After a torrid on-off summer romance, the UK government finally declared its love affair with EDF’s Chinese-backed nuclear power station Hinkley Point C back ‘on’ last week.
On Thursday, Prime Minister Theresa May confirmed that French utility EDF would be able to proceed with the controversial £18bn Chinese-backed scheme. Some of EDF’s shareholders have warned that the project could put EDF’s survival at risk.
But no matter. EDF’s board gave the project the green light three months ago, and now the UK government has confirmed that it will pay £92.50/MWh for every unit of electricity the facility produces for the next 35 years.
This is around double the UK’s current wholesale electricity price and higher than prices for onshore wind. It is worth remembering that figure for when people bemoan subsidies for wind farms.
Now, we are not stridently anti-nuclear. We believe it can play a role in a balanced energy mix. But, even so, Hinkley Point C still looks like a very expensive option. ‘Ah,’ the critics say, ‘but at least nuclear power plants don’t face the same problems as wind farms, because they can generate power all of the time.’
That is true, but there are plenty of companies in the wind industry and beyond that are working on solving the lack of energy storage options. It could well be that this problem is fixed even before Hinkley Point C exports its first power, which is due to happen in 2023 but given EDF’s track record it could easily come in late.
And when it does that £92.50/MWh will look even more expensive than it does now.
If you want an indication of how this could play out then you can look at a survey by the Lawrence Berkeley National Laboratory in the US, which was published last week. The lab surveyed 163 wind energy experts from around the world to get their views on how the cost of power from onshore and offshore wind will fall in future.
This study reported that the experts expect the cost of wind power to fall by between 24% and 30% by 2030; and by between 35% and 41% by 2050. It said the figures are applicable to both onshore and offshore wind, but that the costs of offshore wind farms would fall by a higher absolute amount due to the higher starting point.
They added that there was even a 10% chance that reductions could be more than 40% by 2030 and more than 50% by 2050, assuming that fast growth in the market is backed by aggressive research and development.
Such reductions would continue the falls in the cost of wind energy from the last five years, which have been particularly driven by significant reductions in the up-front costs of wind farms and improvements in project performance. Experts expect to see further reductions in operating costs, longer project lives and lower costs of finance.
The growth of the wind sector means it keeps getting more cost-competitive. So, if you think Hinkley Point C looks expensive now, just wait until it’s finished.
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What is bitcoin? This is a question you can ask many times and still feel as ignorant after you’ve heard the answers.
But it could hold also the key to the energy grid’s future.
Here is the basic version. Bitcoin is a digital currency that was created by a software developer in 2008. Bitcoins are created by computers that are solving mathematical problems, and each bitcoin has a unique number so that only one person can own it at a time. The idea of bitcoin is to let people trade the unique bits of digital data with each other directly, and without having to go through a middle man. Still confused? Well, don't be.
Thankfully, bitcoin itself doesn’t matter much here, but the more interesting element is how these bitcoin deals are tracked.
Each deal is logged in a system that is called a blockchain, which effectively acts as a ledger for billions of micro-transactions. The blockchain is crucial so that bitcoins are not held by two people at the same time.
This is where it starts to get interesting for companies in the wind industry, as well as the energy sector more widely. We are seeing start-ups working on software that can enable individuals and businesses to trade electricity directly with each other, rather than having to go through a centralised grid. This could have major ramifications on how wind grows in the next decade, as well as our current crop of traditional utilities.
Let’s touch on two specific examples.
Last month, a company called PowerLedger in Australia set up a system that enables a group of neighbours to sell excess power produced by solar panels in a community grid. This saves the neighbours the cost and hassle of selling power to, and buying it from, a central grid operator.
And meanwhile, in New York, a start-up called Transactive Grid is doing similar with a blockchain-enabled solar system that cuts the main utilities out of the process.
This technology may still be in its infancy, but there are reasons for manufacturers to take interest. If such systems take off and people see the benefits of generating their own power from small wind turbines then that opens up a big market for small turbine makers.
The distributed wind market has not taken off in the same way as distributed solar, but a simple trading system could make it seem more viable. Companies like United Wind are already eyeing major growth in distributed wind – and such software infrastructure can only support those plans.
There is also a question about whether it poses a risk for utilities, but we don’t think so. Yes, if everyone was able to sell electricity directly to each other without the need for a central utility then that would clearly damage those companies.
However, most people do not have solar panels or wind turbines on their homes; and still rely on large utilities producing their power, whether that is from renewable sources or fossil fuels. We see that utilities will still play a key role in the electricity system for years and decades to come.
In any case, if utilities see potential in blockchain then they will just buy those start-ups and work out how they can use the technology for themselves, which could mean they end up selling software systems for use on distributed grids alongside selling their own electricity. They should be canny enough to know how to profit.
The final point here is that a lot of this is still theoretical.
Yes, blockchain start-ups are predicting that the electricity market will be one of their biggest focuses over the coming years because everyone uses electricity. And yes, they are predicting that there will be a gold rush of companies coming into this sector trying to make it pay. But they have to prove that their systems make sense.
If this is anything like bitcoin then it could take years to decipher.
“In this industry you should never be surprised when you see something happening much quicker than people expected.”
It is fair to say that Jonathan Cole, managing director of Spanish utility Iberdrola’s offshore wind arm, is positive about the prospects for offshore wind. Cole was the guest speaker at our third Quarterly Drinks networking evening of 2016, which we hosted with Swiss Re Corporation Solutions in London on Thursday.
The cost of generating power from offshore wind farms has fallen steeply in the last five years, from £150/MWh in 2010 to £119/MWh at Iberdrola’s East Anglia 1, which was confirmed in April.
Now the UK Government is looking to give subsidy support to projects with a strike price of under £105/MWh in the next round of its Contracts for Difference regime, which has been delayed until 2017, with further cuts to come.
The UK Government has said that continued support for offshore wind under its Contracts for Difference regime depends on the industry reducing costs. Given the results of recent offshore wind tenders, we are confident that these reductions will be made.
Chief among these are Borssele 1 and 2, which are planned in the Dutch North Sea and which Dong Energy is set to deliver for a price below €100/MWh. This means the offshore wind industry has already hit a milestone that it was targeting by 2020.
Cole is bullish about the prospect of more reductions as technology improves and companies across the supply chain get more experienced in building and operating wind farms offshore. These cost reductions will be vital if the industry is to become competitive with all other large-scale forms of low-carbon electricity generation.
He says: “It is right to be optimistic about the future because offshore wind will be cheaper than nuclear and can be cheaper than gas if we carry on with this cost-reduction journey. The goal between now and the middle of the next decade is to get to a point where offshore wind is competing with every other low-carbon generation technology, and that is where I think we’ll get to.”
In the UK, this would put offshore wind in a prime position as the country seeks to replace around half of its electricity generation capacity over the next decade.
Cole says that the need for the UK to replace this capacity means Brexit should not be a big hindrance to those working in offshore wind. The UK’s decision to leave the European Union might lead to some short-term economic shocks, and additional cost for UK-based projects that need to import turbines and technology from other countries, but new generation capacity is needed regardless.
It is this confidence that has encouraged Iberdrola to go big on offshore wind. Cole set up the company’s offshore wind arm in 2010 when it only had €6m invested in offshore wind.
Now it has committed €6bn of equity to offshore projects including the 714MW East Anglia 1, 389MW West of Duddon Sands and 350MW Wikinger. Its strong balance sheet means it can develop without debt or other equity players. This has also established the utility as one of the sector’s largest equity investors.
Iberdrola’s plan for the 2020s is to develop two clusters of offshore wind farms, in the southern North Sea and the German section of the Baltic Sea. It currently has a 3.5GW pipeline for the 2020s, including a 1.2GW follow-up to East Anglia 1.
Cole says that clustering schemes like this would make it easier to build and operate is projects, and help the offshore sector to optimise both its technology and business practices.
