Spike in demand

EnBW blown away by wind power's potential

Offshore-Windpark Butendiek
Plenty of growth on offshore wind power's horizon. Source: DPA

Germany’s third-largest energy group, EnBW, aims to spearhead the export of offshore wind farms outside Europe as part of a plan to invest more than €5 billion ($6 billion) in wind power by 2025, Handelsblatt has learned.

A large part of that money will go toward offshore projects in the US and Asia, according to an internal company paper seen by Handelsblatt. EnBW wants to tap into expected growth in a market that has been in the doldrums in most world regions other than Europe, which accounts for close to 90 percent of global offshore wind power. Company sources shared that the company is close to signing its first offshore contract in Asia.

The technology made a breakthrough in Europe after years of costly investment and delays, and by the end of last June, 3,800 wind turbines had been installed along Europe’s coasts. The total capacity of these turbines amounted to some 14,000 megawatts, equivalent to a dozen nuclear power plants. Experts are convinced that the sector is on the brink of a global boom.

“European wind power technology can become a real export hit.”

Berthold Bonanni, head of energy research at Commerzbank

“European wind power technology can become a real export hit,” said Berthold Bonanni, head of energy research at Commerzbank. Europe, he added, had a technological lead and rivals won’t be able to catch up anytime soon.

Offshore wind power has several advantages over land-based onshore. Most global cities are built close to water and the sea offers more space for wind turbines. In addition, there’s little “not in my back yard” opposition to turbines built in the sea, where the wind also blows more strongly and constantly compared to over land, ensuring higher and more predictable energy outputs.

The global installed wind-power capacity is expected to grow to 70,000 megawatts by 2025, of which 40 percent will be in the new markets, not in Europe, analysts predict. “We want to expand in completely new markets,” said the head of EnBW’s renewables business, Dirk Güsewell. “We expect the offshore wind market to increasingly become a global market.” Europe, he added, has done tremendous pioneering work in this area: “There’s global demand for the know-how that we have gained in the planning, development, construction and operation of offshore wind farms — and we want to export it.”

If realized, the company’s plans could mark a turning point for the global energy sector because up until now, the US and Asia have shied away from wind power, deterred by the costs and the errors made in developing the technology, even by top companies such as Siemens.

The US is the world’s second-biggest market for onshore wind energy but has only has a handful off offshore turbines generating a paltry 30 megawatts. In the internal presentation seen by Handelsblatt, EnBW identifies foreign wind energy expansion as one of its central strategic goals.

Info-Veranstaltung für Prokon-Genussrechtsinhaber
Dirk Güsewell wants to grab a chunk of the growing demand for offshore wind turbines. Source: DPA

Market research firm Wood Mackenzie sees offshore wind power growing at an average rate of 17 percent per year in the coming years. It could even expand seven-fold by 2030 to a capacity of around 100 gigawatts. By contrast, growth in onshore wind energy capacity is flagging.

Europe is home to the world’s three leading makers of offshore turbines and rotor blades: Spanish-based Siemens Gamesa, Denmark’s MHI Vestas and Senvion of Germany. The six biggest operators of offshore wind farms are all European power companies, including three German firms: E.ON, Innogy and EnBW. In addition, a vast industry of components suppliers has grown in Europe, with small and medium-sized business accounting for some three quarters of production. In Germany alone, the offshore industry employs more than 20,000 people.

“I’m convinced we will see a global market for offshore wind energy; the Americans are very excited about this technology,” said Henrik Poulsen, head of Danish energy group Ørsted, which builds and operates offshore plants. Although he noted that growth would take some time, several states including Massachusetts, New York, New Jersey and Virginia have big plans for expansion. For instance, Massachusetts launched its first big auction for offshore wind farms in December and three project developers submitted bids shortly before Christmas. Ørsted is among the companies, bidding for two projects of 400 and 800 megawatts.

Mr. Poulsen also has great expectations for Asia. Ørsted is already active in Taiwan, which wants to phase out its nuclear power stations but has little space for onshore wind plants. Big projects are also being planned in Japan, India and Vietnam.

But there is a downside. The competition is intense, putting downward pressure on prices. “We will see an intense period of consolidation,” said Mr. Bonanni, the Commerzbank analyst. EnBW appears determined to take the lead, while other German utilities remain cautious. E.ON said it was closely watching the global market but had no concrete plans for expansion. Innogy, the renewable energy spinoff of RWE, declined to comment on its plans.

09 p04 Offshore wind turbines-01

While the first commercially-used wind farm went into operation as early as 2002 in Denmark, the market has only seen really strong growth in the last five years partly because of initial delays in getting turbines up and running off the coast of Germany. Siemens lost some €1 billion because hooking up the turbines to the power grid proved far more complicated than expected. Germany’s Bard I project saw costs explode from €1.5 billion to around €3 billion. And EWE, a smaller German utility based in Oldenburg, had to use diesel engines to keep the rotor blades running for weeks in its Riffgat farm to stop them rusting while they were being connected to the mainland.
But those teething troubles have been overcome. Europe has 87 offshore wind farms on the grid, most of them in British and German waters. Around a dozen further farms are being planned with €20 billion earmarked for future investments.

Last year, EnBW and Ørsted pledged that by 2025, they would realize projects that won’t require any state subsidies. The move would signal the breakthrough of the technology. But for that to happen, both firms need a global market to evolve because the growth potential in Europe is limited, according to Mr. Güsewell. Germany, he noted, is likely to produce new capacity of just 700 megawatts per year between 2021 and 2025, and annual growth in Europe currently stands at 2 gigawatts. “That’s 350 to 400 turbines and that’s not exactly a lot,” he said.

And there’s no sign of that changing now that Chancellor Angela Merkel’s conservatives and the center-left Social Democrats, currently in talks to form a government in the wake of last September’s election, are reported to have already agreed to abandon the government’s current goal of cutting German CO2 emissions by 40 percent by 2020.

That’s one of the reasons why Mr. Güsewell wants to go global. But EnBW, he stressed, will take things slowly initially. At present, the energy company wants to confine its involvement to selling its know-how and is looking for local partners that know their markets. The goal is to invest a “low, mid three digit million sum” in a first step. “But in a second step, we’ll then be interested in cooperating in producing and running the farms as owner,” he said.

Rapid technological advances will aid the global expansion, Mr. Güsewell said. At the outset, the biggest turbines were 100-meters tall. Now turbines the size of Cologne Cathedral (157 meters) are common. In the future, they’re expected to be as tall as the Eiffel tower at 324 meters. The performance of the turbines is expected to almost double to 15 megawatts. That will not only boost their efficiency but also whet the appetites of investors around the world.

Jürgen Flauger and Frank Hubik cover energy for Handelsblatt. David Crossland adapted this story into English for Handelsblatt Global. To contact the authors: flauger@handelsblatt.com and hubik@handelsblatt.com

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