German offshore industry is struggling with weak expansion goals

Tuesday, 28 June, 2016 - 10:30
Nordergründe is one of several projects that are currently under construction and are still covered by the old EEG. (Photo: Torsten Thomas)
Nordergründe is one of several projects that are currently under construction and are still covered by the old EEG. (Photo: Torsten Thomas)

Despite all of the cuts, the European offshore wind market is still large. Nevertheless, players on the German market are preparing for lean times. The 730 MW per year that policymakers have committed to are a very modest goal.

With 360 participants, the twelfth Windforce was able to achieve the same result as last year, but it did not match the onslaught in previous years. Even though Windenergie-Agentur (WAB) had decided to cancel the exhibition part of the event, WAB's Managing Director Andreas Wellbrock was still satisfied with the result. "The head hunters and gold miners are gone. The event appealed to our specialist audience and the response was good, even though times are tough", he said. However, the German offshore industry still has enough to worry about. In the past, there was a lack of experience, ships, capital or grid connections. Now the volume of business itself is shrinking. The grand coalition cabinet agreed on a target of 15 GW by 2030 and gave the industry its own legal framework: the wind-energy-at-sea-law.

It provides for a maximum tender capacity of 730 MW from 2021 onwards, which will be auctioned annually using what is known as the central model. Interested parties will bid on free areas and capacity provided by the government. As a first step, 2,920 MW will be auctioned using a transitional model in 2017. The initial deposit for the bidding process is 350 € per MW for all tenders, and the maximum price for bids is fixed at 12 € per MW. The areas being auctioned are in the North Sea, but only two of the original five zones are still available. There are auction-ready projects with more than 7,000 MW of capacity. "More than half of these will not win, and the projects in the other areas are dead because the approvals that have been issued are going to expire and will not be renewed", said Ursula Prall from the law firm Becker Büttner Held. After this transitional system, the government will be collecting all project approvals in the remaining two planning zones and controlling the development of wind farms and grid connections itself through tenders. There is no plan to compensate project developers for development costs, which in some cases can be quite high. Instead, they will be offered an exclusive right of entry. They can exercise that right when their former project areas are selected for an auction. "Lawsuits against this procedure are therefore not unlikely. In addition, there is reason to doubt the potential for cost reductions that this small volume can provide", Prall said.

She is right: turbine manufacturers such as Siemens are already tinkering on 10-MW turbines. That translates to a mere 73 turbines and foundations per year. These figures are unlikely to arouse the industry's enthusiasm. There are also significant concentration processes going on in the sector. The number of turbine suppliers, installation companies and foundation builders is decreasing. "Large consortia are being formed, and they are participating in tenders and working closely with manufacturers", said Boris Balan, Vice President of Northland Power. The Canadian company holds a 60% stake in the Dutch project Gemini (600 MW) and 85% of the offshore wind farm Nordsee One, which is being built by RWE AG. Balan can easily imagine other investments, but he also sees problems with the auctions. "There is a gap of several years between the bidding process, the contract award and the start of construction. This causes price and financing risks for bidders and is possibly to blame for missed technological developments", he said.

Enough money is available

EnBW AG is also looking for investors for the project Hohe See. Hohe See will be the group's first wind farm in the North Sea that conforms to the current Renewable Energies Act (EEG) and the group also has two further projects in the pipeline. "We have decided that EnBW AG will participate in tenders. We are teaming up with Siemens for the Danish Kriegers Flak project", said Jörn Däninghaus, head of the offshore division.

Money will not be a problem on either the borrowed capital or equity side. "The financing costs are decreasing and the capacity is available. Raising money for well-planned projects is not a problem because banks and investors are in the market with big tickets and have a high level of interest", said Gerome Guilet at Green Giraffe Energy Bankers. The specialists have provided services for deals amounting to € 11 billion during the last six years. The insurance sector is now also beginning to show the same high level of interest. It is becoming more closely intertwined with financing and is covering the risky construction phase. Premiums are decreasing because severe damage does not occur as frequently as it used to and the competition for new business is increasing. "The insurance market has enough volume. In the future, we may even see overcapacity", said Patrick Wendisch from Nordwest Assekuranzmaklern. One of the reasons for this is the learning curve that has been gone through. Nevertheless, the German market will hardly benefit from this when regular tenders start.

Torsten Thomas

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