By Bernd Radowitz, Berlin & Christopher Hopson, London
Friday, January 02 2015
Updated: Monday, April 13 2015
About 8.7GW of wind and 10.7GW of solar are in line to be installed across Europe this year, according to the IHS and Solarbuzz consultancies, respectively, with the market continuing to be policy-driven — yet with a small, but growing, crop of projects being built without government support.
Despite its overcast, cloudy weather, the UK will be the biggest solar market in 2015, with Solarbuzz predicting 3.1GW of installations — eclipsing both Germany (1.9GW) and France (1.45GW).
And perversely, considering its enviable wind resources, the UK will find itself falling behind France, Sweden and Turkey in new onshore wind installations this year, according to IHS, which predicts 650-850MW in each of these countries, with Germany streets ahead on 2.3GW.
“On turbine installations, we can expect that Europe will see an increased concentration of investments in key areas such as Germany, the UK, Poland and Sweden,” says Jacopo Moccia, head of political affairs at the European Wind Energy Association (EWEA). “These markets will likely represent over half of all installations in Europe in 2014 and it’s possible this trend will continue into next year.
“Markets in Southern and Eastern Europe are likely to come to a standstill as retroactive changes to support mechanisms and a lack of forward guidance on the regulatory side make investments in these regions risky business.”
Navigant Research is predicting an increase in the number of solar projects being built without government support in 2015, especially in Italy, Germany and the UK. “We’re going to see a bit of what the future without incentives will look like,” says senior solar analyst Dexter Gauntlett.
The future of renewables in the UK, particularly wind, is largely in the hands of whichever party wins the general election in May, while the long-awaited Contracts for Difference (CfD) subsidy auction — now delayed until 18 March — is causing some hand-wringing in both the wind and solar sectors.
“A lot is up in the air as to where the market is likely to go, and we can see this is increasingly driving short-term decision-making and companies putting off some long-term investment decisions,” says Maf Smith, deputy chief executive of industry body RenewableUK.
The industry’s biggest headache seems to be the ruling Conservatives’ threat to make the removal of onshore wind support a manifesto promise. Despite his 2010 vow to lead the “greenest government ever”, Prime Minister David Cameron has done anything but, allowing communities secretary Eric Pickles to veto at his discretion any onshore wind project that has already won planning approval. This has resulted in the amount of sanctioned wind capacity tumbling from 444MW in 2012-13 to 155MW in 2013-14.
Nevertheless, RenewableUK predicts that about 1GW of onshore wind will be grid-connected in the UK this year, with roughly the same amount offshore.
And British public support for wind power remains high — despite the bashing it gets in the country’s right-wing press. “It’s a short-term problem of political intervention that will come back and bite the government — it’s an issue they will have to resolve,” says Smith.
The opposition Labour Party — which is neck and neck with the Conservatives in opinion polls — is yet to spell out its energy and climate policies, despite its leader Ed Miliband being a former energy secretary, but the party is expected to hit the hustings with strong green credentials.
The election result may also widen the divide between pro-renewables Scotland — which is planning to generate 100% of its energy from renewables by 2020 — and the rest of the UK, particularly as more powers are granted to the Scottish Parliament and an increasing number of unhappy onshore wind developers quit England and Wales and head north.
And with many older coal and nuclear plants due for decommissioning, the question of “how to keep the lights on” will only intensify this year.
“[New] nuclear is going to have a role, but equally, the first [new] nuclear station is not going to arrive until 2023, and what we don’t know yet is how quickly any other nuclear schemes are going to come forward,” says Smith.
As 2015 begins, the UK’s offshore wind sector is facing a host of thorny issues that will need to be addressed by the next government. The biggest is the significant gap between developers’ approved plans and available support under the new CfD scheme — about 5.1GW of so-far unsubsidised projects are competing for 800MW of funding.
“The biggest danger to the UK offshore wind industry is that limited CfD availability will lead to abandoned projects, then all of a sudden you don’t have a project pipeline or a UK manufacturing and supply-chain opportunity,” warns Smith.
This also jeopardises the Department of Energy and Climate Change’s stated target of cutting offshore wind costs by 30% to below £100 ($156) per MWh by 2020.
There are similar concerns in the solar industry — despite the 3GW market expected this year, and the belief that 20GW of PV will be switched on in the UK by the end of the decade.
The country’s Solar Trade Association (STA) says there is already evidence of utility-scale PV developers having “taken fright” and sold off their portfolios, as they feel they cannot operate within the new CfD mechanism.
Onshore wind and PV projects will be competing against each other for a slice of the £50m “established technologies” CfD budget in 2015-16, with £65m up for grabs the following year — sums that the STA believes are insufficient. Projects under 5MW will continue to earn feed-in tariff (FIT) income.
But not everyone is fretting. “The UK will continue to be a hot [solar] market, given the fact that some projects that were started early qualify for 1.3 ROCs [Renewables Obligation Certificates under the previous subsidy system], many developers focus on FIT projects of less than 5MW and also that CfD projects offer attractive returns,” says Boris Beltermann, head of solar and wind investments at alternative-energy financier Aquila Capital.
