Political division but market marches on

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At times this year's European Wind Energy Conference threatened to drown in more of the bitter dispute over policy that has raged in European wind circles since 1997. But with orders rolling in for wind stations of several hundred megawatt and the offshore market in rapid development, it was clear that the time for academic discussion of policy principles is coming to a close as wind power enters the world of commercial power generation and supply

A new mood of commercialism in the wind energy sector was in evidence at Europe's major wind energy event in Copenhagen this year. The prospects for wind power in the EU's single electricity market, its competitiveness with fossil fuels, and the continuing need to maintain downward pressure on costs to keep wind competitive, were among the main themes of the European Wind Energy Conference and Exhibition (EWEC) held July 2-6.

The presence and input of large global energy companies and hard nosed energy players new to wind underlined the message that the wind business is an attractive commercial proposition. "Here we have an industry which I think is the dawn of the new age. The building blocks have been made by you," said Alex Kulpecz from Windforce, a company new to wind power started by a team with background in the oil and gas sector.

The timing of the conference, which drew over 1000 delegates, was opportune. Events taking place around the same time on the world stage added to EWEC 2001's topicality. It took place during the lead up to both the Bonn summit to ratify the Kyoto Protocol on climate change and the meeting of the G8 heads of government in Genoa, where renewable energy was a focus point on the agenda, and coincided with the passing of the European Union's directive on electricity from renewable energy. The location was Copenhagen's Bella Center and views of the Middlegrund wind farm, plainly visible from the city's waterfront, provided a reminder of Denmark's leading role in wind technology and policy development.

Setting the scene, EWEA's Arthouros Zervos reported that the 3507 MW installed in EU countries in 2000 gave a cumulative installed capacity last year of 12,814 MW. Zervos predicted that by 2030 wind will account for over 20% of global electricity consumption, at a cost of less than $0.025/kWh. EU countries account for nearly 75% of global wind capacity, seven of the world's top ten national wind markets, eight of the world's nine top wind turbine suppliers and over 75% of the world's turbines, he said.

Directive delight

Moreover, the European renewables directive -- adopted by the European Parliament July 4 -- gives renewable energy in Europe its own policy framework for the first time. "This is a very happy day for our industry," commented EWEA president Klaus Rave on announcing news of the directive's adoption. "We have arrived where we belong; we are seeing the mainstreaming of wind energy. ... I see the directive as a major step towards the EU extending what they have done for coal and nuclear to renewable energy. You cannot push wind energy out any more." He added: "The stability this directive will give as a market signal to investors is most important."

The directive sets "indicative" targets for renewable energy to double its share of EU electricity supply from 6% to 12% by 2010 and lays down rules for grid access (Windpower Monthly, August 2001).

The Belgian presidency of the EU viewed the directive as "an essential first step" towards the development of renewables, said Marc Pallemaerts, from Belgium's Department of Energy and Sustainable Development. It is the start of a coherent approach at the European level, he added. "Even though, at this stage, it does not enable us to move further towards the establishment of a truly European market in renewable energy, since the member states still have considerable leeway in choosing the practical means of implementation," he said, indicating that the current presidency would prefer a faster track towards a "harmonised" system of support to bring down market barriers to cross border sales of wind generated electricity.

Dominant theme

Indeed, this issue of harmonised support became a dominant theme throughout the conference. Günther Hanreich from the EU Directorate General for Transport and Energy (DG TREN) claimed the strategy for renewables in Europe is now a clear one. He pointed out that 18 months ago there had been just a single European target for renewable energy. "There was a huge debate about a harmonised support system that would solve all problems. What we have done now is to put every member state in front of its own responsibility," he said. "This step was a very necessary one to avoid a situation where we would put the carriage in front of the horse by discussing what would be the ideal support system without fixing our national responsibilities."

