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Can Europe Meet Its 2020 Offshore Wind Targets?

Uncertainty around subsidies and the need to unlock new capital are holding back investment in European offshore wind, according to a new report that surveyed 200 senior wind industry executives.

Law firm Freshfields Bruckhaus Deringer's report European Offshore Wind 2013: Realising the Opportunity surveyed the executives over April and May 2013 on the offshore wind industry in the UK, France, Germany and the Netherlands. It found widespread concern that a lack of equity and changes to subsidy mechanisms constitute a real risk to the future of offshore projects.

Very few survey respondents believe Europe will meet its 2020 capacity targets for offshore wind, the report said. National Renewable Energy Action Plans (NREAPs) specify around 43 GW of offshore wind capacity to be installed in European waters by 2020, with 18 GW in the UK, 10 GW in Germany and 6 GW in France. The report emphasised that this means over 4.5 GW must be installed per year in order to meet the 2020 target – unlikely given that the record amount of European capacity to date is the 1.7 GW installed in 2012.

The report found “genuine fears” around debt financing given the ongoing eurozone crisis. Freshfields estimates that about US$9 billion in project debt finance will be needed each year in order to install 43 GW by 2020. Around two-thirds of survey respondents said they do not believe there is enough equity financing available for European countries to meet their offshore wind targets. 

83 percent said they believe the introduction of new subsidy mechanisms represents a risk to successful future offshore wind project development, and the report described the executives as “jittery” about future subsidy cuts. Although the respondents rated the UK the most attractive market for investment alongside Germany, they had major concerns about the new contract-for-difference feed-in tariff (CfD FiT) regime, which will apply to all offshore wind farms coming online after March 2017.

Overall, though, the report found confidence in significant future growth. Five out of 10 survey respondents said they are either planning offshore wind investments, or believe there will be significant investment activity during the next 18 months in the Netherlands and Denmark. More said they are targeting investments in France and eight out of 10 said they are targeting Germany and the UK.

Paul Bowden, co-head of Freshfields’ Low Carbon Group and an author of the report, told REW that the survey results had surprised him in several ways. Initially he had expected the eurozone crisis to figure most prominently in respondents’ anxieties, but instead the majority pointed to subsidy cuts as the most significant issue facing offshore wind development. The executives showed “a lot of realism” on whether Europe’s targets can be met and “a very strong view” that they won’t be, but ended on a “fascinatingly optimistic” note given the headwinds currently impeding development.

And, Bowden said, there was another surprise. “The sense that there were solutions there to all the problems, and that the pace of development would quicken, came through more strongly from the bankers and the financial community than it did from the construction companies and the operators,” he said. The financial executives showed a greater sense that Europe’s offshore wind project is achievable, he said, “maybe not on [the targeted] timescale, and by having to introduce some new technologies”, but as a whole they were confident that “more creative” ways will be found to unlock the necessary capital for future development.

Bowden himself ended on an upbeat note, with the hope that the newly published UK strike price “will go a very long way toward dealing with two of the [respondents’] three greatest concerns: subsidy cuts and how new mechanisms might work.”   

Lead image: The UK's Walney offshore wind farm, via Dong Energy

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