Pioneering passion missing in Marseille

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Depressed by the dismal state of the financial markets and having now won a series of political victories for which it has fought for years, the European wind power sector seemed uncertain about what to fight for next at its annual trade show. At one end of the lobbying spectrum, speakers wanted a focus on regulatory detail, while at the other end came a grand call for action to galvanise social change. A clear sense of direction was missing

Given that this year's European Wind Energy Conference & Exhibition was the biggest ever staged, that it was held at a time when more wind power is being installed in the EU than any other generating technology, that it came just three months after the passing of a world-beating piece of European renewable energy legislation, and that wind energy is now referred to as the "number one choice" of new electricity generating installation, the mood at EWEC 2009 should have been one of unbridled celebration. Instead, the event was unable to shake off the general gloom of the global financial crisis, which permeated even the bright sunshine provided by host city Marseille, in the south of France, during March 16-19.

From wind turbine supplier Vestas, Peter Brun summed it up in a nutshell: "Looking forward we are faced with a dilemma," he said. Europe's climate change and renewables legislative packages had created a regulatory framework for renewables and wind that had never been better. "But we are in a challenging time in terms of financing."

EU Energy Commissioner Andris Piebalgs remained optimistic. He acknowledged that the wind sector had not been unaffected by the shortage of credit, low oil prices and a nervous market; these had already led to job cuts, even among the industry's big players. "And, of course, it starts by affecting the more risky segments of the market, such as offshore wind." But, he added: "If there is a sector which has the fundamentals on its side, it is the wind sector."

While there is uncertainty about many things, continued Piebalgs, two things appear fairly certain: electricity demand is likely to continue to increase in the coming decades; and the need to deal with climate change will impose ever tougher constraints on how that electricity is produced. "Wind energy addresses both of these challenges and is even among the most cost-effective options for doing so," said Piebalgs

Shared vision

For these reasons, European governments have agreed on a new EU Renewables Directive, legislation about to be made law, which individually binds each of the 27 EU states to national renewable energy targets that combined should lead to Europe getting 20% of its energy from renewables by 2020. The targets provide market certainty to the wind industry, said Piebalgs. Certainty also comes from the national action plans that are to be prepared by member states by June 2010 for reaching their targets. "These will be key instruments for investors as they will provide a transparent, shared vision for how to get to the 2020 goals, including indications of which technologies will deliver how much."

The new law also imposes strong, clear obligations on countries to bring down barriers to building new transmission lines and to dismantle administrative obstacles that are holding back renewable energy. "So binding targets and better tools to deliver them are essentially what the new directive gives us when it comes to wind energy," said Piebalgs.

The improved outlook for wind as a result of the directive has prompted the European Wind Energy Association (EWEA) to revise its 2020 target for wind energy from 180 GW to 230 GW, announced EWEA president, Arthouros Zervos. The total includes 40 GW offshore. "These targets will only be met if all the member states implement the directive swiftly and effectively," he warned.

When the target is met, wind power will provide some 600 TWh of electricity each year, enough to meet 14-18% of EU electricity demand or the needs of 60% of EU households, 135 million homes. Wind energy is increasingly seen by decision-makers as a solution to the economic crisis, Zervos said. The main drivers behind wind energy have not changed and will not go away: competitive prices for electricity, emissions reductions, air quality, energy security and economic development, he continued. "Once the short-term economic crisis is over, we will see investment come back. We need certainty in uncertain times and that is what wind delivers."

Route plan needed

Yet despite winning the battle for legally binding renewables targets for all EU countries, after a decade of lobbying, and EWEA's upbeat outlook, participants were far from upbeat and the general atmosphere remained subdued. Away from the conference platforms, many delegates privately believed the targets would not be met: some thought the financial crisis too serious and others gloomily pointed out that many barriers remain, particularly providing the transmission wires to take wind power to centres of population. Some stated that the targets are just figures: what will really count are the national action plans for reaching them.

