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Wind energy in the doldrums  

Germany prides itself on being a leader in transitioning to renewable energy. The country’s “Energiewende” wins high marks in opinion polls, even though the resulting higher electricity prices have been controversial. Germany ranks third in wind power capacity, after the much bigger China and United States. Producers blame the decline on a loophole in a new law which seeks to minimize the amount of subsidy for new wind projects.

Credit:  Franz Hubik | Handelsblatt | Published on August 28, 2017 | handelsblatt.com ~~

After years of sailing before the wind to higher profits, Germany’s wind energy industry has entered a deadly lull and risks a full implosion.

In part because of a change in how the government awards subsidies for new wind energy projects, manufacturers of turbines and rotor blades used in windmills face a collapse in orders, a drop in profit and potential layoffs.

According to a study by Windresearch made exclusively available to Handelsblatt, new wind energy capacity will fall to 2,500 megawatts in 2019 from 4,600 in 2016, and even to 1,100 in a worst-case scenario.

It is a model that occurs all too regularly, complains José Luis Blanco, head of Nordex, Germany’s third-largest maker of turbines and rotor blades. Government polices get changed and plunge a market into chaos.

“A lot of instability, a whole bunch of delayed projects and eroding revenue,” Mr. Blanco said.

Windresearch expert Dirk Briese adds that a collapse in order inflow means manufacturers can no longer run their factories at capacity. “Banks, project developers and other service providers also face a massive deterioration in their business,” he said.

A decline in earnings among the three biggest parts manufacturers – Nordex, Senvion and Siemens-Gamesa – already reflects this trend, with earnings before interest and taxes off nearly 20 percent in the first half of this year, falling to €333 million from €415 million.

Germany prides itself on being a leader in transitioning to renewable energy. The country’s “Energiewende” wins high marks in opinion polls, even though the resulting higher electricity prices have been controversial. Germany ranks third in wind power capacity, after the much bigger China and United States.

Producers blame the decline on a loophole in a new law which seeks to minimize the amount of subsidy for new wind projects. New projects are approved in an auction with the lowest bidder getting the nod – at least theoretically.

But lawmakers carved out special rules for the so-called “citizens’ energy companies” – cooperative-like entities that allow local communities to own new facilities. These companies are allowed to bid without first getting the permit under the German Federal Emission Control Act and have 54 months to build their windpark built, instead of two years that are standard for bigger companies.

In addition, regardless of the actual price they bid, they are awarded the highest price in the auction round.

“That leads to many of these citizens’ energy companies strategically making a low bid to win the project,” Mr. Briese explained. No surprise then that these companies won more than 95 percent of the bids in the first two of three auctions set for this year.

So the unintended consequence of a law designed to keep a few companies from dominating the market is that bids are made at unrealistic levels and projects are subject to longer delays because of the much longer deadline.

The immediate impact on the manufacturers is the need to reduce costs, which could entail layoffs. Likewise, as Nordex’s Mr. Blanco, explained, the company will have to cut back on planned investments to adjust to the new situation.

Works councils at the manufacturers added their voices to the complaints. The annual survey by the IG Metall labor union found them more pessimistic than ever about the outlook. More than one-third of the works councils expect orders to decline sharply and one-fourth expect layoffs in the industry.

But the politicians are already reacting to the situation. With national elections less than a month away, layoffs in a green industry like wind energy are something they want to avoid. In next year’s auctions, the citizens’ energy companies must also get the emissions control permit before bidding.

The third tender this year will still operate under the old rules, however, which means the government’s goal of adding 2,800 megawatts of new wind energy capacity a year will hardly be realized in the coming years.

“In the long term, the situation in the wind energy market will stabilize,” Mr. Blanco said. The short term, however, will be marked by project delays and unsteady order inflow.

Source:  Franz Hubik | Handelsblatt | Published on August 28, 2017 | handelsblatt.com

This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.

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