Not only is he confident that the sector can keep driving down costs. He is also playing a key role in making it happen.
It seems appropriate that in the week we published our Landmark Deals report we have seen another big takeover announcement: Canadian pipeline and renewables giant Enbridge is set to buy US rival Spectra in a $28bn all-share transaction.
With this deal, Enbridge is looking to become the largest energy infrastructure firm in North America, and the combined company’s enterprise value of $130bn is set to put it in the same league as BP and Total. It would also help the business shift its focus away from Canada, where it is facing significant political opposition to its oil pipeline projects. Prime Minister Justin Trudeau opposes its Northern Gateway oil pipeline project, for example.
If the deal completes as planned, which is due to happen in the first quarter of 2017, then Enbridge shareholders will own around 57% of the combined company and the other 43% would be held by Spectra shareholders. Its assets include oil and gas pipelines; terminal and midstream operations; and regulated utility portfolio.
Oh, and renewables projects too. Enbridge has been investing in renewables for the last 14 years. It invested in its first wind farm, the 11MW SunBridge scheme in Canada, in 2002; and has since spent over $5bn in projects, mainly wind farms, totalling 2.7GW.
The firm owns stakes of 1.7GW in these projects, and 90% of its renewable energy investments are in wind. Its most recent deals include buying the 103MW New Creek project in the US and a 24.9% stake in 400MW UK offshore scheme Rampion.
Enbridge last year revealed plans to grow its renewables portfolio to between 3GW and 4.5GW by the end of this decade. How does the $28bn Spectra deal affect this?
In the very short term it has little effect. Spectra does not own
any renewable energy assets, and so this acquisition does not immediately bolster the 1.7GW that Enbridge holds. We can rule out the idea that this will help its renewables arm on day one.
And we also expect it to be business as usual for Enbridge’s investment strategy. In the last decade, the firm has been growing in renewables while also looking after its core business in oil and gas. Buying Spectra is a big deal and a great opportunity to bolster its pipelines business, while also giving it protection from political problems in Canada. But we do not expect this to fundamentally shift its views on renewables.
In fact, we see this as good for its investment plans in wind.
The deal strengthens Enbridge’s balance sheet and that should make it easier for it to invest in large wind projects. The extension of the US production tax credit means that there will be onshore opportunities in North America over the next five years.
It also gives Enbridge the financial muscle to increase its exposure to offshore wind in Europe, as well as the fledgling North American market. Al Monaco, president and chief executive of the company, has committed to growing offshore, where the huge turbines and huge projects also means huge costs. Financial strength is key.
In addition to Rampion, Enbridge paid $282m in May for Dong Energy’s 50% stake in French offshore firm Eolien Maritime France SAS, which is developing three projects – Calvados, Hautes Falaises and Parc du Banc de Guerande – totalling 1.4GW. It is developing the trio with EDF and they could reach financial close this year. We have seen Canada’s Northland Power go big on offshore and Enbridge could follow suit.
And finally, Enbridge sees buying Spectra as a way to better manage the risks on its home market, and that should be good for the company as a whole. It is too early to judge if this is a 2017
‘landmark deal’ – but, for now, it looks like wind has little to fear.
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Enbridge in $28bn Spectra takeover
Enbridge is set to buy US oil and gas pipeline and storage rival
Spectra for $28bn to create an energy infrastructure giant.
Canadian firm Enbridge operates oil and gas pipelines and owns renewable energy projects, including 16 wind projects totalling 2.5GW either in operation or development. These include a 24.9% stake in the 400MW Rampion project in UK waters.
The company said the acquisition of Spectra Energy would create the largest energy infrastructure firm in North America and bolster its balance sheet. The deal is due to complete in 2017.
UK backs 900MW Triton Knoll work
The UK has given RWE arm Innogy and Statkraft consent to build infrastructure for the 900MW offshore project Triton Knoll.
The Department for Business, Energy & Industrial Strategy yesterday approved the construction of the cabling and substation needed for the £4bn scheme. This follows a recommendation by the Planning Inspectorate in June to approve the works.
Innogy and Statkraft plan to bid for subsidy support under the next round of the UK’s offshore wind Contracts for Difference regime, which has been delayed until 2017.
Mexico’s IEnova to buy $852m Ventika
US utility Sempra Energy’s Mexican arm IEnova is set to buy Blackstone’s 252MW Ventika wind farm for $852m.
IEnova has agreed to buy the operational Ventika I and II in Nuevo Leon in northern Mexico from Blackstone Energy Partners and other minority owners. The project, which is Mexico’s largest wind development, was commissioned in April.
The $852m deal includes $477m of debt and is due to complete by the end of this year.
Siemens eyes 5% annual storage growth
Demand for utility-scale battery storage systems in Germany is set to grow by up to 5% annually, a Siemens director has said.
Frank Buechner, head of the Siemens energy management division in Germany, has said fast growth of wind and solar would force utilities to invest in battery storage. He reported that demand has grown in the last 12 months, and could grow by 5% a year.
Buechner added that Germany’s plan to grow renewable power to 80% of electricity generation by 2050 was “unthinkable without storage”. The German storage market could grow fivefold to $1.1bn by 2019 according to Bloomberg New Energy Finance.
GE 500MW orders in Texas
Argentina attracts 3.5GW wind interest
Wind developers behind projects totalling 3.5GW are bidding for support in a 1GW renewables auction in Argentina.
The Argentinian government is looking to award support next month for renewable energy projects totalling 1GW, and has received applications for almost 6.4GW. Wind developers have submitted bids for projects of almost 3.5GW, with 2.8GW of solar and 100MW of bioenergy. The auction is due on 12 October.
Argentina’s prime minister Mauricio Macri has made increasing the use of renewable energy one of his priorities since he was elected in November.
Want more? Check out our Emerging Markets special report
Wind Watch
Wind Watch is published every Monday and Friday.
In the meantime, have you read Landmark Deals? This is our fourth special report of 2016 and includes in-depth interviews with David Jones, head of renewable energy at Allianz Capital Partners, and Paddy Padmanathan, chief executive of ACWA Power. Both men discuss their key wind deals of the last year and views on how the sector is developing. You don't want to miss this!
And that is not all. We have also rounded up what we see as the most important deals of the last 12 months; and sought out expert insights on the offshore sector and merger activity.
So what are you waiting for? Download it now and then let us know what you think. As always, thanks for reading.
Is Golden Concord about to swoop into the wind sector?
This is an intriguing question for us because we have seen the name crop up in two separate stories in the last two weeks.
First, the company was reportedly looking to buy Origin Energy’s planned 471MW Stockyard Hill project in Australia; and second, it is eyeing a buyout of SunEdison’s yieldco TerraForm Power, which owns solar and wind farms with headline capacity of 3GW in the US, UK, Canada and Chile.
This is all the more interesting because we have not heard from Golden Concord in the last few years. And now, two potential deals in as many weeks. Is something afoot?
Here’s the background. Golden Concord is a Chinese-based clean energy firm that specialises in building solar farms via subsidiaries including GCL New Energy. It bills itself as the largest non-state-owned power company in China, with a 20-year track record in the ‘power, photovoltaic natural gas and finance’ industries.
It is also on the acquisition trail. In August, the firm was named as a frontrunner in the race to buy Dubai private equity house Abraaj Group’s 66% holding in Pakistani utility K-Electric. This would help Golden Concord diversify its operations overseas.
And it has expressed an interest in buying three of SunEdison’s manufacturing arms.
Yet despite this, we do not think Golden Concord’s reported interest in Stockyard Hill and TerraForm Power indicates that it is looking to make any major move in wind. We need only look at the firm’s recent results to see that wind is a footnote in its strategy.
