, said this transaction would enable GE to be “more local, have more flexibility and knowledge in turbine design and supply, and more ability to innovate and reduce product costs, while improving turbine performance”.
It should help GE to improve its ‘digital wind farm’ concept, and boost its services arm. The deal still needs regulatory approval.
Now, that is a relatively revealing quote, in the often-bland world
of corporate M&A press releases. It shows that GE’s wind arm is looking to further diversify from making turbines by growing its services operations and getting more involved throughout the supply chain. And there are some impressive numbers here.
Since 1978, LM Wind Power had produced more than 185,000 turbine blades, which corresponds to total installed wind capacity of around 77GW. It has a manufacturing footprint of 13 factories in eight countries on four continents: Brazil, Canada, China, Denmark, India, Poland, Spain and the US.
As well as GE Renewable Energy, LM also sells machines to the US giant’s major rivals including Gamesa and Goldwind.
It is that latter aspect where this deal gets really interesting. GE plans to keep LM as a standalone business run by its current management, led by chief executive Marc de Jong. This tells us that LM will be able to keep working with other turbine makers – but for how long? GE will be investing in LM to make blades more efficient, but we wonder whether it will be comfortable in making this technology available to others.
And there are other commercial sensitivities to consider too. Over time, GE and LM will become more closely intertwined and, as that happens, the risk of commercially sensitive GE information ending up in rival hands must grow. Accidents happen. GE has invested heavily in its ‘digital wind farm’ concept in recent years, and it will not want to give up information that gives it a commercial edge.
It may work for LM to continue its relationships with non-GE turbine manufacturers for the next couple of years but, in our view, that must change. This also gives GE a great chance to monopolise LM technology and cut out some of its rivals.
And it might even force GE to buy another manufacturer so these LM factories can maintain the scale of production they are used to. We see a good chance of more M&A activity by GE.
It concluded its €12.4bn acquisition of Alstom’s energy assets last November, and has now added LM for €1.5bn. Renewables is clearly an area that GE chief executive Jeff Immelt has earmarked for further investment. It would not surprise us if GE eventually came sniffing around the likes of Enercon and Senvion, as either of these could help give GE a stronger footprint in the European onshore wind market.
The other interesting aspect of this deal is Doughty Hanson, which has owned LM Wind Power since 2001.
Over that time, LM has grown from a business with annual sales of €260m employing 2,500 people to sales of almost €1bn with 9,000 staff. The takeover is valued at 8.3 times LM’s forecast Ebitda, which puts it in a fair range for an established firm. For example, it is very similar to the 8.4-times multiple that Centerbridge Partners paid Suzlon for Senvion in its €1bn takeover last year.
On that basis, it looks like a good deal for GE.
As for Doughty Hanson, we see a few good reasons to sell now: LM has been a great growth story but, with slower growth forecast for the wind industry in the next few years, it makes sense to sell out. It can then reinvest in a market offering faster growth.
In GE, it found a willing buyer. And we have a feeling that GE has one more big wind M&A deal in it before this decade is done.
Europe is no longer the dominant region in global wind.
The US has long-term certainty and ambitions that companies in the European Union are crying out for; and Asia, driven by China, has overtaken the EU in terms of annual wind installations.
That was the sobering message that came out of the WindEurope summit in Hamburg two weeks ago. But one area where Europe's wind industry retains an advantage on most players in those other regions is the quality of its turbines. Manufacturers including Vestas, Siemens, Gamesa, Nordex, Enercon and Senvion all invest heavily in developing new machines and improving existing ones. This is helping these firms enter new markets.
And last week a group of manufacturers, developers and utilities published a report, in the guise of the European Technology & Innovation Platform on Wind Energy, that sets out the five steps that the wind sector and the European Union need to take if Europe is to remain a world leader in turbine innovation.
This is also important if the sector worldwide is to keep reducing the cost of wind power; and help nations modify their grids to cope with more wind farms.
ETIPWind said wind companies needed to innovate in the following areas — and that support from the European Union could help:
(1) Improving grid infrastructure: Incorporating higher shares of wind power into nations’ energy grids will increase the need for accurate long-term weather forecasts, and turbines that can provide demand-side management services.
