|Redundancies, Bankruptcies, Unrealistic Power Contracts: The Wind Industry Crisis Deepens|
NOVEMBER 26, 2019
By Paul Homewood
One of the great delusions of Labour’s green policy is that it will create a million new “well paid, unionised” jobs.
The reality in Germany is a bit different, as GWPF report:
Eddie O’Connor, the founder of Airtricity and Mainstream Renewable Power, is one of the most notable entrepreneurs in the wind industry and is consequently regarded with awe. His personal success speaks for itself, and if he chances to add anything further, obiter dicta, people pay attention. Speaking at a Reuters conference, Offshore and Floating Wind Europe 2019, which was held in London on the 11th and 12th of November this year, Mr O’Connor seems to have dropped a bombshell. Reports claim that he shocked his audience by describing the wind sector as “on its knees” and in a state of “failure”, because “cut-throat” competition has driven contracted power prices to levels so low that wind is no longer “profitable”.
No objective observer will disagree that the wind industry overall appears to be struggling. Enercon, the Mercedes Benz of turbine makers, has just announced 3,000 redundancies in its home town of Magdeburg, and admitted to a $220m loss in 2018, with worse to come in 2019 ( “Thousands to lose jobs as German wind crisis hits Enercon” 11.11.2019).
Indeed, in a measure quite incredible for a flagship German firm, Enercon has explained that it can no longer afford to make wind turbine blades in Germany, and will perforce attempt to preserve its viability by manufacturing overseas, presumably in locations where lower energy costs mean that labour is much cheaper.
Senvion, another troubled German manufacturer of wind turbines, entered into self-administered bankruptcy/liquidation in April, but has subsequently struggled to deliver reassuring news to the markets. On the 1st of November, and in the light of the fact that Senvion had not provided financial reports since beginning of the year, Moodys withdrew all its ratings from both Senvion S.A. and its subsidiary Senvion Holding GmbH, adding that it “continues to expect a meaningful loss to the current noteholders”.
It is clear that the problems summarised in an earlier Energy Comment post for this blog, “Is the Long Renewables Honeymoon Over” (11.05.19), are very far from diminishing and indeed seem to be growing still more serious.
Cutting through this miscellany of industry difficulties Mr O’Connor went straight to the heart of the matter, profitability, with his emphasis on contracted power prices. As is notorious, there has been a strong tendency in recent years for the wind sector in general to justify earlier and generous subsidies on the grounds that costs had, as a result now fallen. Offshore wind projects, for example, are claiming dramatic (and implausible) capital cost reductions, backing up such claims by signing contracts to supply electricity at surprisingly low prices, even at so-called Zero-Subsidy levels. In the UK the latest instance of this is the Round 3 Allocation of Contracts for Difference, which announced strike prices of £40/MWh for about 4.5 GW of capacity at five gigantic projects. This appears to be below the likely wholesale price, let alone below the fundamental price needed to deliver a return on investment for the wind farms themselves.
Mr O’Connor clearly has a point, and though he did not add that Hughes, Aris, and Constable were right in their study for GWPF in 2017, Offshore Wind Strike Prices: Behind the Headlines, his remarks are consistent with the view that those authors took, namely that the CfDs issued in that year were at unrealistically low levels and could only be understood either as mistakes, which seems unlikely, or more probably as complicated options and high risk gambling, a view that Professor Hughes has developed in a subsequent paper for GWPF ( Who’s the Patsy? Offshore wind’s high-stakes poker game).
Nevertheless, the logic of the wind industry’s public relations agenda forces it to maintain its position and indeed to go beyond it. Bizarre though it may seem, analysts close to the industry such as DNV GL are now suggesting that future contract bids will be negative, in other words that wind power developers will actually be willing to pay for contracts in order to secure the option for development ( When Will European Offshore Wind See Negative Bids?).
But such tactics are clearly hazardous. Andrei Utkin of IHS Markit is quoted in the same source as sounding a warning note:
In a way, when we compare the French and U.K. winning bid levels with forward prices, we already see negative bids: forward baseload prices for year-ahead delivery are above those levels. […] More and more renewables coming onto the grid will result in more curtailment and lower wholesale power prices. […] As a result, the price that renewables will be able to capture in the market will decrease as well, going below their levelized cost of energy and potentially triggering the need for government support.”
Quite. But can the industry survive the transition period to renewed subsidy and will that subsidy actually be forthcoming? Mr O’Connor’s instincts, and he must have excellent instincts for such things, are that the industry’s position is perilous. Wind power may well be in desperate need, on its knees in fact, but sympathy is likely to be in short supply:
Eight times emerging from the flood
She mewed to every watery god,
Some speedy aid to send
No Dolphin came, no Nereid stirred;
Nor cruel Tom, nor Susan heard.
A Favourite has no friend!
Dr John Constable: GWPF Energy Editor.
Of course, Labour may simply nationalise all of the UK firms taking part in their grand green revolution. If so we can look forward to having an extremely inefficient and costly energy system!
Ian Magness PERMALINK
November 26, 2019 2:49 pm
In a very recent conversation, a director (whose name I must withhold) of a major international operator of windmills told me not only that no offshore wind farms could ever be profitable without significant subsidies but also that everyone in the industry understands this and has always understood it. I have heard similar second hand from another such senior executive in an energy company. The whole corporate game is to target the most gullible, virtue-signalling politicians (no shortage of these types in Britain that’s for sure) and lobby for the farms to be built regardless. Oh, and that’s uneconomic even without bringing the decommissioning £billions into account when obsolescence is reached. Add that thought to all of the other serious environmental and CO2-emitting issues with the production, fitting, operation and maintenance of offshore windmills, and you really struggle to see how any have ever been approved.
How stupid are we as a nation?
Roger Cole PERMALINK
November 26, 2019 8:26 pm
Remember Warren Buffet’s famous remark about wind. “”I will do anything that is basically covered by the law to reduce Berkshire’s tax rate,” Buffet told an audience in Omaha, Nebraska recently. “For example, on wind energy, we get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit.”