WindEurope latest data on wind turbine orders in Europe in 2022 paints an extremely worrying picture. Total orders for new wind turbines in 2022 fell by 47% on 2021. The EU saw only 9 GW worth of new turbine orders. This reflects a fall in new investments in wind energy that were announced last year: the first 11 months saw final investment decisions for only 12 GW of new wind farms. The EU needs to build 30 GW of new wind farms a year under its new energy and climate security targets.
The EU has big ambitions for offshore wind: to get from more than 15 GW today to over 100 GW by 2030. But there wasn’t a single investment in an offshore wind farm in Europe in 2022, besides a few small floating wind projects. Several offshore wind farms were expected to reach financial close last year, but final investment decisions were delayed due to inflation, market interventions and uncertainty about future revenues.
Inflation in commodity prices and other input costs has raised the price of wind turbines, by up to 40% over the last two years. But the prospective revenues of those planning to build wind farms have not kept pace with this. Many governments index the prices paid for wind energy (usually determined in auctions), but not enough. And the long time-lag between developers deciding their auction bids and their turbine suppliers actually procuring their components doesn’t help either. Governments need to ensure full indexation.
Unhelpful interventions in electricity markets by different national governments have compounded the inflation challenge. Investors understand the need to support families and businesses. But the fact that Governments have been able to deviate from the EU’s emergency €180/MWh revenue cap on generators and set different caps for different technologies has created real confusion and uncertainty. And investor confidence was further hit when some Governments started ignoring the principle that revenue caps should only apply to actual realised income - and that it should factor in hedging and PPAs. The slowdown in wind investments was especially pronounced in the second half of 2022, when uncertainty around the emergency measures started to take hold.
The fall in wind investments and turbine orders are compounding the problems faced by Europe’s wind energy supply chain. It is good that the EU is now preparing a Net-Zero Industry Act to strengthen Europe’s clean energy industries. In fact, the Net-Zero Industry Act is essential and can’t come soon enough.
Europe’s wind and other clean energy supply chains need to invest in new manufacturing and logistics in order (a) to become competitive and (b) to build up the capacity needed to produce the volumes of low carbon equipment needed for the Green Deal.
In March the EU Commission will table its proposal for a revision of the EU electricity market design to enable electricity consumers to benefit from the low costs of renewable power. Europe must avoid reversing 20 years of European energy market integration overnight. The market design should leverage the potential of CfDs and PPAs and leave space for investors to access some market revenue so they can meet their PPA obligations. It must avoid forcing CfDs retrospectively onto existing assets, or onto new assets.
