On the back of corporate demand and increased non-recourse bank financing, the European wind sector saw investment in 20GW of new capacity, 13GW in the EU itself with the remainder in geographical Europe. This broke down into 13GW of onshore and 7GW off, and showing a 70 per cent increase in investment.
The news came in the latest report from WindEurope, Financing and investment trends 2020. Despite the challenges of COVID-19, this was the second highest amount invested in the wind sector to date. And given that the year of highest investment was 2016, where developers rushed through to take advantage of the last of the available feed-in tariffs, this is a huge step for the sector.
There is still a significant capacity gap, with the European wind industry needing to add 27GW to achieve European Commission goals of 55% renewable energy by 2030. WindEurope chief executive said that the sector expects to be able to roll-out capacity growth of 15GW over the next few year, leaving a gap of around 12GW of capacity.
According to the report, the biggest challenges to growth are not finance, but permitting delays, with the majority of Member States failing to meet the permitting deadlines under the EU Renewable Energy Directive. This is a concern because the complexity and time constraints mean that permitting not only increases the amount of time and money spent as a percentage of the overall project, but also increases risk during the development phase. Given the need to scale up deployment even further, this is something that needs to be addressed.
While there are growing concerns about skills gaps within a range of new technology sectors, it appears there is a lack of understanding about the wind industry within some ministries and Giles Dickson, chief executive of WindEurope says that many are understaffed.
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Guarantees of origin (GoU), for example, have become somewhat of a bone of contention. Some countries are suggesting that publicly funded wind farms should be able to transfer a GoO to an international partner. Yet this is not a tradeable certificate per se, but rather a traceability instrument.
What is most interesting about the capacity gap is that while it exists and is a problem, its far smaller than that challenging a range of other decarbonisation technologies. Analysis of sectors such as carbon capture and storage suggest that scale up of 1,900 per cent might be needed to achieve the IEA sustainable development scenario by 2030.
One of the big shifts in 2020 was the increase in non-recourse finance, with banks lending €21bn of non-recourse debt to new wind farms in 2020. The EIB and ETRD have been particularly strong in this area, crowding-in public finance.
At the same time, comfort levels with contracts for difference, which replaced feed-in-tariffs and provide a revenue stabilization mechanism, seem to be increasing according to Dickson. The UK, Spain, Poland, France and Denmark are all using them today. Without a CfD contract there can be significant difference in the way in which projects are financed, shifting the balance between debt and equity from 80:20 to 25:75
The economic benefits of investing in wind power however continue to support focus on the potential for the European Green New Deal in driving a post-Covid recovery. According to Giles Dickson, chief executive of WindEurope, every turbine drives around 10 million in economic activity while the expansion of wind power is expected to add 150,000 jobs in Europe by 2030.
Power purchase agreements (PPAs)
The corporate sector continues to drive demand for more wind power, with 2GW of wind PPAs closing in 2020. This is being driven by increasing investor focus on decarbonisation (and company efforts to address their supply chains) is forcing action on electricity agreements. 2020 saw enormous global deals such as TSMC and Orsted’s nearly 1 GW offshore wind agreement, while Amazon became the world’s largest corporate purchaser of renewable energy. Initial interest may have come from the information technology sector, but energy intensives are showing increasing interest in 2020 including chemicals, automotive and steel.
A fairly new trend is in aggregated power purchase agreements. Late 2020 saw the announcement of new industrial agreement between Statkraft and Daimler, where Mercedes will be powering its operations through wind power generated by 80 turbines across 24 (post-subsidy) wind farms. In an example of one of the ways in which the variability of wind can be effectively managed, the PPA will use the Statkraft model of using German wind, solar and hydro in connection with Norwegian hydropower storage to ensure stable delivery. Statkraft says that the approach will enable the deployment of solar and wind without subsidy.
The growth of floating wind
The floating wind market is also showing signs of significant growth, with a large scale auction being held in France for 250MW off Brittany, soon to be followed by a further 250MW opportunity. While some of the numbers under discussion suggest that 2021 bids will be around 120 with figures of 110 next year, it’s been suggested that the final bids could be in double figures. Obviously this will only happen if floating wind follows the trajectory set by offshore wind. To date there are only a couple of projects, such as Hywind in Scotland and WindFloat in Portugal, but both are reporting high capacity factors.
Until 2019, it was believed that offshore wind would remain more expensive than gas-fired power to around 2030. When the UK government awarded 6GW of subsidy free offshore wind, a Carbon Brief analysis suggested this had already happened. A 2020 Nature paper confirmed that auction data suggests that offshore wind is becoming cheaper than ‘conventional power generation’
With skills and experience flooding in from the oil and gas sector, growing appetite from the corporate sector and commercial banking interest, the wind sector looks set to soar.