Increasingly, we read that offshore wind in Germany is getting going. While the news is good, it overstates the role of offshore wind in the country’s energy transition. Craig Morris explains.
If you haven’t read it yet, the New York Times published a largely positive report on the Energiewende a few weeks ago. Up to then, the NYT had mainly displayed an astonishing unfamiliarity with Germany in its energy reports. The new report thus not only seemed incongruous to me, but also to the Cato Institute, one of the many libertarian think tanks in the US.
Despite the new positive twist, the NYT report is inherently contradictory in one respect. The title starts off suggesting that solar and wind are “leaving utilities behind,” only then to begin the article with “giant machines […] costing up to $30 million apiece” in the water off the German shore. Yet, the offshore sector is where big utilities are finally getting involved.
The only wind farm in the Baltic is owned by EnBW, one of Germany’s Big Four utilities. Alpha Ventus is owned partly by EWE (Germany’s fifth biggest utility), Eon, and Vattenfall (two others in the Big Four). Of the big players, only RWE has yet to complete an offshore wind farm in German waters, but it has been involved in projects in other parts of Europe – and it is currently building 48 five-megawatt turbines off the coast of Helgoland. Offshore even seems too big for individual municipal utilities, which have come together under the umbrella firm Trianel for a wind farm project. There is no community-owned offshore wind farm after Butendiek was handed over to institutional investors in 2010. Offshore is big business.
The NYT article begins with that Helgoland project without pointing out that it is a late attempt by RWE to become involved in the Energiewende. Instead, the turbines are portrayed as “towering symbols” of the drive “to find a solution to global warming.” (Note that fighting global warming is only one goal in the Energiewende, which predates the global warming debate.)
Reuters now also believes that offshore wind has become attractive to investors, partly because of “better returns than for solar and onshore wind power.” No percentage is given, but at least we finally have an admission that offshore wind not only costs more than onshore wind in absolute terms, but also that a higher return is provided.
Back in 2012, Blackstone – the largest investment firm in the world operating outside stock markets – said it expected offshore returns of up to 20 percent. With the target return of feed-in tariffs being six percent for biomass, solar and onshore wind, the question is why Germany would want to provide such a return to corporations and institutional investors, especially at a time when the primary concern of government officials seems to be the cost impact. Two answers are frequently given to this question: first, offshore wind will help Germany reach its goals; and second, incumbent firms needed their own market segment to encourage them to become involved, lest they continue to see the energy transition as a threat.
When the target return for PV (largely driven by citizens) was clearly exceeded, there were calls for feed-in tariffs to be reduced ahead of schedule; the result was the monthly reductions that we currently have based on the volume of installations. But when offshore wind farms perform clearly ahead of expectations (making them far more profitable), I seem to be the only one calling for lower feed-in tariffs for offshore wind.
Granted, if the risks are greater offshore than onshore, an argument can be made that offshore returns should be greater. But are the risks greater? To entice corporations to invest in offshore wind, the German government basically allows firms to pass on losses to ratepayers. One German offshore wind farm saw its converter station go up in flames this year (see this recent report by Der Spiegel in German). Because the fault does not lie with the wind farm operator, but rather with the equipment provider, the grid operator continues to pay the wind farm operator 90 percent of forgone wind power production (here’s the law in German). Each day, depending on wind conditions, the wind farm operator gets paid one to two million euros simply for measuring wind conditions and haggling with Switzerland’s ABB, the maker of the failed converter station. The grid operator simply passes these costs on to ratepayers. No one has an incentive to fix the problem quickly. Where are the risks?
At the end of 2013, Germany had nearly 34 GW of onshore wind power installed, much of it owned by citizens, communities, and SMEs. Only around 1 GW had been completed offshore. Clearly, the offshore sector is a playground for the big businesses that were never interested in the meager return provided by feed-in tariffs. And even if the government reaches its goal of 6.5 GW of offshore wind by 2020, the offshore sector will remain a marginal player for the foreseeable future.
The cost of getting big business involved in the Energiewende is high. Journalists, if you are looking for the big story behind the Energiewende, you will find it in countless small community projects onshore.