Roan wind farm, part of the Fosen onshore wind power project in Norway.
Europe's onshore wind sector is heading into the next decade in full sail, but some uncertainties remain for the near-term investment landscape. New capacity additions are set to grow by an average of around 15 GW until 2025 under the central scenario forecast by trade body WindEurope. Industry players expect a growing share of new capacity will come from merchant assets outside of traditional subsidy schemes — made viable by the emergence of power purchase agreements, or PPAs, with both utilities and corporate consumers eager to green their image.
But Europe will only live up to its full potential over the next five years if countries can resolve issues around wind farm permitting and investment in grid infrastructure, WindEurope warns. While the group expects faster growth in France, Spain and the Nordics, Germany's wind market is forecast to slump.
S&P Global Market Intelligence asked five onshore wind developers and investors for their view on where the sector is heading in 2020 and beyond.
This is part of a series of European power outlooks compiled by S&P Global Market Intelligence. Click here for solar, here for battery storage, and here for a legislative and regulatory outlook for Europe's five biggest markets.
Paul O'Donnell, co-manager of Greencoat Renewables PLC, a fund managed by Greencoat Capital LLP
The major theme of 2020 is likely to be the growth of subsidy-free renewable generation assets, and relatedly the development of fixed-price corporate power purchase agreements. Whilst the enormous cost-savings achieved in the construction of solar and wind are now well documented, the speed of subsidy-free buildout will depend on two key factors.
The first is power price where signs look positive for developers. The rapidly growing prominence of ESG issues for big corporates has increased appetite for green electricity PPAs. The second factor will be the willingness of the equity capital markets to acquire these subsidy-free assets once constructed. If developers know they will find an eventual buyer, their own cost of capital decreases significantly.
In terms of specific European geographies outside of Ireland, we are looking at Belgium, Finland, France, Germany, and the Netherlands, where we see a combination of robust regulatory regimes, and significant asset pools with the currently installed 150 GW capacity due to expand to 250 GW by 2030. We expect to see a maturation of the PPA market across Europe, not least in Ireland where the deployment of data centers is driving a lot of demand for clean electricity.
Renewable Energy Systems Ltd., or RES, a global renewables and storage developer
Rachel Ruffle, left, and Marco Perona
Rachel Ruffle, CEO, Northern Europe: One market that we think will continue to have a very positive development outlook in 2020 is the Nordics, a region where we've been actively developing projects for more than 15 years. Here the renewables industry is benefiting from a regulatory and political framework for new onshore wind farms and a liquid electricity forward market, coupled with a healthy corporate PPA market that helps investors manage and stabilize merchant revenues.
Revenue stabilization is giving investors the confidence to manage the risks and opportunities associated with a merchant project and will encourage developers, like RES, to bring new sites to financial close in what we expect to be an active market in 2020.
Marco Perona, CEO, Southern Europe and Australia: In France, we think 2020 will be a defining year for the industry with ambitious renewables targets across all technologies expected to be legislated for by [the] government. RES, with more than 38 years' experience and a strong presence in the country, is poised to maximize this opportunity and is also planning to cement our place as a leading asset manager by adding further MWs to our already growing client base.
Armin Sandhoevel, chief investment officer, infrastructure equity, at investment manager Allianz Global Investors GmbH
In 2020, the European wind power market will continue delivering only few attractive projects. To satisfy investors' appetite for this asset class at an adequate risk-return profile will be complex.
Following the Nordics, the Netherlands and some Southern European countries will start to establish (corporate) power purchase agreements as the "new normal" for new installations. For some operational assets, the post feed-in-era starts creating opportunities to leverage the returns on existing power plants. In Germany, the dramatic slump on new installed wind onshore capacity will persist next year with the lack of space, the restrictive distance regulations between wind turbines and residential areas and poor public acceptance.
Some of the main challenges for the European wind industry producers will be to stop the trend on decreasing EBIT margins in a context where competition in a shrinking market is heavy, to generate substantial turnover also outside the home markets and to integrate storage systems. For institutional investors, it will be key to structure transactions stabilizing cash flows, considering robust developers and long-lasting industry players.
Xavier Barbaro, chairman and CEO at renewables developer Neoen SA
The contribution of onshore wind to the energy mix will increasingly go well beyond the ease with which it can be connected to the power grid. Alongside governmental agreements, it is attractive to a wider range of buyers, in particular energy intensive businesses. For instance, in 2020, [Alphabet Inc.'s Google LLC] will use output from the Hedet [wind farm] to power its data center in Hamina, Finland.
Another key driver for wind energy expansion is that technologies can be mixed and matched to make fluctuations in output of wind-generated electricity less and less an issue. Today, we start to work on fully-fledged wind-based power plants equipped with their own storage capacity so that electricity can be supplied to the power grid as and when required.
At the same time, the future of wind energy lies in controlled and carefully planned landscape integration and the industry stands before a real opportunity — reconfiguring older facilities as they come up for renewal by installing new more efficient systems. This may be the case in countries where wind farms were commissioned several years ago, such as Germany or Ireland. This is a long-term vision, and one to which the integrated developer, investor and operator business model brings considerable value and is already demonstrating its worth.
Peter Dickson, technical partner at clean energy fund manager Glennmont Partners
We have seen a number of key trends develop throughout 2019 that are likely to continue in 2020 in the wind energy sector. The first is that capital costs and risks have continued to decrease, particularly in the offshore wind market where we have seen a fall on average by 65-70% in the past 10 years.
Regarding onshore wind, we are witnessing a sustained move toward bilateral PPAs in the sector. In terms of specific markets, Scandinavia and Poland have been the most vibrant, while France remains an attractive bet, and we expect these to continue to develop and mature into next year.
Looking at Europe as a whole, the removal of feed-in tariffs and rise of bilateral PPAs have resulted in a clear bifurcation of wind and solar. Generally speaking, wind capacity is concentrated in the northern extremes and solar in the southern extremes of Europe. This marks a notable difference from several years ago, when there was a greater mix and we even saw solar facilities being installed in geographies such as Scotland.