Wind’s new direction4 July 2018
The wind sector has gone from strength to strength, but how might recent policy changes affect the market? Experts from GWEC and WindEurope, which recently released their 2017 market statistics, discuss what lies ahead.
The wind industry had a remarkable 2017. It was a record year for Europe and India, as well as the entire offshore sector. Meanwhile, prices continued to plummet, with the cost of wind energy in several markets coming in at under $0.03/kWh.
According to Andrew Canning of WindEurope, wind now comprises 12% of Europe’s energy mix. “Wind is cheap and increasingly stable, and industrial consumers are now turning to it as an energy source of choice. This is reflected in the remarkable growth that we have seen over the past few years,” he says.
With fossil fuel plants now decommissioning more capacity than they install, and renewable energy comprising 85% of all new EU power installations, recent developments are certainly worth celebrating.
However, as Canning points out, the medium to long-term outlook is rather less uncertain. “The transition to auctions, which allocate support for renewables as opposed to governments setting the support level directly, has been messier than we hoped,” he says. “The industry is lacking clarity from many governments on their ambitions for renewables post-2020. This would give visibility to the industry, allowing it to plan ahead and reduce costs.”
Steve Sawyer, secretary general at the Global Wind Energy Council (GWEC), adds that the 2017 installation figures need to be viewed in context.
“In India, we’re going to see a down year in 2018 that will probably pick up dramatically in 2019, and that story plays out across a wide range of markets,” he says. “However, China will more than make up for that.”
Rather than describing a simple growth story, Sawyer and Canning point towards the nuances – after all, the global wind market today is nothing if not complex. So what do they envisage for the next few years, and what kinds of opportunities and challenges might lie ahead?
The issue that Canning describes, namely the move towards auctions, was in fact one of the drivers of capacity growth last year. It seems that a number of wind companies have pushed projects forward, keen to benefit from the old system while they still can.
In Germany, for instance, last year’s onshore development (a record 6,581MW) was spurred by the end of the country’s feed-in-tariff regime. Likewise, the UK saw 4,270MW of installations as its previous support framework – renewable obligation certificates (ROCs) – came to a halt.
“The overall up trend you see is because of the changes in policy creating a rush to install,” says Sawyer. “That’s what we’ve seen in Germany and the UK over the past couple of years, with a massive amount of onshore development that will tail off in 2018.”
We’re already seeing the signs of what’s to come. In December 2017, various European wind companies bid to build the first ever subsidy-free offshore projects.
The auction, which was held by the Dutch Government, attracted some surprise participants, including Swedish energy group Vattenfall, as well as Norway’s Statoil.
This movement towards a marketbased system might be viewed in a positive light, as a sign of a fast-maturing, commercially oriented industry. However, it is not yet clear how these subsidy-free offshore schemes will be funded.
Several industry bodies have warned of a cliff edge to come, with the World Wind Energy Association describing last year’s market growth as “the result of an anticipated market collapse”.
It added that the switch to auctions “creates major difficulties for small and medium-sized investors”.
What’s more, this transition is not purely an issue for Europe. Sawyer says the situation is being echoed around the world.
“The thing that governs most of the market ups and downs is the fact that most markets are in the beginning, the middle or the end of a transition away from the old existing support scheme,” he says. “We’re moving into one where wind power is going to be operated and procured either through tenders or corporate PPAs, without much in the way of explicit government support.”
The exception here is China, the biggest wind power producer in the world. The country, which installed 19,700MW of wind power during 2017 (37% of market share globally), has yet to move away from a subsidy-based system.
“China has made noises about ending the feed-in tariff in 2020 and going to an RFP [request for proposal] system, or some further electricity market reform,” says Sawyer. “These plans are all bubbling beneath the surface and various proposals arise from time to time, but there have been no real concrete moves.”
At the other end of the spectrum, Brazil has been embracing a return to auctions. As its economy starts to recover, the country is once again attracting largescale investments and last year installed 2,022MW. In December, it held its first renewables auctions in two years, boding well for installation capacity in the 2020s.