Georg Wilhelm Adamowitsch, who has been appointed by the EU Commission to co-ordinate the proposed North Sea and Baltic Sea offshore grid, agreed there was too much talk of targets and not enough about a route plan for achieving them. "We have a political target, but no stable framework for investments," he said. "We need not only a vision, we need clear ideas: where lies the potential and what are the consequences of this potential....No one is telling you how to break the vision down into a concrete investment story." Communication is essential, he added. Politicians and the industry have to explain to the 400 million people of Europe the nature of the challenge facing them -- and the scale of the action needed to meet the challenge.

There was widespread agreement that the difficulty in finding finance would be overcome, but not in the short term (previous story). The top priority of governments around the world at the moment is dealing with the immediate economic situation; this will delay the resources available to renewables in the short to medium term, commented David Jones of Allianz Specialised Investments, a wind farm owner. "Investors globally are reconsidering and re-pricing risk," he said. This is resulting in higher costs of finance than the sector has been used to. "Allianz is still investing in wind, unlike most of the [financial] sector, but we are requiring higher returns on our investment than we were a year ago. In the short term, I believe it will be the availability of capital rather than the availability of turbines that will constrain the growth of the wind sector." Nonetheless, wind remains the most economic clean energy source. "And hopefully it will emerge stronger and more competitive than it is today."

"Yes, there is a short-term glitch," agreed William Young of New Energy Finance, an information firm. "But in the long run we expect capital to be made available." Large sources of capital with a longer term view such as pension funds are looking at where to invest next, he said. "Seventy-five per cent of institutional investors expect to increase investments in environmental technologies. We are looking at a market where some of the froth from 2007 to 2008 has died down and people are going back to basics. There will be an increased focus on quality and cost over the next few years."

One of the drivers that will make renewables a more attractive investment proposition will be the price of carbon under the Emissions Trading Scheme (ETS), said Vestas' Brun. To date, the ETS has not been effective. But from 2013 there will be 100% auctioning of allowances to emit C02. "This is really going to change the game. A EUR 30 change would make quite a difference," said Brun.

Supply Chain

A constrained component supply chain remains one of the major challenges facing the wind industry. With Europe needing to add 10-15 GW a year to meet its targets at the same time as demand is booming in China and other markets, such as Canada and Latin America, are set to ramp up, questions were raised about how the industry can supply enough turbines of the right quality at the right time. Stefan Karlsson of Sweden's SKF Group, which produces bearings, seals, lubrication systems, condition monitoring and other services, described things from a supplier's perspective. Not only has the industry tripled in the past five years, he noted, but it has also gone global, creating logistical challenges. At the same time, turbines have been increasing rapidly in size, demanding new types of components, while various technical issues also need to be dealt with, such as developing more reliable gearboxes, particularly for the offshore market, and cold-climate lubricants.

One of the most difficult tasks for a supplier is reading the future, Karlsson explained. SKF already needs to add new capacity in China because it had underestimated the growth in demand. The problem is the lead time required, since it takes at least 18 months, but more likely two-to-three years, to bring new manufacturing capacity online once a decision has been made. This means suppliers "need very precise forecasting for both the short and long term," Karlsson reminded delegates, before admonishing the industry for failing to meet this need. While Denmark's BTM Consult usually gets closest to the truth in its annual forecast of the global wind market, Karlsson noted, "all forecasts are, in general, underestimates" and need to be improved.

For turbine manufacturers, the quality of their product will become all important, said Per Hornung Pedersen of Repower. "We need to have further technological development of wind turbines, with an increased focus on quality. Even though the market will be growing substantially, we will still need to deliver that at an effectively lower cost per megawatt-hour. That is going to be driven by volume and also by technology."

Turbines of around 2 MW in size will continue to be the workhorses of the industry, Pedersen believes. "We will not see the development of ever bigger turbines continue; I do not think we will see 30 MW turbines." For offshore developers, the latest technology will not be as important as a design with a proven track record for reliability, he said.

Continuing with offshore, Bruce Valpy from government agency UK Renewables predicted that availability of turbines would not be a major constraint to the massive 30-fold increase in current EU offshore capacity required to meet Europe's 2020 targets. "The good news is that the situation has eased with more turbines likely to be available, but the growth is dependent on planned investments being made by turbine manufacturers." More installation vessels are also needed -- and soon. But the required supply chain commitment and investments will only flow if the market structure is sufficiently robust to provide secure returns. This is particularly the case in the UK, where several utilities are delaying proceeding with their projects, saying that the current level of return on investment for offshore wind is not enough. "Overall, with the right economic conditions, the supply chain will not be a barrier to delivery," said Valpy.

