Regulatory changes and uncertainty have damped enthusiasm for new projects in countries such as Bulgaria, Romania and Poland, while European utilities that led the rush into the region several years ago have put growth aspirations on hold or, in some cases, packed up their bags to seek opportunities in the new Eldorado of Latin America.
Yet some emerging European wind markets continue to show considerable growth potential and opportunities are not lacking on the investment horizon. "There's been a definite push back in more mature markets (in the region), but new markets are starting to open," says Nandita Parshad, director for power and energy at the European Bank for Reconstruction and Development (EBRD). Among the more established emerging markets, Turkey continues to stand out for the steady expansion of its wind energy sector, growth that is generally expected to continue despite the economic and political bumps the country is currently experiencing.
Turkey has been rocked by a corruption scandal that erupted at the end of 2013. The scandal, which saw allies of prime minister Recep Tayyip Erdogan's government accused of money laundering, bribery and gold smuggling, led to the resignations of three cabinet ministers and has had both political and financial fallout. Political uncertainty has accentuated the impact of a global trend of investors selling off stocks and currencies of emerging markets, with the Turkish lira setting record lows against both the dollar and euro as 2014 began.
"Many investors ask us, but we don't see the current situation as a threat," says Gokhan Baykam, CEO of renewable energy developer and operator Relight. Baykam believes wind and land-rich Turkey remains attractive for smalland mid-sized European renewable groups, for whom investments in distant markets in South America and the Far East may not be financially or logistically feasible.
"Over the last decade, the investment environment in the Turkish power and renewables sector has been positive," says Richard Konig, corporate finance director at Raiffeisen Centrobank. "Despite current political challenges, the long-term fundamentals remain positive and investors who know the country well are moving forward. There is above 5% power demand growth on average, while Turkey is scarce in natural resources and wind needs to play a significant role in the future."
Market participants highlight the Canadian Public Sector Pension Investment Board's planned investment in wind energy firm Polat Enerj — few details of which have been revealed as the transaction has yet to be completed - as a sign of investor confidence in the market. Polat, in which EDF Energies Nouvelles now owns 50%, is a leading Turkish wind-energy player, with more than 600MW of installed capacity.
Part of the current attraction of Turkey, particularly now as incentives have been rolled back in both mature and emerging markets in Europe, is that the market's development has never been driven by incentives. While a base feed-in tariff (FIT) of $73/MWh (EUR 54/MWh) is offered for ten years - and investors can opt in or out on an annual basis - participants have instead preferred to accept market prices, which have consistently been above this level and are expected to remain so, supported by forecast economic and power demand growth. "Turkey has always been interesting because it's effectively a merchant market, and development seems to be continuing," says Parshad.
A thriving local supply chain has also sprung up for both towers and blades, something the government has sought to encourage by offering higher tariffs for local content. Turkish wind potential remains high, with the government setting a 20GW target for the country's centennial in 2023, well above the current figure of around 2.8GW.
Poland awaits law
Another frontrunner for wind in emerging Eastern Europe is Poland, although enthusiasm has cooled considerably amid prolonged uncertainty on the regulatory front. Poland set out to alter its regulatory framework more than a year ago and investors are still waiting for a new law to be finalised. On the upside, Relight's Baykam believes some Polish projects have sufficient wind resources to be able to compete without incentives in the future. In the meantime, the government's assurance that it will not take retroactive actions has helped to maintain a degree of investor appetite, particularly for operating wind farms.
"Polish operating wind assets are very attractive," says Konig. "They have long-term power purchase agreements (PPAs) and certificate purchase agreements (long-term offtake agreements for the purchase of green certificates) over 13-15 years for a price at or above EUR 100/MWh, which is why local utilities and infrastructure funds are interested in acquiring them. The new draft law foresees a tender mechanism for capacity, so you have to wait and see how the first tender goes, but clearly prices will be more competitive and the developer premium will be lower than in the past."