It is up to the wind industry and grid operators to ensure that grid constraints do not curtail the development of new wind farms.
(2) Refining operations and maintenance: Asset management is a maturing discipline in the wind sector, and turbines must do more to capture data about performance and predict faults.
That means standardising sensors for performance measurement and conditioning monitoring; and developing tools for data analysis and diagnosis. This helps improve asset management processes, which can boost returns and extend project lifespans.
(3) Stepping up industrialisation: This is important for the wind sector if it is to achieve economies of scale and gain cooperation across the supply chain.
Key steps should include standardising project designs; and setting design requirements at an international level so that developers are not dealing with different rules in different markets.
(4) Improving offshore installation: Offshore wind has made big moves in the last year to reduce its levelised cost of energy, and is under pressure to hit an LCOE of €80/MWh for all offshore projects by 2025. This should include improving and industrialising offshore transport and installation systems; and stepping up growth in the floating wind sector.
(5) Developing innovative technologies: Wind must innovate in areas including battery storage and intelligent materials if it is to develop the turbines of the future. This will also have the benefit of educating the next generation of pioneers in the wind industry.
ETIPWind said that if the wind sector could innovate in all of these areas then it would help the sector to be one of the main contributors to helping the European Commission achieve its climate and energy targets; and would have benefits outside of the region too. It said economic incentives could help with this.
In our view, this is an area where wind businesses must tread carefully. Financial support can make a big difference to the industry, but firms must also be aware that lobbying loudly for incentives can set a bad impression. It comes down to perception.
We have been vocal before that the industry should fight attempts by governments to cut existing subsidies, because other sectors do and it makes wind look like a serious industry. However, as the levelised cost of energy has fallen, we now see wind offering the cheapest form of new electricity generation in some markets. There is a growing public perception of wind as something that makes sense, from an environmental and business perspective.
This bodes well — and we do not want loud lobbying for handouts to undermine it.
It was never going to be easy for wind companies to enter Iran.
International sanctions against Iran were lifted in January after a nuclear watchdog confirmed the Middle Eastern nation had scaled back its nuclear plans. This prompted wind firms from Europe and beyond to visit Iran and look at ways to help the government hit a target, revealed in 2014, of 5GW wind and solar by 2018.
That target looks too ambitious. Iran has only 200MW of renewable energy capacity, which represents 0.3% of total power generation. But, with potential for 35GW-40GW of wind according to some technical advisors, there still looks to be a great opportunity in the market if investors can find opportunities and are brave enough.
The government is also planning to launch a tender for up to 1GW of wind farms. This follows the launch by the Renewable Energy Organisation of Iran (Suna) in May 2015 of feed-in tariffs to give developers and investors greater certainty. A lot of developers have been buying up potential sites in anticipation of a boom.
But profiting in Iranian renewables will not be as easy for investors.
For example, last month Swiss firm Meci Group International said it had signed a deal with the Iranian government to build a 270MW €750m project in the north of the country, and is set to complete it by mid-2017. The company revealed on 21 September that it had signed a series of power purchase deals with the government.
Not so, says renewable energy body Suna.
This week, Suna’s deputy in charge of planning and development Jafar Mohamadnejad Sigaroudi, said that the organisation had not signed any deal with Meci; and that he was not aware that any deal had been signed with the Ministry of Energy either. The Ministry of Economic Affairs & Finance has remained silent.
Sigaroudi said that Suna had held over 150 formal meetings with foreign companies, mainly from Asia and Europe, that are keen to get into Iranian renewables. He said it was possible that Meci had been in contact with Suna, but no contracts were signed.
So far, investors have focused on the threat that western nations could reintroduce sanctions against Iran, and the impact that would have on the viability of schemes.
But the confusion over Meci’s planned 270MW project shows that companies will face challenges with securing all of the necessary approvals needed for projects, or even knowing if their scheme has been approved.
It makes little sense that responsibility for approving schemes including wind farms should fall between Suna and the Ministry of Energy. Developers will need clarity if they are to do business.
And even if developers get approval for their schemes, financing will be an issue. Law firm Eversheds has warned that international banks will be wary about entering the Iranian market because of uncertainty about the future of sanctions regimes.
Meanwhile, local banks have very limited experience with financing projects like wind farms. This means the first group of projects are likely to be 100% equity financed.
