Offshore wind turbulence; EU carbon collapse

The week in clean energy saw, despite a bright note from Siemens, billions abandoned in UK offshore wind while European carbon tumbled 29.3% as volumes rose.

Bloomberg New Energy Finance

The UK offshore wind sector has seen two announcements in the last week, demonstrating it is at a crucial moment in its development. The first came from Siemens, which said on March 25 that it plans to invest $US264 million in a turbine factory in northern England to tap the country’s offshore wind market. The German company has some 2.7GW of turbines installed in UK waters – about three-quarters of the total – and it has been awarded contracts for a further 3GW. Its projections may be on the optimistic side, however: it forecasts that the UK will have 14GW of offshore wind capacity by 2020 – 2.5GW more than Bloomberg New Energy Finance’s estimate. 

Not everyone is as convinced in the industry: on the following day, SSE announced it had abandoned plans to invest $US33 billion in four UK offshore wind projects due to the “limited” support for the technology from the government and high costs. The global levelised cost of offshore wind power is $US189/MWh, according to Bloomberg New Energy Finance’s central estimate, compared with $US85/MWh for onshore wind and $US82/MWh for coal. SSE will continue to invest in the Beatrice offshore wind farm in partnership with Repsol Nuevas Energias and submitted the final investment contract application to the UK government on 25 March. 

The UK has seen several worrying headlines about offshore wind projects in the last six months: in November last year, RWE npower pulled out of the $US7 billion Atlantic Array in the Bristol Channel, saying that the economics did not stack up; in the following month, Centrica announced it was selling its stake in the 580 MW Race Bank project off East Anglia; and the next day, Scottish Power abandoned its $US9 billion plan to build the world’s largest offshore wind farm because it was not “financially viable”. Nonetheless, some 34GW of offshore wind capacity remains under development in the UK. Over half of the operational offshore wind capacity is in the UK, according to Bloomberg New Energy Finance’s market-sizing tool.

Elsewhere, the race to bring online the first US offshore wind farm is hotting up: one contender is Deepwater Wind which said on 26 March that it is seeking a contract from the Long Island Power Authority (LIPA) for a $US1 billion wind farm off the coast of New York state. The Deepwater ONE project would be scheduled to start supplying over 200 MW of power in 2018 and the developers have a licence to produce up to 1.2GW of electricity. The company’s announcement was in response to LIPA’s request for proposal for 280 MW of renewable energy.

The team behind another contender – the 468MW Cape Wind project in Nantucket Sound – has secured a further $US400 million from French investment management company Nataxis, Dutch bank Rabobank and the Bank of Tokyo-Mitsubishi, it said on 26 March. The three banks will also act as lead arrangers. Cape Wind has raised some $US1.3 billion to date, amounting to around half of the project’s estimated cost, but hopes to benefit from a federal tax credit, which could cover some 30 per cent of its capital costs. Cable construction is due to begin by end-2014, with commissioning slated for August 2016 – nearly 15 years after the original announcement.

Finally, in Asia Pacific, the Japanese government approved on March 25 a 64 per cent increase up to $US0.35/kWh in the offshore wind feed-in tariff for systems of 10kWh or more. This move is part of the government’s plan to increase wind power investments and encourage business for companies such as Hitachi and Mitsubishi Heavy Industries. Wind projects only accounted for 3 per cent of development approvals under the program up to November 2013. The dominant technology – solar – saw its tariff decrease by 11 per cent to $US0.31/kWh. The solar boom will continue for another two years, according to Bloomberg New Energy Finance, as some projects approved under the previous rates have yet to start up. The new rates will come into effect in May.

EU carbon

European carbon prices plummeted last week as speculators unwound positions after hopes for further price gains failed to materialise.

European Union allowances (EUAs) for delivery in December 2014 ended last Friday’s session 29.3 per cent down at €4.42/t on ICE Futures Europe exchange in London, compared with €6.25/t at the close of the previous week.

EUAs for December stayed mostly within a range of €5.80-6.25/t for the first few days of trading last week. The front-year contract dropped 10.7 per cent on Thursday as market activity intensified. Approximately 76Mt of December 2014 EUAs traded on Thursday – a 171 per cent increase on the 15-day moving average. Prices dropped to a low of €3.71/t before rebounding on Friday as more permits exchanged hands.

UN Certified Emission Reduction credits for December 2014 finished the week up €0.02/t at €0.16/t.

German power for delivery in 2015 ended the week 3.8 per cent down at €34.15/MWh.

Originally published by Bloomberg New Energy Finance. Reproduced with permission.