By Kaj Lindvig, Senior Advisor, A2SEA A/S

Stable, long-term policy support and almost super-human planning skills are must-haves for any industry that involves projects as large and as lengthy as today’s offshore wind farms. Perhaps understandably, getting that kind of support in place is no easy task – particularly with the number of stakeholders and considerations involved. The result, particularly where the German market is concerned, is a bumpy, start-stop ride whose costs implications have damaged the industry’s reputation and attractiveness to investors.

In Germany’s case, transmission system operator TenneT’s decision to delay crucial elements of its grid construction sent a shock wave through the industry. The list of affected projects – and the developers and suppliers involved – is long. RWE’s losses alone number in the region of 1bn Euros.

But start-stop projects are an industry-wide problem, with companies like DONG Energy, Vattenfall, RWE and EnBW feeling the impact with projects such as Borkum Rigggat 2, DanTysk, Nordsee Ost and Hohe See. All have incurred significant extra costs in what was originally trumpeted as a golden opportunity for green investment. And Germany’s ambitious power generation goals as well as its widely circulated market map with numerous potential sites distributed about the coast are today far from reality.

Fear in the marketplace

Start-stop projects, whether the problem is in the consent phase or later implementation, present both difficulties and expense for wind farm developers and the entire supply chain. With such a complex environment to navigate, both developers and suppliers are at the mercy of forces beyond their control – and the ability of policy makers to resolve serious issues before too much damage is done is limited by drawn out processes and even election year uncertainties.

Where’s the money?

Financing arrangements are especially vulnerable. Normally, a project requires at least 2-3 years to close financing after the permit is issued, with as many as 10-15 banks involved. But who will invest in a major project that, at the end of the day, may even lose money due to unforeseeable and uncontrollable delays? Even pre-financing (the raising of perhaps several million Euros to cover consent phase costs) is threatened.

A chain reaction

From a construction point of view, there has been considerable newbuild and conversion activity in anticipation of the projected market volume. These are large investments in their own right, with the spectre of overcapacity looming. Inevitably, installation resources will be directed away from Germany – and the local supply chain’s slow pace of growth will be unable to fill the gap. In fact, the UK’s aggressive schedule is likely to benefit from Germany’s misfortunes as it takes up the slack for its giant Triton Knoll project, for example.

And the answer is…

To date, the German government has not been able to provide clear answers for would-be developers and their investors, particularly with an October election fast approaching. Currently, both liability for delays and the future of the country’s compressed tariffs are cloudy issues with an uncertain path to resolution.

Of course, start-stop problems haven’t been limited to the German market alone. First proposed in 2001, London Array was a classic case of now-you-see-it, now-you-don’t policy planning. And, as far back as 2005, the Netherlands government stamped on the brakes after it appeared its subsidies budget for renewable energy would be blown out of control. A two-year ceiling was imposed to freeze all awards to new large-scale biomass and offshore wind. In the words of Evelop’s Ernst van Zuylen at the time: “I sometimes see the Dutch offshore industry as a huge tanker, which the government tries to direct by placing obstacles in its course rather than by steering.”

 

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