Germany

Germany

Analysis: Regulatory risk keeps offshore wind on edge

GERMANY: The widely-feared premature death of the offshore wind industry in Germany has been headed off for the time being.

Alpha Ventus - Germany's first offshore wind farm
Alpha Ventus - Germany's first offshore wind farm

On 21 November, the last day of EWEA's offshore wind conference in Frankfurt, the CDU/CSU and SPD political parties thrashing out common policy for a grand coalition government after elections last September, put an end to the painfully long wait for clear guidance on future offshore wind support — if only for a two-year period.

The so-called "compressed" offshore wind feed-in tariff payment option favoured by investors — EUR 0.019/kWh per year for eight years — is to be extended by two years to end-2019. Several new projects originally due online before the end of 2017 but delayed by up to two years are now likely to proceed as soon as the decision has been written into law.

The enormous industry relief for a solution that helps only about 3-3.5GW of new capacity, and neglects to provide visibility to the end of the decade, illustrates the extent to which regulation has become a major risk to the offshore wind sector and the major investment and long lead times it involves. Fears in Germany had become quite intense that politicians would allow an industry built up over the last decade to collapse for short-term cost considerations.

The German politicians have saved the day for German offshore for now. But there is only a short respite as the offshore sector awaits details of the German government's much-heralded plans for future marketing of renewables and offshore wind electricity.

One proposal is that new wind and other plants may have to accept that up to 5% of their annual output is curtailed without compensation if this reduces the costs of transmission network expansion and helps to avoid negative wholesale electricity prices.

A further plan being considered is whether very large renewables generators, including offshore wind farms, should be required to guarantee a share of their output as "base load" by entering into contracts with electricity-storage suppliers, industry consumers that can shed demand if required, or fossil-fired power stations.

New uncertainty also arises as project auctioning mechanisms are considered for the post-2018 period. Auctioning "could have lots of negative ramifications and impact the whole system," commented Henrik Poulsen, CEO of Danish energy company Dong Energy, which has a large offshore wind portfolio. 

"Millions of euros would have to be spent upfront to just get to the tender to do a meaningful bid. This is a waste of resources if you are then turned down. This gives low predictability in the company pipeline, meaning a shadow project pipeline for backup is required, so resources have to be doubled. Policy makers need to think about these dynamics," he warned.

Aside from Germany's regulatory uncertainties, a new European Commission environment, climate and energy policy package being prepared for 2020-2030 was also hotly debated at the offshore wind conference. The Commission favours three separate targets, for renewables expansion, CO2 emissions limits and efficiency improvements as currently exist to 2020.

But some member countries — such as heavy coal and lignite user Poland —  only see the need for a CO2 reduction target to 2030, while others  — such as the UK — merely favour an overall energy target, in both cases with the dubious assumption that this will automatically drive renewables expansion and efficiency improvements, according to EWEA CEO Thomas Becker. European Union heads of state are due to decide on the package and its targets for 2030 in March 2014.

 

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