Offshore Wind Struggles in Germany, the UK

Brian Hicks

Written By Brian Hicks

Posted July 18, 2012

Between the high ambitions of German Chancellor Angela Merkel and Britain’s David Cameron, the renewable wind power industry and its financial backers are gasping for breath as they try to measure up.

Thus far this year, just one firm order has been made, which went to Vestas Wind Systems (CPH: VWS) of Denmark. This is the weakest start to any year since 2009, and it represents a decrease of 75 percent compared to 2011. The order was for 216 megawatts.

Much of the throttled wind power market is the fault of the ongoing global economic downturn. Merkel and Cameron have set lofty goals for offshore wind, which would admittedly create many jobs and simultaneously reduce dependence on fossil fuels.

But with the markets reeling every other day, investors are leery of taking on new projects, which means banks have cut down on lending to power developers while utility companies have shelved new development projects in order to attend to power grid issues.

Bloomberg reports:

“The industry in Germany has been frozen for a few months because of grid issues,” said Jerome Guillet, the Paris-based managing director of Green Giraffe Energy Bankers, which advises on offshore wind projects. In the U.K., there’s a “lull” as the government moves to a new round of contracting, he said.

Altogether, there are now 1,290 offshore wind turbines functioning throughout the European region, serving up a total capacity of 3,500 megawatts which goes out to roughly 3 million households.

However, across the EU, there isn’t much expansion going on to this existing capacity. Vestas’ 216-megawatt order, which will develop a wind facility off Belgium, is meager compared to nearly 855 megawatts collectively ordered between January and June 2011.

It must be noted that although this is the only ‘unconditional’ order—meaning prepayment has been made and financing is set—several other German and UK projects have conditionally reserved turbines through 2015.

A large part of the German problems stem from unforeseen difficulties in connecting new projects to existing power supplies.

For Britain, bureaucratic problems and government inaction has contributed to muddying the waters for power investors and developers, leading to a pullback. This recently led Vestas to cancel plans for a large offshore wind plant in southeastern England, which would have generated 2,000 jobs.

Vestas has not gone unhurt during all this; their shares have dropped a stunning 80 percent over the past year. Siemens, a major competitor, saw its own stock drop by 27 percent.

Costs for offshore development have risen as the facilities move further away from land, requiring stronger foundations, longer cables, and generally more equipment.

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