Jean-Pascal Boutin, partner at Eversheds and head of its energy regulatory team, warned there will be “limited financing available” and “limited engagement” from overseas banks. Therefore, even if developers get certainty from the government that their projects have been approved, they will still need to secure financial backing from what looks like being a small pool of investors.
And that will stay the case until Iran looks like a stable investment proposition – or until investors are at least relatively comfortable with the instability that remains. There is still potential for investors in Iran. But it is clear that this will not be an easy ride.
Spain's wind market ground to a halt last year. You all know why.
Between 2011 and 2014, the Spanish government made a series of devastating retrospective cuts to feed-in tariffs for renewable energy projects, including wind farms.
These did serious damage to investor confidence and pushed many leading Spanish firms to seek growth overseas. Investor confidence has not yet returned, and those cuts mean that no
new wind capacity was built in Spain in 2015. None.
Those cuts also opened the way for a host of legal cases by investors against the Spanish government – 33, in fact – which are being considered under the terms of the Energy Charter Treaty.
The result of the first of these was released in January and found in favour of the Spanish government. This case was specific to the 2010 changes for the solar sector, and the ruling was that there was no reason to suppose that feed-in tariffs in that sector would remain unchanged. That result does not bode well.
However, HgCapital director Luis Quiroga told a session at the WindEurope summit in Hamburg last week that he expected four more cases to be decided in the next 12 months.
This includes one where HgCapital is leading a group of 16 major investors in Spanish solar, including the likes of Element Power, Hudson Clean Energy and Impax Asset Management. The companies claim they made investment decisions in the solar sector on the basis that the rules would not change.
Quiroga said the group was “throwing everything we have at this” and that it expected to win: “When those investments were made, people expected the feed-in tariff to be stable and not changed retroactively through the life of the feed-in tariff,” he said.
If the group wins, it would set an important precedent for investors in Europe. It would demonstrate that investors have a reasonable expectation that rules will not change – and, while this case relates to solar, the precedent it sets for the wind sector is clear.
Of course, if the group loses then it gives governments in Europe the freedom to change their energy policies at short notice, whatever impact that has on developers and investors. If that happens then extra business uncertainty will certainly follow.
Marco Messeri, managing director of power, utility and renewable energy in Europe at Goldman Sachs, told the session that it was difficult to quantify the precise impact of retrospective changes because it was impossible to know how much firms would have invested without those changes.
Even so, he said lack of certainty on support mechanisms would increase the perceived risks of investing in renewables and harm investment flows. This pushes up the cost of capital for investors and developers.
David Jones, head of renewable energy at Allianz Capital Partners, agreed: “Our investment decisions are made in good faith that the governments will honour the commitments they have made to the incentive mechanisms that we need for our returns,” he said.
Jones added that investors needed confidence that the Energy Charter Treaty would support them, but pointed out that it only dealt with cross-border disputes. He said the European Union needed rules that covered disputes where, say, a Spanish investor is able to take legal action against the Spanish government.
And Luis Adao da Fonseca, partner and co-founder of Portuguese investor Exus Management Partners, said the ultimate impact of such uncertainty on subsidies would be on the prices paid by consumers. If developers cannot build schemes at the lowest cost of capital then they will end up passing on those costs to users.
“Stability is key. Stability is the ground for attracting investors in, setting a low cost of capital, and setting a low cost of energy,” he said. Ultimately, if these subsidy cases go in favour of the Spanish government, the public will lose out as much as investors.
Offshore wind is not yet a mature asset class despite huge levels of investor interest. That was the verdict of a panel of six experts in a session at the WindEurope summit in Hamburg on Wednesday.
While the sector has been making big strides towards maturity and investors have become more comfortable with the risks of building offshore, the industry still has some major challenges to overcome.
These include how to operate and maintain offshore wind farms through their life cycle; the effect of competitive auctions on cost-cutting; and other trends including interest rates and steel prices.
Nick Gardiner, managing director and head of offshore wind at the UK Green Investment Bank, said he would only call the sector mature when investors such as pension funds and sovereign wealth funds are happy to take development risk: “That would be a sign that it really is a mature sector,” he said.
And before that, the industry faces some big challenges.