Transmission crunch

With wind required to supply between 12-15% of Europe's electricity if it is to meet its 2020 target, Europe will need to take rapid action to prepare its grid network and system operations for large volumes of variable energy. The renewables directive requires countries to take action to upgrade their power networks where necessary and to give renewables fair access, or priority access, to the grid network. But more is needed to be done at the EU level, the conference heard.

"Is the renewable energy directive sufficient to ensure that member states will fulfil their obligations and take appropriate steps to meet their targets by building infrastructure, or do we need to start looking at a much stronger trans-European energy network instrument?" asked Justin Wilkes of EWEA. He added: "The answer is yes, clearly we do." The EU Commission has a vital role in providing incentives for the construction of interconnectors between regional power systems in time to meet anticipated wind generation, he said.

Better interconnection between countries and regions to enable cross-border power flows would save up to EUR 1500 million every year in system operation costs, whether more wind is added to the system or not, said Wilkes. This was a key finding of EWEA's TradeWind report, launched at the conference. The TradeWind study identified 42 onshore interconnectors that are vital to Europe being able to meet its 2020 renewables targets. "Not only is there an environmental reason for integrating large amounts of wind, there is also an economic reason and a benefit to consumers," said Wilkes.

Need for urgency

From the Commission, Hans Van Steen said the need for urgency was understood. "And the political system is reacting to the urgency." A number of initiatives are underway to help renewables, he said. Legislation is being progressed to liberalise Europe's power markets. This will pave the way for more cross-border trade in energy and will separate, or "unbundle," energy production activities and transmission and distribution activities. The market power of Europe's energy companies, which frequently control both the means of production and distribution, has long been seen to impede access to the networks by independent wind power producers, who find themselves competing with utility power producers for access to transmission capacity provided by the utilities' sister companies.

The Commission is consulting stakeholders on a new policy for strengthening Europe's energy networks. It is also seeking industry opinion on its blueprint for an offshore grid and a priority interconnection plan. These policies will work hand in hand with the renewables directive. "We are actively working very fast. Everyone is aware of the need for speed and we are doing our best," he said. "In fact, passing the directive in the time we did last year is something of a record. In 20 years I can never remember doing a co-decision process in such a short time as we did with this directive."

A different age

Claude Turmes, Green party member of the European Parliament, said the EU is entering a different age, "because we have politically decided that we will have a huge amount of renewables in our electricity system." This is reflected in the legislation being progressed through the European parliament, he said. "We are working on internal market legislation where we are changing the mandate of the regulators away from being driven only by the interests of consumers to seeing the grid operated as reliably as possible while integrating renewables," he said. "We have a reasonably good compromise between the parliament, who was pushing for this, and certain governments [who were resisting it]."

One country showing the rest of Europe how to quickly integrate large volumes of wind power is Spain. Piebalgs pointed out that its grid operator, RED Eléctrica, is investing in major grid capacity expansion and expects Spain to be producing almost 25% of its electricity from renewables by the end of this year. Other countries will have to follow suit, he said, because the directive now obliges member states to prepare their grids for large-scale integration of renewable electricity.

From RED Eléctrica, Olivia Alonso explained that from the beginning of the Spanish wind boom, the network was planned and reinforced to accommodate wind power. From the system operator's point of view, wind generation performs in the market almost like conventional generation. But to integrate the wind into the market, forecasting is essential, as are technical requirements of wind farms which must comply with grid codes for operating the system, she warned.

Turmes called for a "new culture of co-operation" between all the players with an interest in renewables so that the rest of Europe can follow Spain's example. "What we need is societies for change," he said. "In each of the EU 27 countries, we have to build a societal majority," he admonished. This must incorporate industry, finance people, non-government organisations, transmission system operators and energy market regulators. "These dynamics of change can be much more important than the detail of the legislation or the detail of the action plans."

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