The next few years, however, might not look so good on paper, with the installation figures poised to reflect the years without auctions.
Argentina and Africa on the up
Elsewhere in Latin America, Uruguay is nearing its 100% renewable energy target in the power sector, and Argentina has a very strong energy pipeline.
Despite its meagre installed capacity to date (just 228MW at the end of 2017), Sawyer thinks it could become the number two market in Latin America in very short order.
“Argentina is the most significant bright spot to have emerged in the past couple of years,” he says. “It has some of the best wind resources in the world and, under the current government, we now have a pipeline of 3GW.”
He also has high hopes for South Africa, where he expects to see “a bit of a rush” as building picks up again. Ditto for Kenya, Ethiopia and Morocco, which have big projects awaiting grid connection. Meanwhile, he pinpoints two “wild cards” in the form of Saudi Arabia and Russia, both of which are planning tenders.
In the US, which installed over 7GW in 2017, wind power looks reasonably stable, despite President Trump’s best efforts. This is partially due to direct corporate purchase of renewables. Canada also looks positive, with a recent renewable energy auction in Alberta having set a new low for wind energy costs.
Sawyer thinks the best thing for wind energy would be a much higher global price on carbon. In 2017, economists stated that the cost of emitting carbon dioxide must rise to $50–100 a ton by 2030 if countries are to meet their climate pledges – the price in Europe currently sits around $17.
“We have to put a price on the pollution and get rid of subsidies to the fossil fuel industry, and hopefully the market will take care of most of the rest,” says Sawyer.
In the absence of these kinds of measures, it will fall to regulators to set ambitious targets for renewable energy. For instance, the EU’s Clean Energy Package – which sets a target of at least 35% renewable energy by 2030 – is currently working its way through the legislative process in Brussels.
“WindEurope’s ‘Scenarios for 2030’ report shows that wind energy still has enormous growth potential,” says Canning. “It shows that wind could provide 30% of Europe’s power by 2030, up from 12% today, and reach a total of 323GW of installed capacity.”
He adds that reaching this milestone will be possible if the right policies are in place and significant changes to the energy system are made.
“These include greater certainty on long-term revenue stability; significant progress on the system integration of variable renewables including build-out of the grid and interconnectors; and clear policy commitments on electrification,” he says.
– Andrew Canning, WindEurope
Although there is still a lot of work to be done, there are grounds for optimism. Sawyer points out that, over the past five years, the rate of change has been astonishing, and this looks set to continue.
“Prices are coming down – it’s now cheaper to buy and operate an electric vehicle than an equivalent petrol car, and we’re seeing the same thing with the price of battery storage and wind and solar technology,” he says. “I think we now need to spend a lot more time thinking about system transformation rather than the market share of any individual technology, which will vary widely from country to country.”
In terms of the wind market specifically, he expects to see a much greater use of hybrid wind-solar parks over the next few years. He also envisages a massive build-out of offshore around the world, as the commercialisation of floating wind technology gets under way.
“I think that we are going to see a lot of technological movement in that area bringing sizes up and prices down,” he says.
“The potential for floating is really big,” agrees Canning. “In terms of notable new projects, we can look at Hywind Scotland, the world’s first floating offshore wind farm. It’s noteworthy as floating means you can build further out to sea, where there are higher wind speeds, and also in deeper waters, which have traditionally prevented offshore build-out in the Med, for example.”
Sawyer adds that there are still certain problems that need addressing, if we are to stand any chance of reaching a zeroemissions energy sector. These include the process emissions associated with steel and cement manufacture, along with pollution from ships and aircraft, which have some way to go before they can run wholly on electric. That said, things are definitely moving in the right direction.
“Three or four years ago if you were saying the power sector will be completely dominated by wind and solar globally, you’d get quite a lot of pushback and you don’t now,” he says. “Even the oil companies now recognise that renewables companies are moving quickly to take over that space and get as much market share as they can. This is all predicated on an electricity system dominated by wind and solar, and that’s really where we need to focus from now on.”