For the time being the directive allows countries to continue with their preferred system of support for renewables, but after four years the European Commission (EC), the EU's executive, will analyse and report on the effectiveness of each of the different national systems and eventually propose a Europe-wide support system. "It is necessary to consider how support systems can fit into a single market which is going to emerge," said Hanreich. "There is not a single solution on how this can be managed. This is the real challenge that lies in front of us: to look into the success of the systems and see to what extent and how we can develop them so that a single market takes place in the whole electricity sector, including renewables."

The question of what would be the eventual harmonised mechanism proposed by the commission stirred up more controversy than any other issue. There were two main rival factions: those who favoured fixed quotas for the proportion of renewable energy in national supply portfolio's, achievable through trade in renewable energy, or green credit, certificates, or those anxious to retain a fixed minimum price system open to all renewable schemes along the lines of the German renewable energy feed-in tariff (REFIT). "We are going to have a problem in coming to a final solution in four years time," Zervos summed up. "There are different points of view. And everybody believes he has the right answer."

The focus of the commission's report analysing the different support systems will be on the success of countries' schemes in meeting their national targets, said Mechtild Rothe, a member of the European parliament and the EU rapporteur on the directive in a speech delivered in her absence. In one of a number of compromise amendments to the original proposal for the directive negotiated with European heads of government (European Council), Rothe had insisted that the commission should take account of the ability of support schemes to deliver renewable capacity -- not merely on the most cost effective method for doing so. "This is a major improvement compared to the council's common position, which had proposed that state support systems should be based mainly on the evaluation of cost efficiency," she said. Rothe clearly hoped her amendment would favour the German-style feed-in tariff, which has created a boom in wind development, though at a high price, as opposed to competitive systems which employ market forces to achieve the same ends at a lower price.

Hanreich countered that the commission would not be sanctioning blank cheques to renewables. "There will be, of course, the question of whether the success of the system ensures also that you get the best benefit out of the money which was invested. We all have an interest that the money that goes to the renewable sector is used in the most efficient way," he said. "There are several aspects which will determine the success of the system. It is not only a question of whether you achieve a certain objective or not, but this will be one of the crucial criteria."

There was a large degree of scepticism about whether four years would be enough for the commission to be able to form a judgement over a single harmonised system. "There is no obligation four years from today to phase out the current systems and replace them with a single system," stressed Hanreich. "We will study the situation and see what is appropriate." Paul Bulteel from Eurelectric, the European power companies' umbrella group, observed that most arguments in favour of feed-in systems cited the substantial quantity of wind capacity they had delivered over several years, whereas in four years' time, the countries just beginning to employ market support mechanisms based on green credit trade would not have had adequate time to prove their effectiveness.

One system essential

Bulteel urged that this should not hinder progress towards a harmonised support system. Liberalisation of electricity markets is accelerating, leading to fully competitive electricity markets and it is important that renewables become an integral part of the market. Renewables will be taking a much larger share in Europe's energy portfolio, but cannot compete in the short term, he said. "We must make the transition to a mature integration," said Bulteel. "It does not mean we must stop support, but we must move to a more market oriented approach ... which means certificate trading mechanisms." Existing investments in wind plant, made under existing support schemes, should be fairly protected, "But we must make progress in assessing these market instruments. Today countries like the Netherlands, Belgium, Sweden, Italy, Denmark and Great Britain are all preparing their national RES [renewable energy sources] certificate schemes." It would be an enormous effort and missed opportunity if these mechanisms were all developed independently -- and later had to be adapted to forge a single European renewables market, he added.

In Britain, the renewable energy industry had adopted a pragmatic position when lobbying for a system of quotas and green certificates to replace the non-fossil fuel obligation, the conference heard. "We figured, taking into account ... some very deep-set non-interventionist ideology in the UK Treasury, that the best to way was to work with a system that they would find most acceptable, and that works for us," explained the British Wind Energy Association's Nick Goodall. He was confident the new system would deliver: "This is going to work in the UK."

Intervention needed

Rave noted the high level of agreement at the conference that intervention is needed to correct market distortions. "The market is not a good master, but a good servant. We need to make the market serve our aims, goals and targets." He praised the directive for, meantime, putting the responsibility on member states for achieving the overall European target through their national objectives. In the short term a certificate trading system would jeopardise the chance of national targets being met, he warned. He believed it would take far longer than four or five years before Europe was ready for one trading system. "I don't know how many years it will take in the end; about ten years is something one has to bear in mind. One has to be realistic."