In its 2015 results, the company talked about how it had expanded its solar portfolio from 11 to 41 solar farms over the year, and ending with total installed capacity of 1.5GW. It followed this in its 2016 interim results by shouting loudly about growing its solar portfolio further to 68 solar firms with total capacity of 2.7GW. It has also been looking to grow in the solar sector in the US and Japan.
In contrast, wind did not merit a mention.
So what about those two deals we started with?
Well, the potential TerraForm bid still makes sense with a solar-focused strategy, as the yieldco’s 3GW portfolio is split 49:51 between solar and wind. With SunEdison’s bankruptcy filing, Golden Concord may see this as a great opportunity to expand its solar operation in the US, where it already bills itself as largest Chinese developer. It could then either sell the wind farms if it can attract better prices than SunEdison could achieve; or it could hold them for the steady returns they will deliver.
But it is the Stockyard Hill report that has really got us scratching our heads. We see little reason why a Chinese company that is focused on growing in solar would want to take development-stage risk in Australia. We do not think it will see enough security in a market that is still getting over havoc wreaked by former prime minister, Tony Abbott.
The only angle we see is that Golden Concord could use this deal to position itself as a partner for debt-laden Origin on its solar operations. But that doesn't look compelling enough.
No, we do not think Golden Concord is on the cusp of a spending spree in wind. The more likely reason that we are seeing its name being bandied around is that those of us in the west are attracted by the idea that there could be a tidal wave of cash from China.
Perhaps we are getting over-excited, and it would not necessarily be a bad thing if there is no tidal wave. Chinese investors are typically backed by enormous amounts of debt, and this could be another global economic disaster waiting to happen.
There is also a question over whether Chinese investors’ overseas deals would count as successful if judged by western standards.
Undoubtedly, though, Golden Concord is a major player. If it landed one or both of the deals it has been linked with then it could help it to open up opportunities in wind. Until that we are sceptical about whether, in wind, this concord will take flight.
The rise of Donald Trump as a potential US president shows there is a groundswell of support from those who want to, as the slogan goes, ‘Make America Great Again!’.
And with so many people in the US keen to go back to how they imagine the country once was then we could reasonably expect this to show itself in energy policy. This could mean we are on the cusp of an uprising for big oil against sources like wind.
But, according to the American Wind Energy Association, this is not happening. The association this week published information that it says shows that support for wind has grown in line with total installed capacity, which has just passed 75GW.
It says that 70% of registered voters have a favourable impression of wind =, based on a poll of 1,000 people from across the political spectrum, including 60% of Republicans and independents.
This follows a poll in July of likely voters in Iowa’s Third Congressional District, which was conducted on behalf of advocacy group American Wind Action, that showed that 91% of respondents supported wind energy.
Iowa’s Third District is one of the top 20 in the US ranked by total wind capacity. AWEA’s conclusion from these polls is clear: “The more Americans get to know wind power, the more they like it.”
The first thing we should say about these results is to give a usual caveat on polling. Results like this can change dramatically depending on how the questions are asked and the interests of the people commissioning the data. We need to be sceptical.
That said, we can be pretty confident that these results are a reflection of reality.
We need only compare them to statistics gathered in the UK by the now-disbanded Department of Energy & Climate Change. DECC said in the April edition of its Public Attitudes survey that 69% of the British public supported onshore wind, 76% offshore wind and 84% solar. AWEA’s statistics are supported by government-backed studies in other nations – even in the UK, which has been cutting support for onshore wind.
There are good reasons for people to be positive. The levelized cost of wind power in the US is continuing to fall – a 61% reduction in the last six years – which means that new schemes can compete more fiercely with other energy sources.
This helps to push down electricity prices for businesses and consumers; and enables the wind sector to support 88,000 jobs in the US while also boosting the nation’s tax base.
And the excitement over the first US offshore wind farm, the 30MW Block Island that completed last month, has highlighted how people including current US president Barack Obama want to support the growth of this industry. That support is great.
However, the industry cannot assume that public support will automatically translate into further growth.
Most people in the UK support wind power, but it has not stopped the government cutting subsidies. If Trump or Hillary Clinton are to continue backing for the wind sector then a strong business case is even more important than public support.
This means that, despite AWEA’s findings, the focus from wind investors must stay the same: to keep investing in the schemes and research that drives down the cost of wind. Political support for wind will only endure if there is a strong business case.
Public support is important, of course. Developers won't get very far without it. But all the public support in the world will make little impact with politicians unless the financials also make sense.
With a strong business case, even Trump might get behind wind.
For those of us who struggle to get through a week without taking a hammer to the unreliable office printer, the idea we should rely on printers more may seem alien. But the wind industry could soon be doing just that, if the evolution of 3D printers is anything to go by.
For example, last week US 3D printer maker Stratasys revealed that it is set to show off a machine called Infinite Build at next month’s International Manufacturing Technology Show 2016.
It says that Infinite Buiild can print layers of an object vertically, and therefore make much longer items than currently possible.
That could well include parts for wind turbines. Alongside its announcement about the technology, Stratasys also said it has agreed deals with Boeing and Ford to explore the possibilities of such 3D printers. Boeing is looking at it as a way to develop lightweight customised parts at relatively low volumes; while Ford is seeing how this could work in the automotive industry. Stratasys has previously worked with the likes of Airbus and NASA.
If this works in the aerospace and automotive sectors, it should work in wind too. In fact, in time we could even see manufacturers 3D printing whole turbine blades.
That isn’t as crazy as it sounds. In March, it was revealed that the US Department of Defense is leading an initiative called the National Rotor Testbed, which is looking to produce aerodynamic rotor blades using 3D printed moulds. This could help reduce the time and cost associated with making turbine blades, and therefore boost wind’s credentials as an investable proposition.
It is a long way from the scaled-down 3D-printed models we used to see at conferences, and we will watch with interest. With 3D printing coming of age, though, it can surely only be a matter of time before the wind industry finds a way to benefit.
In fact, the real frontier technology we should start thinking about now is ‘4D printing’, which is where 3D-printed objects can change shape when they are heated with an electrical current or by the air; when they are exposed to pressure; or when they get wet. This has potential applications in valves, electrical, pipes and much more.
Scientists at Lawrence Livermore National Laboratory in California are working on objects that can fold and unfold when needed. The prototypes may be tiny and commercialisation of the materials is still a long way off, but the researchers say they see a diverse range of uses in aerospace, health, space travel and beyond.
And we would put wind in there too, as this technology must have uses to help make turbine blades more aerodynamic.
That could be turbine blades with built-in vortex generators that respond to the wind conditions dictate; or that enable the shape of the blade itself to change. Or it could be turbines that become less rigid during an earthquake or hurricane so they do not break.
That just scratches the surface – and is, of course, our speculation – but we expect the commercial potential of this to become clear in due course. This may seem like a long way off, but ten years ago so would the idea of using 3D printed parts in wind turbines. Now it feels within reach, and without a paper jam in sight.
Wind Watch
For those of us who struggle to get through a week without taking a hammer to the unreliable office printer, the idea we should rely on printers more may seem alien. But the wind industry could soon be doing just that, if the evolution of 3D printers is anything to go by.
For example, last week US 3D printer maker Stratasys revealed that it is set to show off a machine called Infinite Build at next month’s International Manufacturing Technology Show 2016.
It says that Infinite Buiild can print layers of an object vertically, and therefore make much longer items than currently possible.
That could well include parts for wind turbines. Alongside its announcement about the technology, Stratasys also said it has agreed deals with Boeing and Ford to explore the possibilities of such 3D printers. Boeing is looking at it as a way to develop lightweight customised parts at relatively low volumes; while Ford is seeing how this could work in the automotive industry. Stratasys has previously worked with the likes of Airbus and NASA.
If this works in the aerospace and automotive sectors, it should work in wind too. In fact, in time we could even see manufacturers 3D printing whole turbine blades.
