The main eye-opener at the Wind Power Europe conference held in Madrid last month was a whirlwind presentation from PricewaterhouseCoopers slating the optimistic view held by the wind business of its world growth potential. The luxury wind development dynamics of OECD countries cannot be transferred to struggling developing economies and countries with insecure political regimes, pointed out Marc Buiting of PWC renewables advisory service. The money is just not available.
For this reason, the Windforce 12 blueprint put forward by the European Wind Association (EWEA) and Greenpeace for 12% of world electricity to come from wind power by 2020 is way off the mark. "Windforce 12 is a wish list," said Buiting. He claimed that most EWEA members realise this and that they see a quarter of Windforce 12's objectives as a more realistic figure. "But even a quarter is optimistic," Buiting admonished. Around 85% of current world installed capacity comes from OECD countries, Buiting pointed out. Windforce 12 foresees this dropping to 50% of the world total. This would mean around EUR 300 billion of investment in non-OECD wind development, a figure impossible to raise using European models according to Buiting.
The vast bulk of European wind power has gone up under idiosyncratic off-take mechanisms in Germany, Spain and Denmark. Germany and Denmark's wind growth largely depended on large-scale public investment, impossible to conjure up in developing economies, said Buiting. He also pointed out that last year's German elections had the country's wind sector in a flap regarding the grave implications that a change in the regime might have on sector growth. In less politically stable regimes, the implications of change would be much greater. Other relatively successful models, such as the Netherlands' stimulation of green power purchases, have hit a brick wall (Windpower Monthly, December 2002) "and things are now a mess there," said Buiting. "If these stable economies have problems, how can their wind models be exported to less stable ones?" he asks.
While Spain's special wind tariff, which offers a popular production incentive payment or a little used fixed price option, has had "strong positive results," Buiting says the lack of support on the investor side via grants and state subsidies are serious weaknesses. As a result, development requires large corporate backing or hefty project finance deals. Both of these options might be difficult to raise in less wealthy countries without strong guarantees of continuity and, again, political stability is paramount to such guarantees. Nonetheless, Buiting considers the Spanish market structure as the "closest exportable model."
PWC foresees that the only way for the non-OECD world to develop sizeable wind power production is via OECD involvement in both equity and debt financing through the use of large energy multinationals assuming some end-risk. Buiting cites examples of likely candidates, due to their existing interest in wind power: Shell, BP, Dutch power trader Nuon, Finnish power generation products giant Wartsila, German utilities E.On, and RWE, as well as Spanish utilities Endesa and Iberdrola. One model would be for these corporations to put up around 30% of the investment costs. The remainder would come from private or public project financing, secured by bonds for sale to OECD investors.
PWC perceives that such schemes would be a long term option for large corporations as well as a limited one, mainly due to the oil companies being particularly loath "to go off their balance sheet," especially outside their core business areas. Furthermore, he also sees the main long term interest in renewables from these multinationals to lie in hydrogen and that much investment in wind power will be linked to electrolysis for hydrogen production.
Had Iberdrola's conference presentation not come before Buiting's, the Spanish utility might have been able to react directly to PWC's theorising. As it was, the utility did give some indication of its stance. "Presently, the sector at large simply extrapolates on existing tariffs. But these tariffs could easily change," said Andres Bartrina of the utilities renewables wing IberRenova, thus tacitly agreeing with PWC's view on the delicate non-exportable nature of OECD models and the difficulties in predicting long term world growth. At the same time, Iberdrola expects world installed capacity at end-year 2001 to quadruple by 2006, mainly in Europe, though with a considerable contribution from the US.
One of the clearest messages from Wind Power Europe was how little international penetration Spain's own wind industry has, or perhaps even wants. Despite the Madrid location of the event, only two Spanish entities presented conference papers: the state energy efficiency agency Instituto para la Diversificacion y Ahorro de la Energía (IDAE) and the country's largest renewables utility, Iberdrola. Meanwhile, Spanish delegates were extremely thin on the ground.
The two-day event, which attracted around 50 mostly north European delegates, discussed issues as broad as the main hurdles facing wind power and world growth potential, and as narrow as offshore pile driving in rocky sandbanks and injury prevention during plant construction. It also broached major sector challenges such as mitigating low wind risks, the legal pitfalls of wind prospecting and developing and offshore financing.
Several companies used the platform to tout for business. Most noticeably, German utility MVV Energie, which has recently diversified from gas and water, said it was seeking partners to enter Spain, Portugal and France, mainly due to home market saturation and the friendly support mechanisms in the target countries.
Wind Power Europe, held December 9-10, was organised by IBC Global Conferences.