E.U. offshore wind targets look iffy as France and Germany fall behind

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MUNICH, Germany -- Offshore wind is the key to the European Union's commitment to a legally binding target to meet 20 percent of its energy consumption through renewable energy by 2020. Under plans submitted by E.U. member states, as much as 43.3 gigawatts of offshore wind capacity is supposed to be deployed by 2020.

But the pace of installation is falling well behind this ambitious target -- roughly the equivalent of 40 large electric generating plants. The gap is 14 percent at the moment, according to the European Wind Energy Association (EWEA), with France and Germany, in particular, significantly behind.

The high level of uncertainty that comes with changing regulatory frameworks as well as some technical problems involving grid upgrades have slowed down offshore wind energy deployment in Germany. Meanwhile, in France, offshore wind tenders were slow to take off and didn't attract a wide range of bidders because of the high level of locally manufactured content required.

According to their National Renewable Energy Action Plans (NREAPs), the two countries were supposed to have installed 670 and 790 MW, respectively, by the end of 2012. Instead, as of December last year, France had no offshore wind at all and Germany had 385 MW, the EWEA said.

Delays in building the transmission lines to connect offshore wind farms have pushed back the commissioning dates of a number of wind projects in Germany. TenneT, the transmission system operator in charge of connecting German offshore wind farms in the North Sea, put on hold any new agreements for grid connection of German offshore wind plants between 2011 and 2013.

Germany's Economy Ministry conducted a study that says the idea of paying utilities to keep enough capacity on the grid to support fluctuating flows of energy from wind and solar power plants interferes "strongly with the power market and entails significant regulatory risks" and may drive up costs.

So far, most of the investments in offshore wind farms have been made by major utilities, with 72 percent, according to the EWEA. Institutional investors like Danish pension fund PensionDanmark have accounted for 6 percent of the funds, oil and gas companies like Statoil account for 5 percent, and corporate investors like Marubeni and Mitsubishi 3 percent.

German connections slow, finances troublesome

Germany has pledged to phase out its nuclear reactors by 2022, and the country's utilities lobby has been asking for such payments, arguing that the country faces electricity shortages as early as 2017. Germany needs about 4.8 GW of backup power for the winter of 2015 and 2016, for which the grid regulator will sign contracts with utilities.

The utilities are scheduled to start new plants fired by gas and coal totaling a combined capacity of 6.9 GW by the end of next year, but this capacity could be unprofitable if renewable energy is available at peak demand times, such as at midday on a sunny day in the case of solar power or nearly around the clock in the case of offshore wind from the North Sea.

Transformer platform 'BorWin'

A floating transformer platform that will feed power into Germany's electric grid is being towed to a wind farm in the North Sea. Photo by Jens Büttner, courtesy of AP Images.

In April, Germany's government approved a reform of its renewable energy law to slow down the expansion of green energy and the rise in electricity costs. The bill, which is expected to come into law next month, caps offshore wind expansion at 6.5 GW to 2020.

That leaves a long way to go to 54 GW of offshore wind farms by 2050, which is the amount that the country will need to reach its target of getting 80 percent of its power from renewable energy, according to a study published by the Fraunhofer IWES research institute.

If all available offshore wind locations in the German sectors of the North and Baltic seas were used, the industry would produce 258 terawatt-hours of electricity per year, most likely generating power on 340 days a year, with low volatility, according to the study.

The Renewable Energy Act amendments also introduced a sliding support rate for new offshore wind projects to 19 euro cents per kilowatt-hour in 2015, 18 cents per kWh in 2018 and 17 cents per kWh in 2019 instead of the previous flat rate of 19 cents per kWh until 2019.

"We forecast a capacity of 6.9 GW in line with the proposed government target," said Charanjit Singh, a renewable energy analyst at HSBC Bank.

France has serious catch-up problem

Meanwhile, France is struggling to catch up in an industry where it has both the natural resources and the industrial muscle. French turbine manufacturers Alstom and Areva have developed offshore wind turbines, but they have yet to make headway in an industry where Germany's Siemens and Denmark's Vestas account for nearly 80 percent of the current installed capacity.

Spain's Gamesa and Areva agreed to combine their offshore wind turbine operations to cut costs and try to compete with the new joint venture formed by Vestas and Japan's Mitsubishi Heavy Industries. In turn, Alstom has agreed to cooperate with General Electric Co., which has a strong onshore wind turbine platform but no deepwater offering.

Areva, which also makes nuclear plant equipment, will hold 50 percent of the venture with Gamesa. It already manufactures a 5 MW offshore turbine and is working on developing an 8 MW machine. Gamesa is in the prototype phase with its own 5 MW offshore turbine, testing one model off the Canary Islands.

The companies said they aim to capture 20 percent of the global market, up from 1 percent for Areva and zero for Gamesa, which had previously focused on wind turbines installed on land.

France has allocated 2 GW of offshore wind capacity in the first round of bids that was launched in 2011, and a second round of bids for 1 GW of capacity is in progress, with a consortium led by France's GDF Suez recommended by French energy regulator CRE as the preferred winner.

According to Électricité de France, the country's biggest developer of renewable energy, France will have 3,900 MW of offshore wind installed by the start of the next decade, but half of that capacity will not begin producing power until after 2020.

"We expect only 1.9 GW of projects to be commissioned by 2020, encompassing the projects awarded in the first tender and significantly below its NREAP target of 6 GW by 2020," Singh said.
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