Italian renewable energy group Erg Renew, which has Romanian and Bulgarian wind assets through its Lukerg Renew joint venture with the renewables arm of Russia's Lukoil, is among those eyeing Poland. "There are a number of interesting opportunities," says Erg Renew CEO Massimo Derchi, although he adds that sellers are generally continuing to seek excessive prices for both operational and authorised wind farms despite a decrease in the number of potential buyers.
"Dong and Iberdrola both exited the market and there is a more restricted number of players looking to build up portfolios in Poland," he says. "When you come from a golden age in which everyone is coming into the market and assets are overvalued, it takes time for local players to understand that the game has changed and prices must adapt."
Poland is among those countries with plenty of potential for new capacity, with a 2020 target of 6.15GW of onshore wind capacity compared with 2.5GW at end-2012. But as long as regulatory uncertainty continues that is likely to remain out of reach.
"Policy certainty is needed in Poland for the country to be able to deliver on its potential," says Magnus Dale, European wind analyst at IHS Emerging Energy Research (IHS EER). "In general, the market landscape in Eastern Europe is being conditioned by ongoing policy adjustments, revisions to support mechanisms and the absence of a long-term and stable market framework," he says.
Romanian investors on edge
These problems certainly apply to Romania, which has a track record of altering its market framework in a way that feeds uncertainty. Until recently, wind-farm operators in the country were issued two green certificates for every megawatt hour of power production through to 2017, with the number of certificates set to revert to one starting in 2018 until the end of the 15-year incentive period.
A first major change was implemented last summer, when an emergency ordinance stipulated that producers would only receive one of the two certificates due to them now, with the payment of the second delayed until the 2018-2020 period. Subsequently, the government approved additional legislation cutting remuneration for wind farms coming online from 2014 onwards to 1.5 certificates initially and 0.75 certificates beginning in 2018.
Investors have been on edge, not so much from the incentive cut itself but because of the confusing way in which changes have been made and communicated. At first there were concerns that both the cut in the number and the postponement in delivery of some green certificates would apply to new projects, although it was later clarified that these would be subject to the cut in remuneration but no payment delays. And in January, Romanian president Traian Basescu asked parliament to re-examine last summer's emergency ordinance, claiming the European Commission had not been correctly notified of the legal change.
Romania's current slowdown could be seen as part of a normal adjustment process, consolidating its position after a period of rapid growth. Installed wind capacity zoomed from just 14MW at the end of 2008 to an estimated 2.5GW at the end of last year, and Romania remains on track to meet its 2020 target of 4GW.
Although the boom days may be in the past, the projects commissioned early in 2014, plus others already under construction, should bump up Romania's capacity figure by a few hundred megawatts this year. Among facilities set to be completed this year is a 50MW project owned by Romanian developer Monsson Alma and equipped with turbines produced by Chinese manufacturer Goldwind, which is among Chinese companies seeking a European foothold by entering from the east.
Bulgaria reputation suffers
If both Romania and Poland get chastised for the lack of a stable framework, Bulgaria's reputation is even worse. The general consensus is that the government has systematically set about halting further development of wind and other renewable energy sources, with a long series of measures penalising the sector.
The situation precipitated in 2012, when a grid-access fee equivalent to 10% of the wind feed-in tariff was introduced. Producers went to court, and won, and that measure was dropped. Before anyone could breathe a sigh of relief, the Bulgarian parliament last December approved a 20% levy on renewable-energy revenues. Bulgaria's constitutional court is expected to rule shortly on the legitimacy of the tax, and it is likely to invalidate this as well, but it is clear evidence of the difficult investment environment.
So the announcement in December by state power company NEC of a EUR 510 million wind project on the part of an unnamed Chinese investor raised plenty of eyebrows, one reason being that the mystery investor was said to be prepared to receive market prices for all power sold. "Even at the currently effective 'preferential' prices for wind, all serious investors have frozen their investment projects," the Bulgarian wind energy association said, asking for transparency on the deal. "The lack of predictability in the renewable-energy sector has driven both new and existing investors away from the market," the association said.
