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Integrated utility model key to survival, Vattenfall says

SNL Image

Vattenfall's Horns Rev offshore wind farm in Denmark. The company is one of the largest wind developers in Europe.
Source: Vattenfall

➤ Size and vertical integration matter in Europe's consolidating, and increasingly competitive, wind sector, says Vattenfall's head of wind.

➤ Oil and gas companies "have not fully found the key yet" to competing with utilities.

➤ Betting on different technologies important amid headwinds in some markets.

Vattenfall AB is one of Europe's largest power companies and, next to its traditional thermal generation, has built one of the continent's largest fleet of wind farms over the past two decades. It was an early investor in offshore wind and its projects now dot the coastlines of Denmark, Germany, the U.K. and the Netherlands where it has won projects without direct subsidies.

While some of its rivals are now looking to foreign shores, Vattenfall plans to remain squarely focused on Europe. Gunnar Groebler, senior vice president in charge of the Swedish state-owned utility's wind business, spoke to S&P Global Market Intelligence about challenges on- and offshore and what it takes to stay competitive in Europe's wind sector. The following is an edited transcript of the conversation.

S&P Global Market Intelligence: Traditional utilities are competing more and more with non-utility developers in the renewables space. How is Vattenfall dealing with this new reality?

Gunnar Groebler: Of course we're observing that the more mature a technology becomes, the more the entry barriers also decrease for other players. And yes, we have seen non-utilities in the wind space, pure developers, oil and gas companies that now more and more knock on the door. I don't think they have fully found the key yet. Otherwise, given their ability ... to step in with deep pockets, we would have seen them [more]. They are there and, for sure, also bring capabilities to the table to move into that market. We're observing that very clearly.

We're [also] seeing that the market is consolidating. You see that on the supplier side, look at Senvion SA that is part of consolidation. You see that also on the development and operator side. People that have been in the offshore space early on moved out, [either] because they're not willing, [or] able or ... strategically not interested to go for those big tickets. We see companies merging E.ON SE and RWE AG, both have been active in the renewable space, now it's going to be one [company]. Joint ventures like EDP Renováveis SA and Engie SA. So there's a consolidation ongoing. And there will be [only] a few big players that are able to attract so much volume that they are relevant to the supply side and, through that, also get a competitive advantage on the levelized cost of energy on the financing side. Because those big players, of course, have a different interaction with financing institutions than somebody who does an offshore project every fifth year.

But where does Vattenfall stand in all this? Are you interested in the kind of consolidation that you are describing?

SNL Image
Gunnar Groebler
Source: Vattenfall

Well, we see ourselves at least in a position of strength, as it looks now. On the offshore side, I think we are still among the top three players globally. And we have a strong pipeline to further grow. On the onshore side, I think we have established ourselves very well in Europe, with quite a few very large projects, and we've talked about ... the advantage and cost advantage of scale. So here, I think we're moving absolutely in the right direction. And the same for solar we are a newcomer, let's be honest, we started that as a business one-and-a-half, two years ago. We have been able to secure a pipeline that is a couple of hundred megawatts by now and we are moving into delivery on that pipeline. Also here, scale will be beneficial.

I think the advantage that Vattenfall has, and that's why I believe that we also will be part of the winning team going forward, is that we have the depth of an integrated utility. If you look at especially tenders, competitive tenders, where we bid in a beauty contest against others: being able to show the depth of the company, and not only from a financial perspective, but also having a customer base, having a market access that is well-established ... is something authorities look at because that de-risks the project. [It] ultimately de-risks also the political side of the delivery of that project. So I see us pretty well-positioned and full of energy for further growth.

You say oil companies have not found the key yet to competing with utilities on their turf. What about Equinor ASA's rapid growth in offshore, for example, which is one of your key focus areas?

You're right; Equinor is a slightly different case. They have been in offshore since early on. And then I think also technology-wise, they are the ones that are at least ahead when it comes to floating offshore. They have been early on in that concept. Of course, with their offshore experience they have on the oil and gas sector, that plays into their hand. So I didn't mean Equinor when I talk oil and gas it's more the Royal Dutch Shell PLC's [and] Total SA's of this world.

There is public opposition to onshore wind in many countries. Suppliers are also feeling price pressure filtering through from competitive auctions. How do you grow in that environment? Is the solution to just move offshore?

I think having a healthy balance between the three technologies is what I would strive for. Of course, offshore projects are larger than onshore and solar. On the installed capacity, offshore will and has already become the biggest technology. But having a healthy balance and also being able to play [on] market development, regulatory development on the three technologies in different markets, I think is a nice situation we're in. We will not [evolve] into a pure-play offshore [developer]. I don't see that.