European investors started refusing from investing in wind power plants. This has become unprofitable. Low demand and electricity prices are scaring investors away. Experts trust that EU will do everything to support renewable energy sources, considering the huge funds already invested. It could even opt for imposing extra taxes to be paid by ordinary Europeans.
Europe, having made hefty progress in the development of renewables, is facing a problem. Investors are refusing to contribute to new offshore wind projects, which poses a risk of slower power generation growth. However, this is good news for fossil power producers. Because the demand for their products in Europe will preserve longer than what European regulators expected.
The issue can be seen most acutely in countries that have been quickest to step up capacity, particularly in Denmark and Sweden, Bloomberg reports. Denmark generated a record 58 per cent of its electricity from wind farms last year. This is the highest rate globally. However, last week the government received no bids in its biggest-ever tender for offshore wind farms. Even Orsted A/S, a state-owned enterprise, said it was no longer attractive to invest in such large-scale projects.
Bloomberg’s experts note that investors are being discouraged by the low power prices, which offer them little returns. Secondly, there is also abundant supply from existing wind farms crowding into the market. The problem is similar in Sweden. Thirdly, doubts are also growing over what demand will be in the future. As a result, a number of energy-hungry green projects in the north get delayed or cancelled altogether.
‘We cannot have an electricity system that is based solely on wind and solar. There are stark technical and economic limits to how much we can integrate into the grid’, said Brian Vad Mathiesen, a professor at Aalborg University in Denmark who researches the potential of fully renewable power systems.
Wind farms like solar plants operate regardless of energy prices. Sometimes they generate power when there is no demand for it, which can sometimes make electricity free. At the same time, steel and labour costs have greatly increased in the wind generation sector. It is a bit easier for solar, as solar panel rates have plunged, which has blunted the impact.
The simplest solution, according to Bloomberg, is to lift average prices to a level that could underpin further investment in clean generation. The second one is to convince consumers to shift demand, e.g. by encouraging more drivers to drive electric cars and make installation of solar panels for heating homes and industry mandatory.
‘There are much fewer new investment solutions made these days, as the most attractive land plots for wind farms are already occupied. They were built in coastal areas with strongest winds. Those who could build wind farms in appropriate areas are earning the most. It is possible to build further offshore, but it is more difficult and winds there are weaker, which makes such projects less lucrative and attracts less investors’ attention’, believes Igor Yushkov, an expert at the Russian National Energy Security Fund (NESF).
Well, there is no actual drop in wind generation at EU wind farms, with some ups and downs observed though. Further, according to Energy Institute having former BP employees on-board, recent years have seen growing generation rates at wind farms in EU. They generated 364.5 TWh in 2019 followed by a 30 TWh increase next year. In 2021, many EU countries faced the reduction in generation rates, by 10 TWh totalling 386.9 TWh. But 2022 saw growth again by 40 TWh to 421 TWh and growing further by 60 TWh, or 480.5 TWh, in 2023. The wind generation in Denmark in 2019–2021 was at 16.1-16.3 TWh, growing to 19 TWh in 2022 and reaching 19.4 TWh in 2023.
Nevertheless, there is no linear growth observed like Europeans believed expecting that renewables would be growing permanently putting an end to the age of conventional fuels, but this is not yet happening and unlikely to happen in the near future, Yushkov believes. Renewables have taken their niche in EU’s energy market, but to develop them further, we must address the power storage issue.
‘Renewables’ key challenge is their dependency on weather. In a nutshell, they are a seasonal power source running only when there is sun or wind. The power storage problem is yet to be solved’, says Igor Yushkov. There are two ways to address it. First is the building of power storage facilities, which are gradually being constructed in Europe. ‘Building a sufficient network of storage facilities is very costly. Maybe, this is why investments have shifted from renewable generation to storages. Everyone understands that energy companies will be ready to pay for energy storage’, continues Yushkov.
Developing hydrogen energy is the other way, which has shown quite poor progress. ‘EU is going to produce hydrogen via water electrolysis and take power from renewables to get green hydrogen. But we are not seeing large-scale projects. Contrary to that, many projects declared previously have been closed. Because there is neither hydrogen production, nor its consumption. Europe has not yet created its hydrogen industry’, says Yushkov.
For example, Equinor, a Norwegian company, arranged to build an offshore hydrogen pipeline with a German company, RWE, to supply hydrogen to Germany, however, the Norwegian company has announced withdrawing from the project this year. They stated it was too expensive requiring dozens billions of euro, with hydrogen demand being too low. ‘So, until the storage problem is addressed, it is likely we will not see another surge of wind farms commissioning, and this is why we are observing such a downturn’, believes Yushkov.
However, European regulators are unlikely to wait and see: they have already spent tons of efforts and money on the development of renewables. And more is needed. Therefore, Brussels will further squeeze conventional fuels. They can make electricity prices increase to a level heating up investors’ interest in renewables. ‘So, why will electricity prices grow? Most probably, because of EU’s regulatory measures. This might mean Brussels will devise extra taxes and more restrictions for the fuel power industry.
All this will lead to electric power deficit and, consequently, to the increase of prices. And the price increase will ignite investments in renewable energy, both in storage facilities and generation networks’, concludes the NESF expert.