Paul Bradley, chief financial officer at Northland Power, which is the majority owner of projects including the 600MW Gemini, said construction risks have fallen in the last three years but that some investors were not aware enough of the risks of running offshore wind farms for 20 years or more. Financially, this is a big threat.
“You can lose just as much money on your O&M as on your construction,” he said. This risk is compounded by the fast evolution of turbines, which means developers have to commit
now to using machines that will not be available for many years.
And Bradley said his biggest concern for the offshore industry was that developers were making overly-optimistic assumptions on continued low interest rates and steel prices. Any rises in these would put pressure on the margins of firms that are already being squeezed by the competitive auction process.
Michael van der Heijden, founder of Amsterdam Capital Partners, said the move to competitive auctions in countries including Germany and the Netherlands has had a significant impact too.
He said: “Competition has become brutal because of this new tender system that governments have introduced. I’m not saying that’s a bad thing. It’s just a fact.”
The competitive auction run by the Dutch government in the 700MW Borssele 1 and 2 tender helped it to secure a winning bid of €72.70/MWh from Danish utility Dong Energy. However, some panelists said they were concerned that moves to drive down the levelised cost of offshore wind power so aggressively could also force investors to cut corners on their developments.
Achim Berge Olsen, managing director at developer WPD, said there is a risk that reducing the cost of offshore power too quickly could encourage developers to cut corners, which de-rail the successes that the sector has already achieved.
Olsen argued that tender systems encourage short-term thinking by companies, whereas businesses that tended to do best were those that took more of a long-term view.
And Ranjan Moulik, global head of power at French bank Natixis, added that there was a risk of “bid fever” where, in the heat of a competitive bidding process, companies bet too aggressively on the potential for future cost reductions.
But despite these risks, the panelists were broadly optimistic that the sector was going in the right direction to becoming a mature asset class; and that it was only a matter of time before offshore wind takes off in Asia and North America.
Construction risks are now relatively low and it is one of the few renewable energy sources that operate at a utility-scale size. This is largely down to the past successes of those building offshore — who now have a host of other challenges to solve too.
Wind Watch
Wind Watch is published every Monday and Friday.
In the meantime, you should check out our free special report on Optimisation, in association with SgurrEnergy.
This runs through some of the steps you can take to improve the annual energy production from wind farms by 5%-11% and in some cases more, and boost their internal rate of return. If that sounds relevant to you then simply click on the cover below.
We hope are you find it useful and are in Hamburg if you'd like to find out more. As always, thanks for reading.
Is China’s wind boom about to turn to bust?
It is a question we are asking following a report by the International Energy Agency last week. This report said that China has built so many coal plant over the last two years that wind farm owners are being forced to shut down their projects for 15% of the time. That is compared to just 1%-2% in most European nations.
That figure should ring alarm bells. China installed wind farms totalling 30GW in 2015, which is over three times the capacity installed in its nearest rival, the US. But China also installed coal-fired power stations with total capacity of 86.2GW last year, which is a 9.4% increase year-on-year in the country’s coal generation.
We may like to think of China as a world leader when it comes to the installation of renewables including wind, but those coal figures tell a dirtier story.
Ah, the sceptics will say, but those coal-fired power stations are so-called ‘clean coal’. That is true, but only up to a point. These ‘clean coal’ plants may be ‘cleaner’ than conventional coal-fired power stations but, according to Greenpeace, nearly half of China’s new ‘clean coal’ power plants are violating emissions standards.
China may be building a lot of wind farms – but it is not the only game in town. And looking at the coal sector also highlights some potential problems for wind.
The Chinese government has said it would stop approving new coal-fired power stations in as many as 13 Chinese provinces until 2018. Greenpeace welcomed the move, but the pronouncement hides a more worrying problem. Restricting the construction of new coal-fired power stations shows that China is worried about energy oversupply, and so tougher regulations to restrict construction of new wind farms could well follow.
The country’s GDP growth was flat in the first half of 2016 and plenty of analysts are now casting doubt over the idea that China is the engine of global growth. If its economic growth continues to slow then electricity demand will fall too, and the wind firms that built those 30GW last year will have a lot of time on their hands.