That isn’t as crazy as it sounds. In March, it was revealed that the US Department of Defense is leading an initiative called the National Rotor Testbed, which is looking to produce aerodynamic rotor blades using 3D printed moulds. This could help reduce the time and cost associated with making turbine blades, and therefore boost wind’s credentials as an investable proposition.
It is a long way from the scaled-down 3D-printed models we used to see at conferences, and we will watch with interest. With 3D printing coming of age, though, it can surely only be a matter of time before the wind industry finds a way to benefit.
In fact, the real frontier technology we should start thinking about now is ‘4D printing’, which is where 3D-printed objects can change shape when they are heated with an electrical current or by the air; when they are exposed to pressure; or when they get wet. This has potential applications in valves, electrical, pipes and much more.
Scientists at Lawrence Livermore National Laboratory in California are working on objects that can fold and unfold when needed. The prototypes may be tiny and commercialisation of the materials is still a long way off, but the researchers say they see a diverse range of uses in aerospace, health, space travel and beyond.
And we would put wind in there too, as this technology must have uses to help make turbine blades more aerodynamic.
That could be turbine blades with built-in vortex generators that respond to the wind conditions dictate; or that enable the shape of the blade itself to change. Or it could be turbines that become less rigid during an earthquake or hurricane so they do not break.
That just scratches the surface – and is, of course, our speculation – but we expect the commercial potential of this to become clear in due course. This may seem like a long way off, but ten years ago so would the idea of using 3D printed parts in wind turbines. Now it feels within reach, and without a paper jam in sight.
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Once bitten, twice shy. When damaging policies bite investors on their bottom lines, it can take years for those companies to feel confident about doing business again.
We have seen it in Spain, where the wind market is still paralysed after retrospective cuts. And we are now seeing it in Australia, where ex-leader Tony Abbott casts a long shadow.
Last week, the Weekend Australian newspaper argued that low investor confidence was stifling growth in Australia’s wind market. There are 58 wind farms in operation in Australia, with total headline capacity of 4.2GW, and 67 more proposed or approved. Despite this, only five are on-site, with total capacity of 918MW.
This is partly due to the legacy of Australia’s anti-wind former prime minister Tony Abbott, and the revisions made to the country’s renewable energy target last June. This cut back the goal of energy from renewable sources in 2020 from 41,000GWh to 33,000GWh; and failed to give investors any certainty after 2020.
The lack of certainty for investors in the RET system means that continued support for wind is reliant on having government support. It is true to say that there is more support for wind now than under Abbott, but these continue to be difficult times.
Let’s look at South Australia. In May, the state’s last coal-fired power station closed down. The green lobby cheered. But one month later, the state saw a spike in electricity prices because the removal of that power from the system coincided with slow winds and a period of cold weather. Energy price fluctuations have continued since then.
This has sparked a debate about energy security in which some
are casting wind and solar as the villains. South Australia currently sources 40% of its electricity from renewables, and the state is facing questions about whether it makes sense to grow wind and solar rather than other fossil fuel-based sources. While this debate rages it makes sense for wind investors to hold off spending.
But here’s the kicker. If developers do not build wind farms that have been given support under the RET then the government will have to pay high rates of A$93/MWh to make up the shortfall. This will get passed on to consumers and further inflame tensions. The upshot is that wind investors are damned if they build and damned if they don’t.
The other issue here is that some Australian states are making bold commitments to renewables.
In April, the Australian Capital Territory committed to source 100% of its electricity from renewables by 2020. It is a laudable aim, but we would have a concern if the territory was seeking to gain 100% of power from wind and solar, because this does little to address concerns from consumers that electricity prices will stay steady.
The other problem is that this taps into a popular fallacy that those in the wind sector think wind farms in their current form should be used to produce 100% of a country’s electricity. Not true, but it is such black and white thinking that will dominate debate.
It is a shame as this is overshadowing the good news in the sector. For example, this week the Australian Capital Territory hailed the fact that it has secured record low rates for wind power, of A$73/MWh ($56/MWh), at the 109MW Hornsdale 3 project.
But all is not lost. There are plenty of schemes in planning, and the government has shown that it is looking to fix its energy policy. If developers can get funding in order then the relatively quick development cycle should make it possible to hit Australia’s 2020 targets. The Clean Energy Finance Corporation says it is seeing a rise in wind investment after an 80% slump in the Abbott years.
Ultimately, Australia does have room to grow this low-cost source from the 4% from the mix it is now. There is plenty of scope, but growth will rely on investors putting money into a market where debate rages. Abbott is gone, but his legacy continues.
Wind Watch
Wind Watch is published every Monday and Friday.
In the meantime, here is another Q&A profiling a member of the
A Word About Wind community. If you are interested in finding out more about being profiled in A Word About Wind, please contact editor Richard Heap or membership manager Joe Gulliver.
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Name: John MacAskill
Job: Senior Consultant & Business Development Manager
Company: Offshore Wind Consultants Ltd
How long have you worked in renewables?
Since 2008. I was the first renewables employee in the UK for the GL Group.
In ten words or fewer, what does your firm do?
Experienced at reducing offshore wind risk for developers, lenders and investors.
In which markets do you see the biggest opportunities?
Domestically, we need to see movement on the Contracts for Difference auctions, or the offshore wind market will tighten in the UK considerably.
We are also particularly keen on China and Taiwan as offshore markets. Having just been out with some clients, real progress is being made and a number of lessons from Europe being applied.
What is wind's biggest challenge, and how would you fix it?
I delivered a talk last year called ‘Bigger, Farther, Deeper’ concerning the stretching parameters of offshore wind projects and the challenge of managing this from project to project, whilst incorporating ever evolving innovation and while keeping downward pressure on costs.
Scale and better continuity of deal flow gives us the opportunity to reduce the levelized cost of energy, but delivering these complex projects to these forecast strike rates is not simple. Schedules and events can spin out of control during construction.
Fixing it? We believe that risk management has significant room to improve on offshore wind projects and ensuring it is incorporated into their day to day management. There is more to it than just risk management, but that is one example we see when asked to review projects for clients.
What do you enjoy most about working in wind?
The technical challenge of projects, the great people and net positive impact on being part of developing clean energy sources.
Why did you join A Word About Wind?
I have been meaning to for quite a while. I like the fact that it is quite a focused network, and the fact that the focus on risk and investment is undiluted by other topics – however worthwhile they are – is extremely valuable.
Interested in being profiled in future? Please contact the team.
Name: John MacAskill
Job: Senior Consultant & Business Development Manager
Company: Offshore Wind Consultants Ltd
How long have you worked in renewables?
Since 2008. I was the first renewables employee in the UK for the GL Group.
In ten words or fewer, what does your firm do?
Experienced at reducing offshore wind risk for developers, lenders and investors.
In which markets do you see the biggest opportunities?
Domestically, we need to see movement on the Contracts for Difference auctions, or the offshore wind market will tighten in the UK considerably.
We are also particularly keen on China and Taiwan as offshore markets. Having just been out with some clients, real progress is being made and a number of lessons from Europe being applied.
What is wind's biggest challenge, and how would you fix it?
I delivered a talk last year called ‘Bigger, Farther, Deeper’ concerning the stretching parameters of offshore wind projects and the challenge of managing this from project to project, whilst incorporating ever evolving innovation and while keeping downward pressure on costs.
Scale and better continuity of deal flow gives us the opportunity to reduce the levelized cost of energy, but delivering these complex projects to these forecast strike rates is not simple. Schedules and events can spin out of control during construction.
Fixing it? We believe that risk management has significant room to improve on offshore wind projects and ensuring it is incorporated into their day to day management. There is more to it than just risk management, but that is one example we see when asked to review projects for clients.
What do you enjoy most about working in wind?
The technical challenge of projects, the great people and net positive impact on being part of developing clean energy sources.
Why did you join A Word About Wind?
