Good news for renewable energy supply is blowing in the wind

By Elisabeth Jeffries

Date: 20/11/03

The use of wind farms is on the rise across Europe, as Elisabeth Jeffries reports

A GLINT in Europe's eye suggests the logo of the EWEA (European Wind Energy Association), symbolizing its own industry, embryonic in some countries and quite a confident toddler in others.

Optimistic in tone, this October the organization revised the target it set in 2000, raising it by 25%, and now forecasts a total installation capacity of 75 gigawatts in the EU-15 by 2010.

"The industry is growing extremely fast, and the political will appears to be there, enabling the industry to perform.

"A higher level of capacity has been reached, due to the increase in support, and that support will stay the same," predicts Luisa Colasimone, the communications director at the EWEA, explaining the industry's revised forecasts.

Critical to the success of the industry at this crossroads in its development from emerging technology to established utility, though, is a financing mechanism that both encourages the industry to be efficient while minimizing risk for new enterprises.

Different countries across Europe have espoused very different ways of encouraging the industry's development, - with the renewable obligation certificate (ROC) market mechanism launched in the UK in 2002 and on a completely different basis from feed-in or governmental fixed tariff mechanisms (typical of Denmark, Germany and Spain).

At the Middelgrunden wind farm, operating outside of Copenhagen since 2000, one of Europe's first large offshore windfarms, the feed-in tariff is gradually being phased out in a step which marks the successful transition of the industry in Denmark to fully-fledged adulthood; wind now provides nearly 20% of the country's electricity needs.

"Technological developments and supply efficiencies are the key," explains Steffen Nielsen, a head of section at the Danish Energy Authority.

"Once technical advances allowed costs to decrease and improved efficiencies, there was a need to adjust the government-subsidized pricing system."

The Middelgrunden farm provides a good example of the versatility of the Danish system, with ten turbines operated by a cooperative currently benefiting from fixed prices standing next to ten turbines owned by a Danish utility, whose state support is gradually being removed.

The decision to start gradually withdrawing the government feed-in tariffs for farms was made in 1999, a decade after its introduction.

But the declining costs have a different effect in the UK system, which relies more heavily on private investment. "Bankers feel cautious in this case about investing in a technology which will become cheaper over time," remarks James Glennie, finance expert at the BWEA (British Wind Energy Association).

The rationale behind this perception is easy to see, once one remembers that windfarm development has been driven by regulations, presenting a greater "regulatory risk" or possibility of an about-turn by future governments.

The underlying demand-driven raison d'être of the business is weaker than in many other industries, reversing investors' usual interest in lowering costs.

In addition, though the development of the industry is driven by government policy, it is the utility companies which guarantee prices through long-term contracts.

"The advantage of the system is the efficiency which it demands from day one," explains Glennie.

"When governments set prices, an inherent inefficiency builds up in the system."

Though it may be more efficient, the nature of UK financing has tended to favour large utility companies more able to take on the risk or finance the project from their own balance sheets, as opposed to the smaller cooperatives and private enterprises starting up windfarms on the continent, whose revenue from electricity sales, which is set by the government, is guaranteed to cover their costs.

Whatever the pros and cons of the various energy production systems, the industry is going to have to face a new hurdle within the next two years, when the European Commission is due to decide whether to harmonize them across Europe.

As an EWEA expert commented: "When you change a system it creates insecurity among investors, so we shouldn't change anything until we know what its plans are.

"The main thing is to get the frameworks that are already in place functioning well."

• Elisabeth Jeffries is a freelance journalist specializing in the energy, petrochemical, plastics and packaging sectors.

The use of wind farms is on the rise across Europe.

http://www.ewea.org/ http://www.ewea.org/

---