With inflation causing multiple issues for businesses and consumers, investments in wind energy are also taking a hit with orders for new wind turbines down 47 per cent on 2021 levels, according to the latest data from wind energy trade association, WindEurope.
The EU saw only nine gigawatts (GW) worth of new turbine orders, reflecting a fall in new investments in wind energy that were announced last year: the first 11 months saw final investment decisions for only 12 GW of new winds farms, despite the fact that the EU needs to build 30 GW of new wind farms a year under its new energy and climate security targets.
One of the reasons for this, according to WindEurope’s data, is that inflation in commodity prices and other input costs has raised the price of wind turbines by up to 40 per cent over the last two years. But the prospective revenues of those planning to build wind farms have not kept pace with this. Many governments index the prices paid for wind energy (usually determined in auctions), but not enough. And the long time-lag between developers deciding their auction bids and their turbine suppliers actually procuring their components does not help either.
Unhelpful interventions in electricity markets by different national governments have compounded this inflation challenge. According to WindEurope, investors understand the need to support families and businesses, but the fact that governments have been able to deviate from the EU’s emergency €180/MWh revenue cap on generators and set different caps for different technologies has created real confusion and uncertainty.
Investor confidence was further hit when some governments started ignoring the principle that revenue caps should only apply to actual realised income, and that it should factor in hedging and PPAs. The slowdown in wind investments was especially pronounced in the second half of 2022, when uncertainty around the emerging measures started to take hold.
“Last year’s market interventions have made EUrope less attractive for renewables investors than the US, Australia and elsewhere, impacting the business case for renewable energy projects across Europe. The figures for wind turbine orders in 2022 should ring alarm bells: Europe’s energy and climate targets are at risk if the EU fails to ensure an attractive investment environment for renewables,” said WindEurope CEO, Giles Dickson.
Support may be on the horizon, however. The EU is now preparing a ‘Net-Zero Industry Act’ to strengthen its clean energy industries, something which WindEurope says is essential and cannot come soon enough. They argue that Europe’s wind and other clean energy supply chains need to invest in new manufacturing and logistics in order to become competitive and build up the capacity needed to produce the volumes of low-carbon equipment needed for the Green Deal.
Investment tax credits, similar to those the US offer in their Inflation Reduction Act, will help, as will ‘Net Zero Industry Academies’ to skill the clean tech workers of the future. Exisiting EU funds can play a key role in de-risking and leveraging the private investments needed in new factories and in Europe’s port, transport and other infrastructure.
“The EU needs to set up the mechanisms and get the money moving ASAP. Clea energy industries are debating now where they should invest and need clear signals now if it is going to be in Europe,” concluded Dickson.