This will put more pressure on Chinese manufacturers to look outside of China, but only Envision and Goldwind have made any sort of impact overseas – and, certainly in Goldwind’s case, international sales make up only a tiny part of its total sales.
And any moves by Chinese manufacturers to grow faster outside of their home market will also put them up against European and US firms that are seeking market share. It would not be easy.
Weakening activity in their home market plus fierce competition outside of their home market is likely to equal pain for Chinese wind companies. We do not expect many high-profile casualties given that most of these businesses enjoy some form of state backing, but contraction in their wind farm installation operations must surely follow. These firms may end up simply managing the projects that are already there.
Outside China, however, such a slowdown is unlikely to have much impact on the wind market. It would be bad for global installation statistics, but the fact is that very few western wind companies are significantly exposed to the Chinese wind market because it is so difficult to break into. That could be a blessing in disguise.
The boom has not yet turned to bust, but we will not be surprised if it did. Spain has shown us the turmoil that can follow when a major market quickly goes from boom to bust – and China might yet make that crisis look like a minor blip.
On Tuesday, WindEnergy Hamburg is due to start in Germany.
With 30,000 attendees expected over four days, there are a few things we can be sure of: shoes will be worn out, drinks will be consumed, and branded gifts will be purloined for children back home. And, amid all of that, deals will be done too.
The big challenge for wind businesses in Europe is how to adapt and thrive in a market that can best be described as patchy. While those in the industry will rightly use the scale of the conference as evidence of how far wind has come in the last decade, from a niche concern to a fully-fledged ‘industry’, we hope this will come with a healthy dose of reality. Firms need to be smart to survive.
One trend we expect to see over the next two years is the rise of the ‘one stop shop’, as firms with development and manufacturing experience expand the number of services they are offering. This will be driven by slow growth in European wind and the increasing presence of investors who don’t want to ‘get their hands dirty’. We have seen Vestas going down this route, and others will too.
We need only look at a few statistics to see why this is necessary. European wind is far from flawless. In 2015, onshore wind farms totalling 9.8GW were built in the European Union, with an additional 3GW offshore. The market grew by 9.9%.
But that 9.8GW was concentrated in only a handful of nations. Almost 38% of it – or 3.7GW – was in Germany, as developers rushed to complete onshore wind schemes before the move to competitive feed-in tariffs auctions. This figure is set to drop.
Another 10% of that 9.8GW – or 1.3GW – was in Poland, but new policies in Poland are due to drive that down to nearly nothing.
And we also saw 1GW completed onshore in France and 975MW in the UK, although most of that was offshore. The European Union may be second to China for annual installations, but Europe should still be concerned about its lack of 'strength in depth'.
This shows the huge differences between the policies and regulations across various EU nations. And, over the last couple of years, that patchy growth in Europe has forced more businesses to expand in emerging markets as they seek to gain market share.
But, as competition increases in emerging markets, we expect to see more of these companies more aggressively seeking to grow market share in Europe.
With more financial investors entering the sector, this gives an opportunity for firms with practical experience to offer additional services in asset management and operations. Many investors want returns without getting involved actually running the projects.
More manufacturers and developers will also look to invest in other types of technology that can set themselves apart, like storage, as they seek to broaden their expertise and offer a wider range of services. Moves like this will turn more firms into ‘one stop shops’.
There are other ways to deal with uneven growth in Europe.
More developers will seek out power purchase agreements with corporates to make wind projects make sense financially without government support; will invest in research to drive down the levelized cost of wind energy so that wind power looks like better compared to other sources; and will seek out ways that they can support the rollout of electric vehicles. All of this makes sense.
And it is vital for those in wind to keep making the case to hostile governments that they should embrace the sector. WindEnergy Hamburg gives firms one chance to do this. But, even so, Europe will always have a mix of governments with different policies. That will always be an issue, but manufacturers and developers that can expand their services will be better placed to deal with it.
Wind Watch
Wind Watch is published every Monday and Friday.
In the meantime, you should check out our free special report on Optimisation, in association with SgurrEnergy.
This runs through some of the steps you can take to improve the annual energy production from wind farms by 5%-11% and in some cases more, and boost their internal rate of return. If that sounds relevant to you then simply click on the cover below. Enjoy!
And you can find all of our other special reports here.