I had been meaning to for quite a while. I like the fact that it is quite a focused network, and the fact that the focus on risk and investment is undiluted by other topics – however worthwhile they are – is extremely valuable.
Norwegian utility Statoil has been pushing ahead with some big offshore projects in the last year.
In April, it bought a 50% stake in the 385MW Arkona scheme in
the German North Sea, which is set to require total investment of €1.2bn. Construction on Arkona started last week.
The utility is also due to start turbine installation at the 402MW Dudgeon in UK waters in early 2017; and is in the running to develop the 600MW Kriegers Flak scheme off the coast of Denmark.
But arguably its most interesting offshore project right now is one of its smallest: the 30MW five-turbine Hywind 2 off the east coast of Scotland. The project is also known as Buchan Deep. Yes, it is small, but it also positions Statoil as one of the leaders in the evolution of floating turbine technology.
This scheme gives an indication of how those in the offshore wind sector could work more closely with those working in oil and gas; and help offshore grow globally. We spoke to Stephen Bull, senior vice president in Statoil’s wind and carbon capture & storage division, who explained where Hywind 2 fitted into its strategy.
Bull is a relative newcomer to the wind industry, having taken up this role in 2014, but has a long track record of working in different parts of the energy sector following two decades at Statoil and Norsk Hydro. His most recent role was heading Statoil’s shale gas arm. He says floating wind can complement other energy sources.
Hywind 2 is the follow-up to the Hywind floating demonstrator off the coast of Norway, in which Statoil has been investing since 2009. Bull says Statoil first saw the potential in floating turbines
as decentralised power for oil and gas platforms, but that this approach would only make sense in Norway because of the nation’s carbon tax. However, he says that floating turbines could help cut emissions from diesel-powered drilling rigs.
He says: “There are hundreds of platforms all over the world that burn incredible amounts of diesel to produce power for drilling and general production. Wind can easily outcompete that so, looking in our portfolio of oil and gas, there are interesting initiatives where we could provide clean energy for certain business segments.”
Statoil has an ambition that floating offshore turbines should be competitive with their fixed counterparts by 2030. This would help support the rollout of floating projects off the US west coast; in Asian countries including Japan, South Korea and Taiwan; and in some emerging European markets such as France.
In fact, such schemes would only be developed if floating turbines make sense as an investment proposition.
This is a topic over which speakers including former Siemens chief technology officer Henrik Stiesdal expressed concerns in a session at the EWEA conference in Paris last November. Stiesdal said firms needed to cut the cost of floating foundations by looking at ideas including off-site manufacturing and standardised designs.
Bull says he is confident that floating turbines will be able to compete with their fixed counterparts because of investment in research across the offshore wind sector.
He says: “Any benefit that fixed bottom gets migrates across to the floating side. The only difference is with the foundations,” and adds that Hywind 2 uses less steel than it would for jackets and monopoles in conventional fixed schemes. As the technology develops then this should result in a good business case.
The other interesting aspect of Hywind 2 is the associated battery storage scheme Batwind. Statoil signed a deal with the Scottish government, the Offshore Renewable Energy Catapult and Scottish Enterprise in March to develop a pilot scheme to help develop battery storage for the wind sector, including offshore.
The Batwind project involves installing a substation in Peterhead in Scotland and a 1MWh lithium battery-based system in 2018. This will enable Statoil and its partners to test four different sets of algorithms and power management systems, to work out which is the most effective way of integrating battery storage into offshore wind farms. If this is successful then it would help to further reduce the levelized cost of energy.
And it is an ‘if’. There is a long way to go if floating turbines and wind-with-storage are to become serious commercial propositions. But, if they are to do so, the support and investment from companies such as Statoil will play a hugely important role.
It is three years since the government of Serbia decided to open the country to investment in 500MW of wind farms. In the last nine months it has taken big strides to make it happen.
In November, developer MK Fintel Wind opened the 9.9MW Kula project, which is Serbia’s first wind farm. Serbian energy minister Aleksandar Antic used the event to talk up interest from investors, developers and manufacturers in a market where growth was just starting. It followed this by adopting a renewables-friendly Energy Law on 30 December.
There was a further indication of this interest from developers in April, when the Ministry of Mining & Energy revealed that it had secured enough projects to meet this 500MW. This includes the 158MW Cibuk 1 project by Continental Wind Partners; the 106MW Kovacica scheme by Elektrawinds K-Wind; and the 102MW Plandiste 1 by a subsidiary of Serbian oil and gas company Naftna Industrija Srbije. This should help fan investor interest.
And then, in mid-June, the government enacted a series of new laws to boost the confidence of renewable energy investors. One of the most important of these is the Model PPA Decree, which sets the term of government PPAs at 12 years and the level of feed in tariffs at around €0.092/MWh.
Kristof Ferenczi, partner in the energy department at eastern Europe and central Asia law firm Kinstellar, says that this has given confidence to investors because it shows they will be able to get attractive returns on their investments.
In addition, the government introduced an Incentives Measures Decree for incentives related to high-efficiency co-generation projects; and the PP Status Decree, which sets out requirements for power producers to gain special status for renewable projects.
So the developers are keen, and the government has put in place legislation that should make Serbia more attractive for investors. How long before this market really takes off?
This comes down to money, and how quickly the three projects identified earlier with over 100MW capacity can reach financial close and start on-site.
The largest of the three, Cibuk 1, requires total investment of around €290m, and gained the attention of investors including the European Bank for Reconstruction & Development; a subsidiary of German development bank KfW IPEX Bank; and state-backed Abu Dhabi investor Masdar. Continental Wind Partners has said work on the 57-turbine Cibuk 1 could start in early 2017. It would be one of Serbia’s first large privately-owned power projects.
Meanwhile, Serbian renewables advisor New Energy Solutions has said that it was in preliminary negotiations about financing for the €160m Kovacica wind farm, but did not say when these could complete. The project is set to use 38 General Electric turbines.
And details are even more scant about the long-talked-about Plandiste 1. But, in our view, one of these schemes will need to reach financial close and start on-site before more investors from established markets start to take Serbian wind seriously.
We will be keeping the closest eye on Cibuk 1. It is the only one of this trio that has given the names of interested investors, which are the development finance institutions that are keen to open up new markets; and has a tentative development timetable. This means it should be possible for it to reach financial close within six months.
If Serbia is to maintain its momentum then it needs a landmark project sooner rather than later.
Is Chinese investment in the energy networks of developed nations ‘a bad thing’? Politicians in the UK and Australia appear to think so.
Last month, the UK government launched a review about whether to allow French utility EDF to build the Chinese-backed £18bn Hinkley Point C nuclear facility. The government, led by Prime Minister Theresa May, has warned of risks to national security.
And last week, the Australian government made a preliminary decision to block the sale of a 99-year lease of a 50% stake in utility Ausgrid to Chinese and Hong Kong bidders because of security concerns. China’s State Grid Corporation and Hong Kong-listed Cheung Kong Infrastructure were both bidding for the lease.
Now, let’s leave China out of the equation for a second. Both deals have been the subject of major scrutiny regardless of the presence of the Asian superpower.
EDF shareholders have warned that delays in delivering Hinkley Point C would put the future of the French utility in doubt, while other critics fear that the UK electricity network is at risk by pinning its future on a big and complicated project. Meanwhile, in Australia, critics say part-privatising Ausgrid is not in the public interest.
There are legitimate concerns about both deals, but citing ‘national security’ looks like a smokescreen to give both governments more time for a wider re-think.
We do not want to underplay the importance of security in such deals. We saw last week that China General Nuclear Power, which is backing Hinkley Point C, is being accused of trying to steal nuclear technology in the US and is being investigated by the FBI. But that is primarily focused on the theft of corporate secrets.
