Observations from EWEA 2013 conference

Overall mood of the participants of annual EWEA conference who gathered in Vienna this week was far from being optimistic. While substantial number of projects is underway and technologies are being constantly improved, the threat of unpredictable tax and regulatory changes has created a new dimension of risks that can be hardly tolerated by major finance providers. With large utilities currently focused on reducing debt and strengthening their balance sheets that leads to less appetite of new projects, infrastructure funds, pension funds and insurance companies are generally considered as major potential providers of needed capital for wind projects in the European region. Looking for stable project cash flows over 20-25 years they are naturally deeply concerned about recent track record of politicians from different European countries reviewing support schemes for renewable projects along the way. While it is realistic to expect that cost of wind energy will reach grid parity with the cost of electricity produced from conventional sources in 3-5 years from now, in the opinion of most market participants it will take longer to prove reliability of new technologies for banks and investors, thus, feed-in tariffs and other support mechanism will still play crucial role in determining the future of the industry at least during next 10 years.

Considering that emerging economies have better growth prospects than those of EU countries, many speakers called upon the wind “supply chain” participants to pursue actively projects in new markets, in particular, Asia and Africa, utilizing more ECA financing and building on available know-how and significant experience gained in Europe during past decade. As sample of the country with huge demand for new wind installations, Hasan Murat Mercan, Deputy Minister of Energy and Natural Resources of Turkey, has confirmed the plans of expanding country’s wind capacities from current 2,261 MW to 20,000 MW during next 10 years. According to him, transmission system operator is working in parallel on the program to increase capacity of the grid to be able accepting this new capacity. Francesco Starace, CEO of Enel Green Power, shared his view that very soon evolving wind park technologies will remove the concerns about negative impact of wind farms on grid capacity, thus, addressing one key barriers on the way of more active growth of wind sector in Europe.

In terms of technology, most of wind turbine producers are enhancing their model portfolios with new onshore turbines which are either more efficient or are able to capture lower-speed winds, developing new offshore turbines and targeting turbines with higher capacity – as example, Siemens has just launched its new 4.0 MW offshore wind turbine with a rotor diameter of 130 meters, while Nordex unveiled its new Generation Delta platform comprising new 3.0 MW turbine for medium wind speeds and 3.3 MW turbine for high wind speeds. As financing of new projects remains challenging, in addition to expanding to new markers, turbine producers are looking to engage more into development, construction and operation of wind farms to be “one stop” technology partner for financial investors willing to invest funds in wind projects. In particular, it was confirmed as one of the main Gamesa’s priorities by David Mesonero, Director of Corporate Development. Additional income may come from re-powering of old European wind farms commissioned 10-15 years ago since as projects have good economic background since most of old wind farms enjoy excellent locations with high wind speeds.

Talking about CEE and SEE region, there has been consensus from representatives of financial institutions that Turkey, Poland and Romania remain the most rapidly developing wind power markets attracting major attention from investors. According to Richard Koenig, Associate Director from Raiffeisen Centrobank, wind projects in Romania currently provide for the highest returns in the region close to 15%. In general, all countries from the region still rely on major international utility companies to provide financing for wind projects, while private equity and infrastructure funds become more active and, like everywhere in Europe, should play bigger role in the coming years. Stable regulatory environment remains number one risk when it comes to emerging CEE markets, while grid constraints and associated problems have also been mentioned by market players. With arrival of financial investors to the scene, inflation-linked feed-in tariffs or support schemes will be increasingly important to ensure long-term predictability of returns and cash flows. There are quite positive market expectations about Polish market once the new legislation will come in force offering more incentives for offshore wind and solar projects (2 and 2.5 certificates respectively vs. current 1 and future 0.9 certificate for onshore wind). It is also expected that purchase obligation will be limited to 15 years, while compensation will be introduced for curtailment of wind farms below 60% of nominal capacity.

Newly presented EWEA’s report focusing on emerging Europe wind markets mentions that according to National Renewable Energy Action Plans of the newer Members States, additional 10 GW of wind energy capacity should be connected to the grid before 2020 to reach 16 GW. Reaching such targets in real life currently looks challenging due to unstable legislation and resulting delays with financing, while clearly the industry players hope that growth in CEE and SEE region will offset expected near term declines in some more mature European markets. Croatia and Ukraine has been mentioned among the “second wave” markets that provide for good future opportunities if the countries stay on current trajectories and deal with some present problems limiting the growth such as local content requirement in Ukraine.

(Prepared specially for Platts Energy in East Europe)