Karl Mallon from Greenpeace also commended the wait and see position adopted under the directive. "The approach of letting a thousand flowers bloom at this stage when policy is still being worked out is a sensible one," he said. But he warned that trading systems would only work with mandatory national targets for renewable energy. Then the pressure would be on for schemes to work: "Not for schemes to be suitable or best but to actually deliver. With the get out clause of indicative targets the pressure isn't there."

Attack on certificates

The most outspoken attack on the system of tradable renewable energy certificates came from German politician Hermann Scheer, president of lobby group Eurosolar. Setting quotas for renewable energy could not become compatible with market rules, he claimed, because of the differences in national wind conditions. There would be a bias towards buying certificates from higher wind speed sites at the expense of low wind speed sites. "This would violate the principle of equality within the renewable energy market," he said. He questioned the motives of some of the supporters of tradable credits, particularly the big power suppliers, many of whom were multi-utilities with interests in offering other energy products such as gas and oil that would compete with renewables.

Scheer criticised Denmark's move from a fixed feed-in tariff for wind to a market which recognised green value through trade in green certificates. He highlighted the current hiatus in wind development at the prospect of a change in policy. "The Danish wind energy industry is the cornerstone for worldwide introduction [of wind energy]. But where would this industry be today without the market in minimum price system countries?" he asked.

From the Danish Ministry of the Environment and Energy, Knud Pedersen maintained the change of policy will allow the country to reach its renewable energy targets by 2005 instead of 2010. He pointed out that wind output is projected to double within the next few years from its present share of 14% of Denmark's electricity consumption. In 2005, 30% of electricity will be from wind power. Replying to Scheer's criticism he said: "The course we are taking is not for or against one mechanism or another mechanism. Actually I fully agree with Mr Scheer that we have had great success with fixed feed-in tariffs and we would encourage other countries in their first stage of introduction to adopt that system also.

"What we are worried about now is integrating this huge share of wind power in the electricity market so that the flexibility and lack of flexibility of wind power can be reflected in the market," he said. "That is why we have decided to gradually change our present support system of fixed feed-in tariffs into a market based support system." The Danes hoped to increase the cost effectiveness of wind power and to further decentralise supply and purchase of renewables electricity. Pedersen said he is conscious that the European Commission is keenly following Denmark's progress on introducing a system of quotas with green certificate trading. "I think the commission is putting its faith in Denmark," he remarked.

Referring to Denmark's high level of growth in installed wind capacity in recent times, Pedersen commented: "If we do not take care, things might get a little out of hand." Denmark's current pause in new development allows the country to get to grips with offshore wind and its ambitious repowering program. "Land based turbines will primarily be erected in combination with the decommissioning of old turbines. However, the largest share of future wind power development in Denmark will be offshore."

Get out of this hole

All sides in the debate were berated by Eddie O'Connor from Irish green electricity supply company Eirtricity for time-wasting and ignoring the real issues. No one is talking about the customer, he claimed. "This REFIT system will work up to a certain time, but in the future you just can't go on subsidising production and calling that a market mechanism. At some time the customer is going to have to be brought into the equation, and when the customer is brought in then price becomes an issue."

The industry should be discussing how to increase market share of wind energy -- one of the cheapest forms of power generation in the world -- to 50% of Europe's electricity. "That is all there in front of us and we are wasting time talking about a fictitious thing we call a market mechanism. There are real issues on the grid to be solved, there are real issues with balancing power to be solved. There are interconnection debates that haven't yet started. Wind needs to mature to get out of this hole it is in," he said.