In contrast, when the UK and Australia talk about ‘national security’, the implication is that China could switch off a large section of the electricity network if the nations got into a diplomatic spat. It could happen, but we think it is unlikely. China has plenty of other financial and political weapons that it could use instead of shutting down these plants, which would harm its investments.
We also see an inconsistency here. National security is only raised a concern if it is Chinese investors, but the UK is happy to let French, German and Spanish firms own large electricity-generating assets including offshore wind farms. Why the difference?
These other nations may not have the same financial might as China, but they could still shut down UK assets. It does not look like a huge risk in those cases – and it should not be with China.
And this is why this debate is important for wind farm investors.
Over the last year we have seen state-backed Chinese firms conclude big deals in the European offshore sector, including China Three Gorges and SDIC Power.
We expect more of this over the next couple of years, and see it as a vital funding source – admittedly, one of many – in supporting wind’s expansion offshore. These firms should be free to compete for deals and do not want this scuppered by political posturing. If
these governments have credible evidence, they should reveal it.
That is not to say we think Hinkley Point C should go ahead. It looks like a massively costly and inefficient project when other cheaper energy sources, including wind, are available. But, if it is to be rejected, then it should be for sensible business reasons, not just spurious security fears whipped up to manipulate the public.
For one thing, it sends a bad message to wind’s would-be new investment partners; and mistrust of Chinese investors coming to Europe is likely to be repaid with mistrust of European firms going to China. Doing business with China is already hard enough.
The US listed yieldco market has been teetering for a year, and the dramatic collapse of SunEdison four months ago threatened to push the whole market off a very tall cliff.
But there is now evidence that this market is tentatively starting to pick up again. If these structures are to survive into the future then they must learn from their problems first time around. Practically, this is likely to mean adopting more conservative strategies.
The problems with US listed yieldcos have been well-rehearsed.
First, they gave investors unrealistic expectations of the returns that could be made from wind and solar farms. They promised double-digit returns on assets that would typically deliver a steady 5%-6%, and could only deliver those double-digit returns as long as they continued buying assets and raising money. Falling investor confidence exposed the folly of this business model.
And second, their need to continually buy assets to deliver those promised returns resulted in fierce competition between yieldcos to do deals. With only a limited number of assets to go for, this drove up prices and affected returns -- which then hit investor confidence.
These must be addressed if US listed yieldcos are to have a rosy future. Will they be? We hope so, and we can follow the prospects of two yieldcos to see what happens in practice.
On Monday, US developer Pattern announced that its yieldco arm planned to raise $239m by selling 10million Class A shares, and said it would use the money to buy more projects from its development arm. In June, it committed to buy the 324MW Broadview wind farm in New Mexico for $269m when the development completes in early 2017.
And, on Tuesday, NRG Energy’s yieldco arm launched its own $150m fundraising, which it said it would use to pay off debt as well as fund new acquisitions and investments.
The very fact that two US listed yieldcos are looking to raise funds tells us a few things.
First, they feel that investor confidence is returning to listed renewable energy companies after last year’s rout, which must be a good thing. If more retail investors are putting their money into renewables then that should have a positive benefit on acceptance of renewables including wind, and underline that the sector has strong business credentials.
Second, it tells us that large developers still see the stock market as a viable way to fund new developments. It is another weapon in the arsenal of those looking to fund schemes. A range of funding sources is a benefit to the sector as sluggish growth continues.
And third, it should give confidence in the health of the US market. These firms expect good investment opportunities following the five-year extension of the US production tax credit late last year, and want to raise money so they can cash in.
We expect other fundraisings to emerge through 2016, and we are not alone. Andrew Redinger, head of KeyBanc Capital Markets’ utilities, power and renewable energy group, said in June that yieldcos were “poised for a huge comeback”; and that the Pattern fundraising would set the tone for the market. To us, it looks like Pattern's plan is focused on gradual growth and, if this happens, it could point the way for other yieldcos to act conservatively.
And, in our view, it is the conservative yieldcos that will be most attractive to investors.
If the yieldco pain of the last year has taught investors anything, it is that wind farms are not fast-growth assets. It is exceptionally rare that a company would buy a project and be able to make huge improvements to the amount of energy produced. After SunEdison, we expect investors to be more alert about the risks posed by yieldcos that promise too much.
Better to get steady returns than risk losing it all.
Wind Watch
Wind Watch is published every Monday and Friday.
In the meantime, here is another in our regular series of Q&As profiling members of the A Word About Wind community. If you would like to be profiled in A Word About Wind, get in touch.
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Name: Muir Miller
Job: Managing Director
Company: Peel Energy Ltd
How long have you worked in renewables?
I started work in renewables in 2003 when I returned from a ten-year assignment working in Thailand. I initially worked for United Utilities Green Energy as their operations director, then moved to work as the CEO of a Macquarie Bank renewable company when they bought UU Green Energy. I joined Peel Energy in 2008.
In ten words or fewer, what does your firm do?
We develop build, own and operate low carbon projects.
Where do you see the biggest opportunities at present?
While there are some interesting countries with emerging wind opportunities, Peel Holdings, as a privately-owned, entrepreneurial company, is still very much focused within the UK.
Peel Energy is constructing two onshore wind farms at present and is developing Scottish Island projects. We also develop low-carbon projects outside the wind sector including Biomass CHP.
What is wind's biggest challenge, and how would you fix it?
The biggest challenge in the UK wind sector is the UK Government – they need to create a stable energy policy to give some certainty to the developers and investors. Mixing politics and value for money does not allow the industry to mature.
What do you enjoy most about working in wind?
No two projects are ever the same and you can guarantee that unexpected issues will hit each project. Development and construction is a people business and dealing with the wide range of stakeholders is both challenging and enjoyable.
Why did you originally join A Word About Wind?
A Word About Wind called me and asked if I was interested in attending one of their conferences. From there we decided to join.
These are troubling times for Turkey.
In the wake of the failed coup last month, media outlets are being shut down. Schools are being closed. And, most importantly for investors, ties with the west are being severed.
“President Tayyip Erdogan angrily rejected Western criticism of purges under way in Turkey's military and other state institutions … suggesting some in the United States were on the side of the plotters,” Reuters reported.
For those in the wind industry, it is a worrying turn of events. In May’s Renewable Energy Country Attractiveness Index, by the accountancy giant EY, Turkey ranked 19th worldwide for renewable energy investment, ahead of Belgium or Sweden.
Now, however, Turkey’s investment grade hangs in the balance as Erdogan’s crackdown on dissidents extends beyond the military and into the private sector.
Wind developers and investors, and particularly those based in western economies, would be wise to put plans on hold until the situation in Turkey becomes clearer.
In the meantime, however, the wind sector could take comfort from a possible long-term silver lining to the turmoil in Turkey.
Writing in Energy Post Weekly, European energy watcher Karel Beckman has noted that on its current trajectory Turkey is unlikely to play host to the Southern Corridor gas line planned to bring gas to Europe from Azerbaijan and beyond.
Removing a potential transit line for gas can only speed up Europe’s need for renewable energy.
Additionally, Turkey may end up building the proposed Turkish Stream line to obtain gas itself from Russia, removing the need to import supplies from Ukraine and depriving Ukrainians of a significant source of income.
As Ukraine’s current thermal fleet ages, a lessening dependence on gas could improve the case for renewables. Wind is a natural choice since Ukraine has high levels of pumped hydro for storage.
Whichever way you look at it, then, the current situation in Turkey serves as a further reminder of the dangers for European nations of relying on gas supplies piped in from outside the continent.
Conversely, it also highlights the desirability of exploiting energy sources closer to home, which in many cases means wind. And Turkey isn’t the only reminder right now.
The UK's vote to leave the European Union in June is another clear example of current moves away from neighbourly, share-and-share-alike geopolitical relationships across Europe.
And if Donald Trump wins the US presidential race this year then we can expect to see isolationist policies taking a hold in the US.
