A report by Wind Europe published in mid-April demonstrates how quickly costs have fallen in the offshore and onshore wind industries, and the beneficial effect of cost reduction, but comes with a plea to ensure that more bankable projects are developed.
Europe invested €27Bn (US$30Bn) in new windfarms in 2018, an amount that will finance a record amount of new wind energy capacity, according to WindEurope’s annual Financing and Investment Trends report.
The amount invested is similar to previous years. But thanks to cost reduction – especially in offshore wind – it will finance a record 16.7 GW of new wind capacity.
In 2018, 1 MW of new offshore wind capacity required €2.5M (US$2.8M), down from €4.5m (US$5.1M) in 2015. 1 MW of new onshore wind capacity now requires only €1.4M (US$1.6M) of capital expenditure, down from €2.0M (US$2.2M) in 2015.
However, most of the future new capacity for which investments were announced last year was onshore wind, 12.5 GW. Offshore wind accounted for 4.2 GW, though 38.5% of the amounts invested.
In total, 190 windfarms across 22 countries in Europe reached final investment decision last year. Northern and western Europe still account for most new investments. The UK was the biggest investor, mostly in offshore wind. Sweden was second. Investments in southern, central and eastern Europe were only 4% of the total, though Spain and Poland will pick up this year.
A further €24.1Bn (US$27.1Bn) was invested in acquiring windfarms including projects under development and of companies involved in wind energy. This is much more than in previous years. The maturity of wind energy and the competitiveness of the sector have brought in more investors as equity partners in projects, particularly from financial services. As investors become more confident about wind energy, they can price risk more accurately and invest earlier in projects.
Developers are also increasingly financing windfarms through debt. New business and ownership models have diversified the pool of investors, with banks, institutional lenders and Export Credit Agencies looking to provide long-term finance.
This has meant a significant increase in ‘affordable debt’, particularly via non-recourse financing (not on a company’s balance sheet). Lower interest rates and falling risk premiums – as lenders become more comfortable with risk – means windfarms are getting competitive funding and lower financing costs.
WindEurope chief executive Giles Dickson said, “Wind energy got 60% of all the new investments in power generation capacity in Europe last year. And it was a record year for the amount of new wind energy capacity financed. Cost reduction means investors now get more MW per euro they invest. And lenders are more comfortable with the risks so the costs of finance are falling too.
“But Europe needs to keep investing significant amounts in wind if it’s going to meet its 32% renewables target for 2030. The money is out there. But there aren’t enough bankable projects.
“One problem is permitting: the processes are slower and more complex than they were. Another problem is the lack of visibility today on governments’ plans for renewables. The National Energy Plans they have to write this year are key to resolving this. If they’re clear and ambitious this will provide investment signals which will make projects happen.”