More professionalism

Significantly, O'Connor's view was picked up again in an entirely separate session. Growing the world market for wind power should be a major aim of the wind industry -- and it should work together towards this aim, said Tom Pedersen from Vestas. Instead of promoting Vestas' products at the "manufacturer's forum," he used his allotted time on an impassioned public plea to his competitors to put more effort into joint lobbying. Lack of co-operation is slowing down market development, he warned. "We are not achieving the best possible results as an industry because we are not co-operating on issues on which we could co-operate, for example market development in developing countries such as the Far East," he said. "We are normally competing head on to be the first, but consequently we are not speaking as one voice."

Selling the message of wind energy to the wider public was an issue on which the industry should combine forces, he continued. "We are too humble and modest. We have the best message in town: we have cheap, fast and clean energy; and there is no CO2. But we are not promoting it forcefully enough," he said. It was not good enough to leave it to Greenpeace and Friends of the Earth to do the job for the industry.

He pointed out that EWEA receives only EUR 270,000 to lobby for wind, compared with the US industry which has a better financed and more forceful lobbying presence. "In an industry that has a turnover of approximately five million Euros, I think two-hundred-and -seventy-thousand is not a lot of money." Pedersen called on the industry to chip in and pay more. "It would be a sign of maturity as an industry if we could co-operate on market development and the political message we are sending. Then, once the market is created, we can start competing."

Shell and the others

The arrival of large global players such as Shell will increase the development of renewables and should be universally viewed as positive, said David Jones from Shell Renewables. "It will drive development of the sector harder and faster, not just because of lobbying power but in terms of development resource and capital available." Shell's approach is different to some other oil majors, he explained. "We wish to be involved earlier in development of the sector, to grow with the sector and learn about the sector." Shell's initial focus is on Europe and North America, he said.

Jones did not see any conflict between Shell's renewables activities and its conventional energy interests. "Shell will lobby for renewables and wind," he pledged. Growth of renewables is very much part of the group's corporate global strategy, he said reminding the conference that renewable energy is Shell's fifth core business. There were good commercial reasons for competing with the company traditional business: Shell wished to be part of the change in the energy mix, "and that change in the mix will happen whether we are there or not. If we don't build a wind farm that competes with our other sources of energy, someone else will. So we might as well capture that loss of market share rather than someone else."

Offshore prominence

Offshore wind figured prominently throughout the conference. As well as a session devoted to offshore, papers on offshore issues were scattered over 50% of the conference and poster sessions and many of the remaining presentations touched on the subject. At the exhibition, a series of companies new to the wind business were offering offshore service facilities, from pile driving to floating barges.

By 2008, Denmark's 750 MW offshore wind program will supply some 8% of the country's electricity, said Knud Pedersen. Some disbelief followed his confirmation that the first two of five 150 MW offshore wind farms will receive a fixed minimum price of a mere EUR 0.06/kWh. "This is less than the present economic support for land based turbines. It is also cheaper than the long term contracts the Californian state has made with its electricity suppliers of conventional sources to energy to overcome its energy crisis," he said. He omitted to point out that it excludes commercial financing costs and grid connection.

Financing focus

In a well attended financing forum the expansion and attractiveness of the wind sector was summed up by Andrew Garrad of international consultants Garrad Hassan: "Wind energy is engineering with IT [information technology] growth." But it is a lot less risky than IT, he said. The number of people attending the session reflected the growing interest in wind among members of the financial community who were more in evidence at EWEC 2001 than at any previous conference.

The increase in size and value of projects makes the wind sector a more attractive proposition for financiers. Nick Gardiner from Fortis Bank claimed that EUR 50 million is becoming the norm in wind farm financing. "Ten million Euros is the smallest [wind farm financing deal] I have worked on," he said. "This is probably about the minimum level that makes it worthwhile undertaking the due diligence work." Fortis Bank has EUR 250 million worth of international wind power projects on its books.

Nonetheless, Gardiner warned that wind still retains a problem of acceptability among the financial community. "There is still restricted liquidity in the market, so we have to ensure we structure in an acceptable level of risk." On the other hand, Fraser McLachlan of the Miller Insurance Group claimed that wind power financing had become quite predictable. But the banks that are still most comfortable with wind power are all European, he added.

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