BRUSSELS — The U.K. and EU are likely to miss their 2030 wind energy installation targets as the sector runs into increasing difficulties, putting Europe’s green transition at risk.
Surging inflation, supply chain bottlenecks, hold-ups in getting permits, problems with government-backed subsidy schemes and mounting competition with China and the U.S. are crippling the industry’s short-term prospects.
Last month, Swedish utility Vattenfall pulled out of Britain’s Boreas offshore wind project that could have powered 1.5 million homes. Then last week, Spanish turbine manufacturer Siemens Gamesa said its net losses for this year would surge sixfold to €4.5 billion over equipment issues.
“Wind energy in Europe has never been so dynamic … and yet the industry is in a severe crisis,” said Giles Dickson, CEO of WindEurope, the sector’s lobby in Brussels. “We are very worried that it might be difficult to meet [renewables] targets with the equipment and technology that is made in Europe,” he said.
The EU wants to install 60 gigawatts of offshore wind capacity by 2030, up from 16 GW now. The U.K. is aiming for 50 GW by the end of the decade, compared to the 14 GW currently installed.
“I would be really surprised if the EU can achieve its target,” said Muhammad Bilal, a wind analyst at the Rystad energy consultancy, given slow permitting and the “very complicated” red tape developers face for new projects.
The EU installed just 1.3 GW of new offshore capacity in the first half of this year, a WindEurope report this week found, compared to the 11 GW the bloc should be adding each year.
For Britain, the “target of 50 GW is not possible,” said Matthew Jones, a senior analyst at the ICIS market intelligence firm, with project pipelines too long and the budget in auctions where the government assigns subsidies to firms too low to install the necessary capacity on time.
It’s a similar story across Europe. Germany, Italy, Greece, Spain, Lithuania, Portugal, and the Netherlands are also likely to miss their 2030 targets, according to a consultancy report from November.
That’s prompting concern in Brussels.
“I’m deeply worried about the European wind industry’s future and competitiveness,” said Morten Petersen, the European Parliament’s lead lawmaker for offshore renewables. “The ambitions are ever increasing — and rightfully so — but the lack of implementation is obvious. If we don’t succeed in this our 2030 targets are in peril; and even more so 2040 and 2050.”
Gale-force storm
It’s the combination of issues hitting the wind sector simultaneously that’s making life so difficult for the industry.
Chief among these challenges is inflation and cost pressures that have rippled across the wind supply chain.
“There’s no doubt about it: turbine manufacturers are struggling for profitability, and therefore they’re struggling for cash,” said Clark MacFarlane, CEO of onshore wind at Siemens Gamesa, which has seen a 40 percent rise in raw material and logistics costs over the past year.
“There has been no allowance for that within the industry,” he said, pointing to increasing competition in auctions for subsidies. “As a result, projects are at risk.”
Rob Anderson, project director of the Norfolk wind projects at Vattenfall, said the Boreas farm halted work because the high cost of equipment was “far outstripping” relief provided under the U.K.’s flagship contracts for difference (CfD) scheme, which provides generators with a fixed price for their electricity.
“Labor shortages, global commodities, you name it … everything was hitting the business case following the time that we had essentially locked in our revenue,” said Anderson.
He said the scheme remained “very attractive” but the administrative strike price — the maximum price a developer can receive — must be set higher, adding that other projects were not yet “out of the woods.”
Other industry leaders warn that the U.K.’s 2030 wind target is at risk because contracts awarded under the scheme are not reflective of higher installation costs.
Ana Musat, executive director of policy and engagement at the industry group RenewableUK, said the U.K. will be off track if it sticks to “business as usual,” while more projects could halt work or fail to bid for a contract if the scheme is not updated.
“If the confidence isn’t there, then why would you do all this work to try to make your economics stack up if you’re locked into an investment environment which isn’t very hospitable?” she said, also citing issues with grid connections, planning and supply chain snarls.
In some countries, like Denmark, Germany and Lithuania, governments are switching the traditional subsidy model on its head by making developers pay for the land they build on rather than funneling them cash, according to Dickson, the lobbyist.
This creates “additional costs the developers will have to pass on either to energy customers who are struggling to pay their bills already or to the supply chain,” he said.
Aside from disruptions linked to COVID-19 and the war in Ukraine, the sector also has to face other logistical issues, Dickson added.
Around 80 GW of wind projects are still stuck at the permitting stage, he said, while Europe’s port infrastructure isn’t equipped enough to support the buildout of wind farms and needs €10 billion more investment by 2030.
The EU agreed in March to a revised Renewable Energy Directive that would slash permitting times to a maximum of two years, but its implementation could take years.
Wind wedge
Adding to the dire situation is rising competition from the U.S. and China. The industry in Europe is urging lawmakers to step up their response or face the supply chain fleeing elsewhere.
Washington’s $369 billion climate subsidy package, the Inflation Reduction Act, has created strong incentives including generous tax breaks to start manufacturing abroad, according to Bilal, the analyst.
Meanwhile, China has provided cheap state-backed loans with long-term deferred payment that boosted production — and led to Beijing beginning to win some turbine orders in European countries such as Georgia.
The EU has tried to respond in kind, with proposals including the Net-Zero Industry Act and Critical Raw Materials Act, which set 2030 targets for homegrown clean tech manufacturing.
But Brussels’ plan is “way too complicated to attract more investments,” Bilal said, arguing EU policymakers need to prioritize simplicity and slashing red tape.
A Commission spokesperson insisted “a key component of the proposed legislation is about cutting red tape and accelerating permitting procedures.”
In the U.K., the government also set out a swath of net zero targets alongside some financing options in its updated net zero strategy in March, but Chancellor Jeremy Hunt has said that Britain will respond more fully to the U.S. Inflation Reduction Act this fall. Government officials previously told POLITICO that this will lean on tweaking the U.K.’s CfD scheme.
The U.K. government has also doubled down on its commitment to new oil and gas licenses, while a windfall tax on renewable developers, slow progress on ending the de facto ban on onshore wind and increased competition from abroad paints a more complicated picture for developers.
“If you’re BP [or] Vattenfall, you’re going to look globally and think the U.K. is still attractive, but with all the confusion around what our plans actually are for the North Sea, are we better off going somewhere like the U.S. or like China that have very clear growth plans?” said Jess Ralston, an energy analyst at the Energy and Climate Intelligence Unit think tank.
European manufacturers need to ramp up production from today’s 7 GW a year to 20 GW by 2027 if they are to meet their green energy targets, WindEurope’s Dickson said, meaning the sector also needs “several billion” more in EU funding.
If not, European utilities long used to buying turbines at home will be forced to turn to Chinese manufacturing.
“One of the things that we’ve done during COVID-19, the conflict in Ukraine, is that we’ve recognized that we need energy security, which is affordable, quickly built and … ramped up to significant volumes,” Siemens Gamesa’s MacFarlane said.
“And without a strong European supply chain, the targets set by the European governments will not be met.”
Abby Wallace reported from London.
