31 January 2023
Investments in wind energy are down – Europe must get market design and green industrial policy right
Investments in wind energy in Europe fell in 2022. Orders for new wind turbines were down 47% on 2021. The problem is inflation, with costs rising at a higher rate than prospective revenues. Investors are also being turned away by unhelpful national interventions in electricity markets. The EU must make Europe an attractive place for renewables investments again – the forthcoming market design proposals must address this. The fall in investments and turbine orders is also compounding the problems faced by Europe’s wind energy supply chain. The Net-Zero Industry Act can’t come soon enough.
WindEurope latest data on wind turbine orders in Europe in 2022 paints an extremely worrying picture. Total orders for new wind turbines in 2022 fell by 47% on 2021. The EU saw only 9 GW worth of new turbine orders. This reflects a fall in new investments in wind energy that were announced last year: the first 11 months saw final investment decisions for only 12 GW of new wind farms.** The EU needs to build 30 GW of new wind farms a year under its new energy and climate security targets.
The EU has big ambitions for offshore wind: to get from more than 15 GW today to over 100 GW by 2030. Several offshore wind farms were expected to reach financial close last year, but final investment decisions were delayed due to inflation, market interventions and uncertainty about future revenues.
Inflation impacting investments
Inflation in commodity prices and other input costs has raised the price of wind turbines, by up to 40% over the last two years. But the prospective revenues of those planning to build wind farms have not kept pace with this. Many governments index the prices paid for wind energy (usually determined in auctions), but not enough. And the long time-lag between developers deciding their auction bids and their turbine suppliers actually procuring their components doesn’t help either. Governments need to ensure full indexation.
Market interventions deterring investors
Unhelpful interventions in electricity markets by different national governments have compounded the inflation challenge. Investors understand the need to support families and businesses. But the fact that Governments have been able to deviate from the EU’s emergency €180/MWh revenue cap on generators and set different caps for different technologies has created real confusion and uncertainty. And investor confidence was further hit when some Governments started ignoring the principle that revenue caps should only apply to actual realised income – and that it should factor in hedging and PPAs. The slowdown in wind investments was especially pronounced in the second half of 2022, when uncertainty around the emergency measures started to take hold.
“Last year’s market interventions have made Europe less attractive for renewables investors than the US, Australia and elsewhere. They impacted the business case for renewable energy projects across Europe. The figures for wind turbine orders in 2022 should ring an alarm bell: Europe’s energy and climate targets are at risk if the EU fails to ensure an attractive investment environment for renewables”, says WindEurope CEO Giles Dickson.
Net-Zero Industry Act to boost the European wind supply chain
The fall in wind investments and turbine orders are compounding the problems faced by Europe’s wind energy supply chain. It is good that the EU is now preparing a Net-Zero Industry Act to strengthen Europe’s clean energy industries. In fact, the Net-Zero Industry Act is essential and can’t come soon enough.
Europe’s wind and other clean energy supply chains need to invest in new manufacturing and logistics in order (a) to become competitive and (b) to build up the capacity needed to produce the volumes of low carbon equipment needed for the Green Deal.
Investment tax credits will help – it’s what the US offer in their Inflation Reduction Act. So will “Net-Zero Industry Academies” to skill the clean tech workers of the future. And existing EU funds can play a key role in de-risking and leveraging the private investments needed in new factories and in Europe’s port, transport and other infrastructure.
“The EU needs to set up the mechanisms and get the money moving asap.. Clean energy industries are debating now where they should invest and need clear signals now if it’s going to be Europe”, says WindEurope CEO Giles Dickson.
The EU must get electricity market design right
In March the EU Commission will table its proposal for a revision of the EU electricity market design to enable electricity consumers to benefit from the low costs of renewable power. Europe must avoid reversing 20 years of European energy market integration overnight. The market design should leverage the potential of CfDs and PPAs and leave space for investors to access some market revenue so they can meet their PPA obligations. It must avoid forcing CfDs retrospectively onto existing assets, or onto new assets.
“The EU must restore trust in the functioning of the electricity market to unlock investments that are both ready and urgently needed”, says Giles Dickson.