European Offshore Wind Industry Taking Off
January 19, 2010 - 3:39pm ET
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2009 marks the third year of industrialisation and growth for the nascent offshore wind sector, with a lot more to come:
With just under 600MW installed in 2009, this is just under 10% of the wind capacity built in Europe in the year, but it's a sign of things to come as 3.5GW are already in construction and another 16GW are fully permitted.
More below [with specific comments on the US situation added]. Part of the Wind power series.
The UK is currently the country with the most offshore wind capacity; in coming years the country and Germany will be the top two markets for offshore, with plans of more than 20GW each in the next decade or so. [The US are expected to start building some offshore capacity in the next few years, but basically the industry there is 10 years behind Europe, and will need to re-learn some of the lessons already learnt because European vessels and equipment are forbidden from engaging in US waters because of the Jones Act]
Note that roughly 90% of all offshore turbines installed so far have been manufactured in Denmark, and while Germany is the home of several new ambitious manufacturers (Repower, Multibrid, BARD), the two Danish incumbents (Vestas & Siemens) are likely to keep on dominating the market for some time to come. This was a €1.5 billion industry last year, it will double this year, and triple again in the next few years...[For early US projects, the turbines will come from Europe. Consistent development and some critical mass will be required for manufacturing to shift to the US. But as noted below, a good chunk of the jobs will be local by necessity - steel or concrete foundations, marine works, port operations, vessels, clong term operations and maintenance]
There are two key issues to solve to ensure that the massive plans under way do happen in full:
- getting the grid connections in place. The regulatory framework for national connections has largely been put in place (for instance, in Germany, it is the responsibility by law of the grid operators to provide access to the grid to offshore projects) and discussions are under way to set up intra-European connections across the North Sea. Investment is exepcted to take place in parallel to that in the wind farms themselves; domestic networks are also being strengthened to absorb the new generation capacity, which is largely concentrated in one region;
While the technical challenages are real (but solvable), it must be noted that the various European countries have largely put in place a framework for the industry which works and will work into the future - all under the coordination of the EU, which has taken a leading role there. This is a good exemple of the EU regulatory powers at work for the good of all, here. [in the US, offshore is actually going to be relatively easy on the grid - projects will be close to load centers and relatively easy to connect and integrate - all that will be needed is the (not small matter of the) offshore cable]
- financing such investments. The plans will require growing investments, reaching roughly ten billion euros per year in a few years. While this is largely a utility play, ie the investments will be made by companies with strong balance sheets and with a solid capacity to invest, the amounts are so large that external financing will likely be required. That market is barely emerging, both on the debt side (which is what I do) and on the equity side (with new players like funds and a few independent developers to invest alongside experienced utility owners) and a lot of work is going to be needed. [This is even truer of the US, where historically the wind sector has largely been financed on the debt side, by European banks, which are going to be stretched by the needs of the sector in Europe already... on the other hand, a lot of financial investors could get into the game]
As I wrote the bit in the report on financing, let me quote myself...
Positive financial trends were evident in the second half of 2009 with the Belwind and Boreas transactions, which involved different sponsors, technologies, bank groups and authorities. By creating two high-profile precedents for the sector and bringing about the involvement of many new banks, they opened the door to more deals in the future. The presence of the European Investment Bank (EIB) in the Belwind financing is also likely to be a crucial precedent for the multilateral institution as it builds up its investment in the sector.
The offshore wind industry was also buoyed during 2009 by the European Union’s European Economic Recovery Plan which injected €255 million of the €565 million directed towards offshore wind into five separate offshore wind farms (...) This stimulus injection was vital, and it remains crucial that this financing is released as soon as feasible and that the Commission’s review in 2010 of the European Economic Recovery Plan, or any further stimulus package, continues to target the offshore wind industry as a strategic European sector.
To ensure that the market growth expected for 2010 is not blown off course the European institutions, particularly the EIB, must continue to increase their involvement in the offshore wind industry.
More generally, banks must be given continued comfort that stable regulatory – and in particular revenue – regimes will be in place over the long term, and that connection to the grid is guaranteed to offshore wind projects.
Given the continued worries in the banking world about long term liquidity availability, European institutions should consider structures to provide dedicated low-cost funding to banks active in the offshore wind sector. Such a mechanism would have the additional advantage of bringing the overall cost of offshore wind down.
I'm especially happy that the last sentence was included in the EWEA report as it means that the concept of cost of funding - and the advantage of the public sector in that respect - is beginning to get a hearing...
Along with these two issues, the big thing now is going to be to industrialize the sector, ie ensure economies of scale by replicating processes as much as possible, both during construction and during long term maintenance. The good thing is that Europe has now attained a critical mass of projects in the water, and reached a good level of experience. There are enough projects around to justify the investment in ad hoc vessels, harbor facilities, turbine factories, personnel training, and to ensure that construction takes place as efficiently as possible (given the inevitable weather uncertainty on site). There is now enough operational data - at least on some turbine models - to streamline and optimize maintenance procedures and reduce the number or at least the complexity of interventions at sea, and reduce their cost by replication over large fleets. The hope is that costs can be driven down significantly through that learning and expansion process. And it's good industrial policy - not much of that work can be offshorised outside of Europe, that is...[The same naturally applies to the US - except that the economies of scale and experience are still 10 years away, and that a lot of the lessons from Europe will need to be ignored as the industry needs to start from scratch with currently inadequate US vessels]
Oh, yes: you can call me a wind shill!
This was cross-posted from European Tribune.
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