The wind and solar industries breathed a sigh of relief last year when the German government reformed the Renewable Energies Act (EEG), bringing to an end a long period of uncertainty that had slowed development, and providing a stable framework for green energy until at least 2017.
But the country’s dynamic energy minister, Sigmar Gabriel, is already plotting a new policy change — introducing tenders for ground-mounted PV arrays, with a view to potentially scrapping the FIT for utility-scale projects.
According to a draft of an executive order drawn up by the minister, three tenders with a combined capacity of 600MW will be held in 2015 by the federal grid agency, BNetzA, with each project limited to a maximum of 10MW. It also allows, for the first time in years, PV arrays to be built on agricultural land.
The tenders were supposed to be a boost to the industry, which has recently seen the rate of PV installations fall due to monthly FIT reductions — but both solar developers and their wind counterparts (who are concerned about planned wind tenders from 2017) are, at best, lukewarm about the proposals.
“We are against tenders in principle,” says Hermann Falk, managing director of Germany’s renewable energies association, BEE. “Preparations for tenders often are too expensive, energy co-operatives can’t compete, and there is a danger that only large utilities such as E.ON, or US pension funds can participate.”
Beltermann adds: “The new tender process has not really given much thrill to investors. Moreover, the returns of grid-connected projects are not that appealing. Many investors are waiting for opportunities outside the EEG [process].”
German wind-energy federation BWE also opposes tenders, with association president Hermann Albers warning that, as onshore wind parks have planning periods of three to five years, Gabriel’s strategy will lead to massive insecurity in the market.
To be fair, this comes at a time when the industry is celebrating its best years ever, with onshore additions of 3.5-3.7GW expected for 2014 — largely a result of developers rushing to finish projects before a 2.4-2.6GW cap (or “target corridor”) begins in 2015.
“For 2015, we also expect a build-up above the corridor drawn by the government,” Albers says. “If that happens, the monthly onshore wind FITs will be cut faster, with smaller profits for operators.”
Another worry for wind developers is a spatial planning law that was passed in Bavaria late last year, which requires wind farms to be built at a distance of at least ten times the turbine height from the nearest settlements — potentially choking off development in Germany’s biggest state.
The development of offshore wind, however, is speeding up, with a cumulative 1GW expected to be reached in German waters in late 2014 or early 2015.
The sheer scale of non-hydro renewable energy coming onto the German grid — 25% of all production and rising — is causing concerns. During windy, sunny periods the grid can be saturated with too much power, while on other days, network operators fret that there may not be enough fossil-fuel back-up.
Late last year, Gabriel presented a “green book” outlining ways of dealing with the issue, which included the creation of a capacity market that would pay utilities to keep back-up plants idle.
The green book can be consulted until March this year, and will then be followed by a white book containing preferred policy proposals, which will also be open for consultation until September.
With France unveiling its own energy transition mission last year — to reduce the share of nuclear power on the grid from 75% to 50% — and an ambitious renewables target of 32% by 2030, the country is clearly moving towards a greener future. The only trouble is no-one yet knows how it is planning to get there, with environment minister Ségolène Royal sending out confusing signals.
“It’s a bit unclear what they want to do in France,” says Solarbuzz analyst Susanne von Aichberger. “They have a lot of announcements from Ségolène Royal, who is very pro-PV, but they also want to reduce the FIT, then they want to abolish the FIT, and it is unclear what is really going on there.”
A specific energy-transition bill is expected to be submitted to the French Senate in late January, but it may well be rejected after the ruling Socialists lost their majority in last autumn’s elections. This would lead to a compromise being worked out between the two parliamentary chambers in the spring.
Nevertheless, the expansion of renewables is likely to speed up in 2015 after the European Court of Justice struck down a court challenge to the country’s FIT from anti-wind groups — ending a period of insecurity for developers and operators.
“Now that the challenge is finished, payments are back on track,” explains Moccia, pointing out that Paris now needs to “put meat on the bones of its energy transition”. Nevertheless, he believes France will be a very solid wind market until at least 2020.
The insecurity over FIT payments also led to a decline in PV installments, according to the European Photovoltaic Industry Association. The sector is now expecting a rebound in 2015, with the government hoping for 1GW, and Solarbuzz predicting 1.45GW.
French offshore wind will continue to move forward in 2015, with a new tender this year — the size, zones and dates for which are expected to be unveiled in April.
After criticism that the 2012 and 2014 tenders awarded all 3GW of projects to developers using French-made turbines (Areva and Alstom), the government has said that the upcoming auction will be carried out under a new procedure based on a “competitive dialogue”, rather than a criteria-based approach.
Floating wind will also hove into view in France this year. French naval construction giant DCNS has sealed a deal with the Brittany regional government for a 50MW floating offshore wind pilot project off the island of Groix as early as 2018, using semi-submersible foundations and Alstom turbines.
Regional authorities have also rubber-stamped the installation of two 2MW floating vertical-axis wind turbines at a test site in the Mediterranean in 2016 that are being pioneered as part of the EU’s Inflow project.
Additional reporting by Darius Snieckus, Leigh Collins and Anamaria Deduleasa
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