Naturally, the idea that wind power might benefit from growing distrust between nations is something of an exercise in positive thinking. As Brexit has already shown, any upside can in reality easily be outweighed by the knock that investor confidence takes whenever global relations fall apart.
With Turkey, then, it is in almost everyone’s interests for the tempers to calm and for things to return as quickly as possible to their pre-coup state. With Erdogan taking an increasingly belligerent rather than conciliatory stance, however, it is probably best not to hold your breath.
Is Gorona del Viento working or not?
This month the project, which combines Enercon wind turbines with a pumped hydro storage plant on El Hierro, in the Canary Islands, proudly announced a new record in keeping the entire island running for 55 hours on renewables.
Sounds like a real feather in the cap for clean energy advocates. But not everyone is convinced. A detailed analysis of Gorona del Viento’s operations to date, on the influential Energy Matters blog, concludes the project is a flop.
So far, according to author Roger Andrews, Gorona del Viento has clearly failed to supply all the island’s energy needs, as originally intended, or even 68.4% of electricity demand, as estimated in engineering studies.
In fact, Andrews concludes, it is possible the project will never achieve these objectives because both the wind farm and the pumped hydro reserve are undersized. This “further suggests that replacing fossil fuels with intermittent renewables elsewhere in the world could be a lot more difficult than the proponents of renewable energy are prepared to admit,” he says.
That is a worry for wind because there is a sense the industry has always viewed energy storage as an ace up the sleeve that could be played whenever the issue of production intermittency became too obvious.
So far, things have been fine. Existing pumped hydro reserves, owned by third parties, have helped wind achieve high penetration levels in a number of European markets.
Elsewhere, wind farm operators have become masters at matching actual production to forecasts, both by getting cannier at forecasting and through the judicious use of curtailment.
But there are signs the time could be right for the wind industry to play its ace. In the US, for example, lawmakers are pushing to give energy storage the same kind of investment tax credit that wind benefits from. That could make it more attractive for wind developers to add storage to their plants.
At the same time, a recent analysis claims the US only has 1% of the storage it needs to run entirely off renewables.
That means there is plenty of room for growth if energy storage really is the cure for wind power’s intermittency ills. And it’s that ‘if’ that makes it so important to get to the bottom of the Gorona del Viento affair.
So far the council-owned company running the project has refused to answer queries after issuing its 55-hour claim. Battery firms queried on the matter, meanwhile, have shrugged it off with an “it wouldn’t happen with us” reply.
That simply won’t do at this stage of the game. If storage isn’t quite the neat answer that everyone thinks it is, then the wind industry needs to know, fast. This is not just because it could save a lot of embarrassment over failed projects, but also because the kind of deep engineering know-how that many wind companies have could be crucial in solving the problem.
For a long time, the wind industry has seen storage as someone else’s domain. Something the solar or automotive guys were working on, perhaps. But if Gorona del Viento really isn’t working, then the wind industry needs to get involved — and get to the heart of what’s going wrong.
Massachusetts mandates 1.6GW...
The Massachusetts State Legislature has passed a bill that requires utilities in the state to contract for 1600MW of offshore wind capacity by 2027.
The “Act to promote energy diversity” also mandates the procurement of a further 1200MW of renewable energy, including onshore wind, hydropower and solar.
DONG Energy said that the “landmark” legislation will “allow the creation of a viable offshore wind energy industry” in Massachusetts. However some officials have criticised the failureof the bill to increase Renewable Portfolio Standards in the state.
Block Island, the first offshore wind farm in the US, is poised to enter the final phase of construction, following the delivery of five GE 6MW nacelles to the site off Rhode Island in late July.
…as NYS supports struggling nuclear
Regulators in New York State have approved a new Clean Energy Standard, which will require 50 percent of electricity to come from renewable sources by 2030.
The mandate will establish a credit system to subsidise renewable energy generation.
It will require utilities and energy suppliers to rapidly phase in clean energy resources, in order to meet incremental electricity load targets of just over 26% by next year and around 30% by 2021.
It also provides controversial support for three struggling nuclear reactors operated by Exelon and Entergy. The firms will receive total subsidies of around $500 million a year for the Fitzpatrick, Ginna and Nine Mile plants in New York State.
Netherlands eye €2bn offshore savings
Falling development costs could reduce the total amount spent by the Dutch government subsidising offshore wind developments by as much as €2 billion.
According to comments made by Rabobank’s Simone van Gendt in Dutch national Financieele Dagblad, the total subsidy required in order to meet 2023 capacity targets may stand at just €10 billion.
This figure sits €8 billion below initial projections, and a further €2 billion below the revised estimate produced last year by Henk Kamp, Minister of Economic Affairs.
Vestas takes 120MW Moroccan order
Vestas has confirmed a 120MW turbine supply order with Saudi developer Acwa Power for the Khalladi wind farm under development in northern Morocco.
Under the terms of the agreement, the Danish manufacturer will deliver 40 V90 units to the site in Q2 2017 ahead of installation later in the year.
The order is Vestas’ first in Morocco since 2000, and adds to a pipeline of over 900MW installed or under construction in Africa.
Nordex supplies EDF in Brazil
Nordex Group has agreed a turbine supply and installation contractwith EDF EN for the 66MW Ventos da Bahia 1 wind farm in Brazil.
The deal is the first for Nordex in Brazil since the high-profile takeover of Acciona Windpower in October 2015, and will see the firm install 22 Acciona AW125/3000 turbines at the site.
Delivery of the turbines, produced at the firm’s local manufacturing facilities in Brazil, will commence in late summer.
Troubled economy. Political turmoil. Regional instability.
No, we are not talking about Brexit and ongoing uncertainty about the type of relationship that the UK will seek with other countries in Europe. We are talking about Brazil, which is set to gain the world’s attention this month as the Olympic Games start in Rio de Janeiro. This is with a backdrop of deepening recession, political crisis and the Zika outbreak.
And amid all of these problems the wind sector is suffering too. Brazil has been grappling with the problem of too much electricity in the system following five quarters of economic contraction and high electricity prices, both of which have hit demand from businesses and consumers. It is a big change for a country whose system nearly collapsed after droughts. Now power companies are producing about 10% more electricity than Brazil needs.
The upshot of this electricity oversupply is that there is little desire from the government to build new wind farms. The Brazilian government has not awarded tenders for any projects in the first half of 2016, and it is only planning to hold one wind and solar auction this year. The prospects for investors, developers and others to get into the market are limited.
This is not simply a problem with oversupply. In April, the country’s pro-wind energy minister Eduardo Braga quit as it became obvious that president Dilma Rousseff would be forced to fight impeachment proceedings. Braga’s interim replacement Fernando Filho has said that Brazil is only going to hold one auction for new wind and solar capacity in 2016, which is one fewer than expected.
The combination of political uncertainty and electricity oversupply does not bode well for those in the wind energy supply chain. In fact, it bears out something we wrote — and got a little bit of flak for — in the run-up to last September’s Brazil Windpower conference. The country had just entered recession and we warned that it could force the country to turn its back on wind. ‘Nonsense,’ we were told, but now the prospect seems all too real.
Companies are clearly worried. Jérôme Pécresse, president and chief executive of GE Renewable Energy, does not seem like a man given to brash overstatement, but he has warned that the slowdown in Brazil’s economy means that the supply chain is at risk of collapsing because of the lack of new projects. He also told Bloomberg that some firms have been defaulting on their electricity bills and that financing for the sector is drying up.
“We are very worried about the prospects for the wind market in Brazil,” he said. If there are no new projects tendered then that means no work for developers, manufacturers or those throughout the supply chain. It is a particular problem for manufacturers, who face being saddled with factories that are either being under-used or not used at all.
