The debt crisis is finally catching up with wind energy, once a fast-growing sector in Europe. After more than a decade of double-digit growth, austerity, rapidly changing energy policies and skittish investors are putting a damper on the industry.
It is often the elephant in the room at any conference on renewable energy. Sometimes, it’s mentioned simply as the “s” word and other times it’s not mentioned at all. But subsidies remain crucial, with wind energy still struggling to achieve price parity with coal and natural gas. This week in Vienna, at the European Wind Energy Association’s annual conference, subsidies came up right away.
This time, it was the source of the comments that was unexpected. During the opening keynote, Fatih Birol, the chief economist at the International Energy Agency, proclaimed fossil fuel subsidies to be the “Public Enemy No. 1” of sustainable energy developments. This, from a man who just eight short years ago was urging “substantial” increases in new oil and gas drilling investments.
His argument was simple. Renewable energies right now are suffering from a dual problem: Governments around the world are slashing aid for clean energy, and massive subsidies propping up the fossil fuel industry are making it impossible to compete with the cheaper energy.
The current global total in fossil fuel subsidies for 2011, according to Birol, was $523 billion. The result was an incentive equivalent to $110 per ton of carbon emitted. In comparison, global subsidies for renewables amounted to what seems like a paltry $88 billion in the same year.
“If we had an ideal world – with no subsidies for nuclear, gas or coal – in that world, onshore wind would do extremely well,” Christian Kjaer, CEO of the European Wind Energy Association, told SPIEGEL ONLINE. “But that’s a utopia.”
Wind Power Still Growing, But for How Long?
Even in an uneven playing field, the wind industry has been growing rapidly in recent years. There are now 22 countries with at least a gigawatt of wind power installed (enough to provide electricity to 200,000 homes). In the European Union, countries installed 11.6 gigawatts of new energy capacity last year, up from 9.4 gigawatts put in place in 2011, according to the European Wind Energy Association (EWEA). Wind has long since become a mainstream player in the global energy market.
The problem is that the gains Europe made this year came mostly from orders placed before the debt crisis that has gripped Europe since 2010, Kjaer said.
And if national policies aren’t adjusted to reflect a changing reality, the growth rate is expected to drop to 6 percent by 2020 and 4 percent by 2030, according to a report released in November by Greenpeace and the Global Wind Energy Council.
Germany has fared well in the crisis itself, but it has had its own share of problems with renewables, with electricity prices for consumers surging as a result of the government’s Energiewende, a policy of phasing out nuclear energy and increasing reliance on green energy approved by Chancellor Angela Merkel’s government in response to the Fukushima catastrophe.
Last month in Berlin, Environment Minister Peter Altmaier announced he would seek to stop the swift rise in electricity costs by capping subsidies on renewable energies – a move that, while possibly helping consumers, could also adversely impact further growth in the wind power market. Political observers called it a bald political ploy to gain votes in the upcoming national election. Despite his announcement, however, most observers felt it was unlikely Germany would change its course. And support within Merkel’s coalition government for his proposal is also limited. Nevertheless, the announcement is precisely the kind of thing that spooks investors.
“Who here believes regulatory uncertainty is the main hazard to growth of wind going forward?” asked Thomas Pütter, chairman of Ancora Finance Group, while onstage at the EWEA annual conference. Nearly every hand in the room went up.
In tough economic times, politicians are looking at every little thing to cut. And high energy prices have made renewables a target for politicians looking to score points.
Germany’s current laws allow renewable energy producers to feed electricity into the grid at a fixed, above-market price, called a feed-in tariff. The goal of the law was to encourage investment and help bring the cost of energy from technologies like solar panels and wind farms into fair market competitiveness with coal, nuclear or gas. Renewables in Germany and other countries with feed-in tariffs have boomed, with a corresponding cost to consumers for the subsidies. Across Europe, the battles are loud and bitter on policy issues surrounding energy.
