Offshore Wind Megaprojects to Get EU Support in Push for Green Power

FILE PHOTO: A support vessel is seen next to a wind turbine at the Walney Extension offshore wind farm operated by Orsted off the coast of Blackpool, Britain September 5, 2018. REUTERS/Phil Noble

By Reed Landberg and Ewa Krukowska – (Bloomberg) –Developers for some of the world’s biggest wind farms are poised to get a boost from the European Union under a new strategy aimed at ensuring the industry makes a larger contribution to low-carbon power supplies.

Energy Commissioner Kadri Simson said officials in Brussels are working on a package of measures that will help stimulate the offshore wind industry. It’s part of the Green Deal package, a far-reaching plan to eliminate greenhouse gas emissions by the middle of the century.

The program would help unlock the potential for wind farms sited in water, where more reliable breezes make the technology an increasingly cheap way to generate clean electricity. While politicians like turbines sited far from the eye of voters who object to wind farms on land, the industry has been hobbled by bureaucratic hurdles and competition for deals, which makes each project less profitable to build.

“We will have a strategy for offshore wind so that joint projects for big parks can be finalized,” Simson said in an interview in Brussels on Tuesday. “From our side it means the solutions how we can support investments into grids, because offshore wind parks will be built in the regions where we don’t have any grid connections yet.”

Monumental Turbines

In the coming months, the energy and environment departments of the European Commission, the EU regulatory arm, will jointly work to draft the strategy. It will focus on the maritime aspects such as how the wind farms can co-exist with shipping and fisheries. It will also look at spatial planning and financing for grid expansions needed to support the projects.

The effort would go some way to remove issues holding up developments. Competition between utilities such as Orsted A/S, Vattenfall AB and EnBW AG to build offshore wind farms has produced projects so cheap that they work without subsidy, raising questions whether the companies will make money from them.

The industry also is waiting for governments to put into law goals they have set for expanding offshore wind power, which would give some assurance about investments planned to give the industry scale and reduce costs further.

“Political risks are now larger than market snares,” said Stefan Thimm, managing director of Gemany’s BWO offshore industry lobby, in a Jan. 23 interview. “We need to hedge against that risk and that questions whether zero bids are going to be repeated anytime soon.”

Europe wants to lead the global fight against climate change and attract investors in clean technologies under the Green Deal. Commissioner Simson acknowledged that may require tighter targets for renewable energy for 2030. The current goal is to get 32% of energy from renewables by the end of this decade.

One key point of the strategy for offshore would “consider how different member states will fulfill their energy targets by cooperating on one site where the grid connection goes to a certain spot in the mainland,” Simson said.

Offshore wind is a focus because of its enormous potential to generate clean electricity. The International Energy Agency estimates the industry is growing 2.2% a year and will draw in $840 billion over the next two decades — but that pace must double to reach climate targets.

BloombergNEF estimates new installations worldwide rose to 7.7 gigawatts last year, up from less than 2 gigawatts at the start of the decade. It expects about 9 gigawatts of additions in each of the next five years, growing to an annual pace of 19 gigawatts by the end of the decade, with new markets emerging in Spain, Italy, Greece and Lithuania.

Hydrogen’s Future Brightens

Hydrogen also will get a boost from the commission’s Green Deal. Simson said she saw the fuel as interesting solution to decarbonize the sectors where a shift to electricity is not an option. Those include steel, cement and chemicals, where the industrial process requires heat of more than 1,000 degrees Celsius.

“It is a solution for how to phase out fossil fuels,” Simson said. “Right now we need to support pilot projects, which are not yet market-compatible. We have certain funds, for example the Innovation Fund, which can help industrial sites that are testing such innovative solutions. It might also be a possible solution for storage. It will definitely play a role in our sector integration strategy.”

Liquefied natural gas also is a focus for the commissioner. She said that “most probably” the volume of LNG used in Europe will rise as a way to ensure energy security.

“LNG played a very significant role for our energy security aspect. In the past years it was one of the priorities to secure different routes. We had to have diverse providers of gas. A good network of LNG terminals has provided us a diversified gas market. We have a certain capacity of LNG terminals. There’s a lot of projects in the pipeline: in Poland, in Croatia, in Greece, and in Germany.”

“We are using right now 70% of the capacities that we do have already, and the capacities are growing. The U.S. is now providing 16% of our LNG and as such it is the third-biggest source of imports. The share of U.S. LNG has grown rapidly, even if we are comparing numbers from the last three months these are several times higher than a year ago. So the reason must be that the price has come down and it’s competitive.”

The commission is monitoring how member states apply a revised gas market law to the Nord Stream 2 pipeline.

The still-unfinished natural gas project will bring Russian flows to Germany through a route under the Baltic Sea. U.S. sanctions have halted work for now. Another key issue is how the project is treated under a new EU law, which require the owner and shipper of gas to be different legal entities.

Nord Stream 2 asked German authorities for an exemption from the EU pipeline rules, arguing it was eligible for the derogation because the project was completed by May 23, 2019. Germany has until May 24 to decide how to interpret the project’s completion.

“Every member state has the right to decide what their energy mix is.” Simson said. “We have to monitor that all respective state agencies apply the law. We are monitoring this process and there are certain criteria that the German agency has to consider.”

–With assistance from Brian Parkin.

© 2019 Bloomberg L.P