Developers and investors in the wind sector are pinning their hopes on a 500MW wind and solar auction. It was due in October and last week was put back until December 16. But there is still a place for wind. The government’s response to the hydro sector’s drought crisis was to invest in very expensive thermal power plants to fill the supply gap that existed then, and wind farms can still play a role in cutting the cost of energy for businesses and individuals.
There is an argument there for the government extending support for wind, though we wonder whether it will want to do this when it has many other problems to tackle. If it does then companies in the supply chain in Brazil can relax a little for now.
And if it doesn’t? Best jump on a flight to Argentina or Mexico.
The wind market in Egypt has spent a couple of years on the launch pad. But changes to feed-in-tariffs have the potential to undermine investor confidence before it has even taken off.
Egypt has a power problem. The North African nation operates dangerously close to it maximum production capacity, which leads to frequent blackouts during the summer months.
For Egypt, this is not simply about meeting existing electricity needs. Consumption is rising 6% a year and a failure to meet this need risks sparking social unrest. It is an issue that urgently needs addressing. This was the driving force behind the 2014 announcement that Egypt would undertake a tendering process for a system of FITs to promote the construction of wind farms.
In the first round, the government has so far allocated more than 1.6GW of a planned 2GW new capacity, and seen significant interest from international banks, developers and manufacturers.
However, concern is now building among investors.
Central to the recent anxiety is a government announcement in May that international arbitration would not be available for disputes over wind projects in the country, meaning that all disputes would have to be heard locally. This is problematic for investors given that the Egyptian political and legal systems are always in a state of flux. It gives little confidence that a government that is sympathetic to wind energy today will be so tomorrow, and makes investment look risky.
And we are already starting to see the effects. It has made already difficult access to capital even harder. Furthermore, there are rumours circulating that elements within the Egyptian government feel the rates offered in the first FIT round were too generous.
Some even fear that the government may move to scrap the first round in favour of setting lower tariffs for round two — though how many firms would bid for FITs in such an uncertain situation is anyone’s guess. But legal experts in the region have said investors should not panic yet.
Legislative changes, along with regional instability, were always going to be one of the largest risks facing investment in Egyptian wind. However, the country still needs to install more power generation, and that is not going away.
Some estimates suggest that Egypt will need to bring on an extra 30GW of capacity by 2030 in order to meet demand, and that at some point in the 2030s the country will become a net importer of oil and gas. The government needs this to work.
On that basis we think interest in Egypt as a wind investment opportunity is set to continue.
Siemens, Engie and EDF have won agreements to develop renewables in the country and Vestas is in talks with the Egyptian government for a 2.2GW wind investment. As investment flows into Egypt the regulatory framework will likely become clearer.
A law is reportedly in the pipeline that will see Egypt move control of transmission networks towards a more open and deregulated framework where the government plays a less direct role.
Egypt remains one of the most promising opportunities for wind investment in the Middle East and North Africa, but the government will need to tread carefully to ensure that it remains an attractive prospect for investment.
SunEdison yieldco acts to stop takeover
TerraForm Power has moved to prevent a share takeover by Brookfield Asset Management and hedge fund Appaloosa.
The US yieldco of troubled renewables developer SunEdison created a shareholder rights plan after Class A shareholders Brookfield and Appaloosa issued a regulatory filing outlining their intention to bid for shares held by SunEdison.
The agreement "was adopted in response to the potential sale of a significant equity stake in TerraForm Power by SunEdison,” said TerraForm Power chief executive Peter Blackmore in a statement.
Games: 460MW in India, 27MW in Brazil
Spanish turbine maker Gamesa has won orders for 487.3MW of machines in India and Brazil.
The India deals will see 230 turbines, totalling 460MW, being installed “for various clients,” Gamesa said.
Meanwhile the Brazil order, for 27.3MW of machines to equip the Vila Acre project in Brazil’s Rio Grande do Norte, is Gamesa’s first with French developer Voltalia, Gamesa comfirmed.
Senvion wins France’s first floating order
French environment and energy management agency ADEME has picked Senvion turbines for France’s first floating wind farm.
The turbine maker is adapting its 6.2M152 product for a floating platform from the Quadran-led EolMed consortium, Senvion said.
Separately, Senvion has also confirmed a 4MW order for an off-grid project in the Australian outback.
Committee warns of Scottish wind threat
A report by the Scottish Affairs Committee has said changes in UK government policy risk threatening renewables growth in Scotland.
“The removal of subsidy for onshore wind in particular, without consultation with the industry or Scottish Government, is ... particularly troubling,” said the UK Parliament's Commons Select Committee.
The committee noted Scotland now produces almost 30% of all renewable energy in the UK.
German municipal utility eyes offshore
Germany’s biggest municipal utility, Stadtwerke München of Munich, is aiming to extend its reach in offshore wind.
The energy company has already spent €3bn on renewables and owns stakes in the DanTysk, Gwynt y Mor, Global Tech I and Sandbank offshore projects, Reuters reported.
Chief executive Florian Bieberbach said SWM was planning to grow its offshore portfolio through joint ventures and might consider taking a majority holding in projects going forward.
Something unique happened in Spanish politics last December: there was a general election and nobody won.
For the first time since the country regained its democracy, in 1978, the alternation of power between Spain’s two main parties was interrupted by the arrival of two significant newcomers.
The conservative People's Party (Partido Popular or PP) and the social-democratic Spanish Socialist Workers' Party (Partido Socialista Obrero Español or PSOE) lost votes to two upstart parties feeding off citizen discontent.
Left-wing Podemos (‘We Can’) and liberal Ciudadanos (‘Citizens’) promised to offer a newer, cleaner form of government to an electorate tired of the PP and the PSOE’s long histories of corruption and cronyism. It wasn’t to be, though.
With no clear winner in the elections, the parties grudgingly set about creating alliances to earn a parliamentary majority — and failed. After six months, Spain went back to the polls for a second attempt to select an administration.
The results of the election last month were largely overshadowed by Britain’s decision to abandon the European Union, just three days earlier. Never mind. Little has changed.
The PP, which had been in power up until last December and has been acting as a caretaker government since, emerged ahead of the pack with better result than it had achieved six months ago.
But with just 137 seats in a 350-seat parliament, it is still some way off being able to govern unless the other parties support it or abstain from voting against it. On that front, the noises coming from the PSOE, Podemos and Ciudadanos are not encouraging. But any alliance between these three parties seems fraught, too.
In fact, statisticians have been having a field day trying to work out if any combination of parties at all is likely to work. Could this mean Spaniards will have to face a third general election?
Almost all party leaders have said that's the last thing they want to put the country through. So it looks as though some agreement to allow the PP to govern in minority might ultimately take place.
And that's where things get sticky for the wind industry. It is no exaggeration to say that the PP’s latest spell in administration, from 2011 to 2015, was the worst thing that’s ever happened to Spain’s renewable energy industry.
Among austerity measures aimed at pulling Spain out of recession and eliminating a massive tariff deficit, the PP axed feed-in tariffs for wind power and replaced them with a formula that made new projects practically unviable.
The upshot was that developers didn’t install a single megawatt of capacity last year, leading the Spanish wind industry association to name 2015 “the darkest in the history of wind energy in Spain”.
The savageness of the PP’s cuts has led many to believe there is more going on here than a simple desire to correct the economy.
Many ex-ministers from the party, including the EU Commissioner for Energy and Climate Action, Miguel Arias Cañete, have links with utilities and petrochemical firms threatened by the rise of wind and solar in Spain.
That’s why most renewable energy interests were hoping for the PP to lose out to one of its rivals last December, since all the other major parties have pledged to repeal the PP’s energy law. Such an option now seems unlikely. Instead, the outcome of the latest electoral round seemingly makes it more difficult for a coalition of political forces to wrest control from the PP.
And even if the PP ends up leading a minority government, it is unclear whether opposition parties will have the ‘cojones’, as they say in Spanish, to force it to back down on energy policy.