“At times of distress, every form of subsidy comes under pressure,” David Jones, the head of renewable energy for Allianz Capital Partners, told SPIEGEL ONLINE. The group has 42 investments in wind worth €1.3 billion. Jones said that the key for investors such as Allianz is stability in the investments moving forward. He noted that the difference in risk between European countries has grown, with the possibility of making more money in riskier countries and also a higher possibility of losing it.
With wind, the initial capital investment is especially important. And the political uncertainty surrounding subsidies can have a negative knock-on effect. With increased investment risk, the uncertainty can make borrowing money for projects considerably more expensive. This double threat appears likely to push the wind power growth into the doldrums in 2013.
And although Altmaier’s proposal may have the potential to create difficulty on the financing side, it is still nothing compared to the loss in confidence created when countries retroactively change feed-in tariffs. The German environment minister’s own plan would not change the guaranteed price for energy produced on wind farms that have already been built. But that’s not the case in a number of countries around Europe that have announced retroactive changes since the downturn.
At the EWEA conference, those retroactive changes were spoken of with the kind of spite and anger usually reserved for criminals. The most commonly quoted worst-practices example was Spain. The country has spent the last few years consistently making decisions that instill a sense of horror among investors.
The country introduced a retroactive feed-in tariff cut in 2008 and a 7 percent energy tax last month. And new rules governing the feed-in tariff that became law on Feb. 2 caused major drops in valuation for Spain’s wind farm owners. The most recent example was Acciona SA, which recently saw a four-day drop in valuation of roughly €850 million.
Trouble in Paris
In recent months, nearly every country in Europe that subsidizes renewable energy has been tinkering with changes or rewriting regulation in a haphazard way. The French government set up a successful feed-in-tariff to provide demand for energy from wind but later loaded it down with stifling bureaucracy. Wind energy projects must now slog through a process that can take five or six years before they get approved.
Further, France’s feed-in-tariff has been bogged down by an anti-wind advocacy group called Vent de Colere, or Wind of Anger. The group calls the tariffs a form of state aid and has pursued a legal case all the way to the European Union’s Court of Justice. With the uncertainty surrounding the court case, and a decision not expected until November, investment has slowed to a trickle.
The result has been that, in 2012, France installed roughly half of the government-set goal for new wind energy capacity. The French Wind Association, which represents 250 companies in the industry, expects 1,000 jobs to lost by the end of the year. The association’s president, Nicolas Wolff, as if giving a eulogy, said: “The French market was a promising one.”
Just going by the numbers, last year was an exceptional one for the wind industry in Europe. More than a quarter of the new energy capacity built on the Continent was wind-based, according to EWEA, and 7 percent of Europe’s energy demand is now fed with wind.
However, the times of huge, double-digit gains may be over for the industry. In Europe, the failure of the Continent-wide carbon emissions trading system, which is intended to penalize CO2-heavy companies by requiring them to purchase certificates for their emissions and is thus intended to spur investment in green energies, is contributing to the growth problem. The floor has fallen out on the market for emissions certificates. Meanwhile, the US hasn’t even established its own carbon trading system yet. Add to this the fact that fracking has given the country access to cheap and cleaner natural gas. Instead of burning coal, the US is now exporting it abroad and driving global market prices down.
With no real price on carbon and mass fossil fuel subsidies to the tune of $500 billion, wind power will likely stagnate. Until recently, China, with its turbo growth in wind power, could be relied upon as a major driver of global growth in the sector, but even there the market is stalling. And the Global Wind Energy Council’s “Wind Energy Outlook” suggests that developing markets like Brazil and India are unlikely to fill the gap.
For those in the wind industry, it’s the financing that matters the most. And for those with the money, volatility very simply means greater risk. Even high-level comments that serve as a political foil can mean lead to millions of euros in additional costs for a single new project. “If you want to attract investments,” Kjaer commented. “You can’t send mixed signals.”