"We are prudent on investments and allow room for surprises," says Erg Renew's Derchi. "But we certainly cannot accept a 20% reduction in revenues. It's a pity because there's lots of wind in the area near the Black Sea and, while the grid is old, it's stable." However, once policy uncertainty is eliminated, he says Erg Renew might consider further Bulgarian wind investments.
Ukraine delivers good news
One of the most impressive growth rates among emerging east European wind markets last year was seen in Ukraine, although admittedly the starting point was low. According to figures from the Ukrainian Wind Energy Association (UWEA), cumulative wind capacity jumped 56% to 371MW and could reach 600MW this year.
Growth has been driven by local investors - in the form of utility DTEK and a group of companies known as Wind Farms of Ukraine - and a local-content requirement, now set at 30% and slated to move up to 50% this summer, is widely expected to serve as one major stumbling block to any rush from foreign investors. However, UWEA says the local-content requirement has already been met by manufacturers Vestas and FWT-Ukraine.
The news of Ukraine's abrupt decision in November to pull away from closer ties with the EU seems to have largely been shrugged off by investors, some surmise because Ukraine was never seen as an easy market to begin with. UWEA chairman Andriy Konechekov instead points to issues such as the lack of ambitious targets, clarity surrounding grid connections and eligibility for so-called green tariffs as holding back the sector.
"State-owned national grid operator Ukrenergo, which is responsible for grid connection issues, to date has no strategy or approved targets for renewable and wind development in Ukraine," says Konechekov.
"Ultimately, this creates uncertainty in the market since it is not clear how much wind power can be connected to the network."
The new eastern promise
A number of new markets in the east are also beginning to draw interest, although some up-and-coming markets will have limited potential and others are still on shaky regulatory ground.
"I would say Serbia is one of the more attractive markets for the future," says Konig. "[The country] offers EUR 92/MWh and, at around 3,000 hours of production, it's an attractive play. One downside, though, is that there is a capacity cap of 500MW."
Among those seeking to secure some of that capacity is Serbian renewable-energy developer Energowind — 50% owned by local oil and gas firm NIS — which broke ground late last year on a 102MW wind project in the north-east of Serbia. MK-Fintel Wind, the Serbian wind developer unit of Italian utility Fintel Energia, expects to complete two wind projects with a combined capacity of 16.5MW in the northern Serbian towns of Kula and Vrsac later this year.
In Kazakhstan, the European Bank for Reconstruction & Development is considering financing a 50MW wind farm that would rank as the country's first large-scale wind project. It is located in the Yereymentau region and is being developed by Samruk Green Energy, the renewables arm of Kazakhstan energy producer and supplier Samruk Energo, which is in turn a unit of the Samruk-Kazyna sovereign wealth fund.
"Kazakhstan has finally adopted a decent regulatory framework, and it's a very windy country," says EBRD's Parshad. Developer Relight, which shares a joint venture with Kazakhstan private-energy firm Visor, is also preparing to begin construction this year on the first 100MW of a 400MW pipeline of wind projects with grid connections in the country.
All eyes on Russian tender
Russia, with a mere 14MW of wind turbines installed, held its first wind tender last October. Only 105MW in wind capacity was assigned, roughly a tenth of the 1.1GW potentially made available. Demand for solar projects far exceeded that for wind, largely because a stringent local-content requirement is seen as easier to meet for solar photovoltaic projects. As is the case in Ukraine, lobbying is under way to modify local-content rules.
Eyes are now on a second request for bids that is planned for June, in which up to 1.65GW of wind power capacity will be up for grabs. "We think the Russian wind market will be defined by the second tender," says Dale. "The first was very local and very rushed, but in the second the volume is expected to be significantly higher and could attract international investors."
Among those expected to participate in the auction is German developer Sowitec, which has partnered with Russian utility Mezhregionsoyuzenergo for the 150-200MW Arkhangelsk project in the northern part of the country.
Others are watching but are not ready to dive into the Russian market just yet. With its Russian partner Lukoil, Erg Renew has begun to sound out turbine manufacturers and local authorities. "The good thing is that something is starting to move," says Derchi. "The bad thing is that we're still far from having sufficient clarity to be able to invest."