Driven partly by the European Union’s renewable energy targets for 2010 and 2020, most member countries have set themselves ambitious wind energy targets.
However, some have been more successful than others in converting these aspirations into concrete delivery. This article looks into the state of the wind energy industry in Europe by looking at the German, Spanish, Danish, Norwegian and UK markets.
When it comes to wind energy targets, European governments are ambitious. The recently passed German Renewable Energy Act (Erneuerbare-Energien-Gesetz – EEG), which is to come into force on January 1, 2009, aims to increase the amount of power generated by renewable energy sources to at least 30% by 2020 from the current 14%, of which a considerable amount is to be wind-based.
Similarly, Spain has an installed wind generation target of more than 20GW (Gigawatts) by 2010, while the UK’s provisional target is 32% of electricity to be generated from renewables by 2020 (compared with less than 5% today), which is expected to mainly come from on and offshore wind.
Several EU members have taken on the challenge of meeting their wind energy targets by engineering bold support mechanisms to promote rapid deployment of turbines. That appears to have already paid dividends. Germany, Denmark and Spain provide some of the best examples.
In Germany, the existing EEG (which will shortly be replaced by the new EEG referred to above) provides that the locally responsible transmission system operator is under a legal obligation to pay a renewable plant operator a guaranteed tariff for a period of – in general – 20 years. The later a plant is put into operation, the lower the fee that is paid to the operator (so-called “degression”).
Different tariffs and degression rates apply to each renewable energy source. For instance, for a windfarm commissioned in 2008, the tariffs for offshore deployment are almost nine eurocents per kilwatt hour for an initial period of 12 years and 3.5 eurocent/kWh thereafter. For onshore wind they range from five to eight eurocent/kWh.
Additionally, feed-in tariffs for offshore windfarms are to be substantially increased by the newly passed EEG, which will guarantee a feed-in tariff of 13 or 15 eurocent/KWh for the first 12 years of generation of the plant, the level of which can also be increased depending on the distance to shore and water depth in which the windfarm is located.
Existing and future measures have helped a substantial deployment of wind energy in Germany which, according to the European Wind Energy Association (EWEA), had more than 22GW (gigawatts) of installed wind generation capacity at the end of 2007.
In Denmark, the Energy Supply Act and related legislation also provide financial incentives for the installation of wind turbines by guaranteeing a fixed premium payable to windfarm generators on top of the electricity market price. The level of that premium depends on the date on which a windfarm is connected to the national grid and will generally be payable to the generator for a period of 20 years from the date of connection.
According to the Danish Energy Authority, these incentives have resulted in 19.7% of the Danish electricity demand being generated from wind sources in 2007, with the EWEA estimating that Denmark had a total of 3,125MW (megawatts) of installed wind generation capacity by the end of that year.
Spain, which has had a stable regulatory framework for renewable energy since the mid-1990s, provides another example of successful implementation of wind energy aspirations. Under the latest royal decree, windfarm generators are allowed to choose between remuneration comprising a fixed market price or one consisting of the electricity wholesale market price together with a premium regulated by means of a specified floor and a specified cap price. This financial incentive is generally available to a generator for a period of 20 years.
The result has been impressive to say the least. According to the EWEA, 3,522MW of wind generation capacity was installed last year alone (the highest amount achieved by a European country in any year), taking Spain’s total installed wind generation capacity to 15,145MW by the end of 2007.
Not all European countries have had the same level of success in deploying wind energy. Norway, for instance, had only an estimated 333MW of installed wind generation capacity by the end of 2007. However, as the Internal Energy Agency points out in its 2006 Wind Energy Annual Report, the relatively small contribution of wind energy to the Norwegian energy mix is mainly due to the availability of hydropower, which is, in any case, the main source of electricity generation in Norway.
The Norwegian government, however, also has targets to increase wind generation over the next few years, in particular by means of grants.
The UK has made some important progress in terms of increasing its installed wind capacity. It is expected that the UK will overtake Denmark this year as the country with the highest operating offshore wind capacity in the world at more than 400MW.
This could be substantially increased if the Government fulfils its recently announced Round 3 targets of installing an additional 25GW of offshore wind capacity by 2020, in addition to the 8GW already consented under rounds 1 and 2.
The main support mechanism that has assisted the development of wind energy in the UK is the so-called Renewables Obligation (RO). The RO requires electricity suppliers to source, each year, a rising percentage of their electricity from renewable sources.
Currently, generators receive a Renewable Obligation Certificate (ROC) for every MWh (megawatt-hour) of electricity generated from renewables, which are then transferred to suppliers for surrendering purposes.
The Renewable Obligation has had some success in that it has increased the amount of renewable electricity generation in the UK from about 2% in 2001 to 4.4% in 2006, mainly onshore wind. However, it has failed to prompt substantial increase in the deployment of other technologies.
As a result, the Government now proposes to “band” the RO, whereby least developed technologies could get more than one ROC/MWh (1.5 ROC/MWh for offshore wind) and more established technologies could get just one or less than one ROC/MWh.
Many in the industry doubt that banding will provide sufficient incentive to operators to invest in UK offshore wind due to the costs involved, especially given the scale of the Government’s plans.
They would like to see additional support, perhaps in the form of feed-in tariffs as used in Germany, Spain or Denmark. The UK Government, however, remains of the view that the banded RO will do the job. If this turns out not to be the case, there is a real risk that the opportunity will be missed, which will, in turn, impact the UK’s ability to meet its 2020 renewables target.
Similarly, the current planning and grid connection regime is not very favourable to wind, which often suffers from local planning objections and grid connection delays.
However, proposed reforms to the planning system, as well as National Grid’s transmission access review, should help ease deployment of more on/offshore wind projects in the future.
There is, therefore, still a lot to be done to boost wind generation in some parts of Europe. While the majority of European governments have set encouraging and ambitious targets to raise wind, governments such as the UK’s should ensure that they provide the right tools.
The CMS Renewable Energy Report can be found at www.law-now.com
Penelope Warne is head of energy at CMS Cameron-McKenna LLP