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WindEurope has published its annual Finance and Investment Trends report. It shows investor confidence in wind energy remains high. Europe invested €41bn in new wind farms in 2021. This is financing 25 GW of new capacity, a record. But the investments are falling well short of the 35 GW a year of new wind the EU now needs to build to meet its 2030 climate and energy security targets.
Europe invested €41.4bn in new wind farms in 2021. This is 11% less than 2020. But the investments cover 24.6 GW of new capacity, which is a record for new capacity financed in a single year. Most of the new wind farms financed were onshore – 19.8 GW. This partly explains why the amounts invested were down compared to 2020: onshore wind is slightly cheaper than offshore.
The investments were pretty well spread geographically. Eleven countries invested more than €1bn. The UK invested the most (almost all in the offshore wind) followed by Germany, France, Spain, Sweden and Finland. Spain invested the most in onshore wind. Sweden, Finland, Poland and Lithuania all invested more in new farms than they had done in any previous year.
Europe needs much more wind energy
The strong onshore wind investments show that Europe is starting to turn the corner on permitting. But the results are still far off from where Europe needs to be to reach its new climate change and energy security targets. The REPowerEU agenda now wants the EU to expand its wind capacity from 190 GW today to 480 GW by 2030. This means building 35 GW of new wind turbines a year until 2030. The new wind investments in the EU in 2021 covered only 19 GW of new capacity.
Europe’s wind supply chain could and should be building much more. The fact it’s not, and that the market is only half the size it should be, is undermining the competitiveness of the supply chain. This is compounded by the rising costs of steel, other commodities and components, supply chain disruptions and higher shipping costs. All of Europe’s five wind turbine manufacturers are now operating at a loss. To restore the health of the wind energy supply chain the EU must continue to improve permitting, ensure a strong home market and pursue trade and industrial policies that support the sector.
Market volatilities highlight the benefits of CfDs
A growing number of new wind investments are underpinned by contracts for difference (CfDs) that governments are offering in their renewables auctions. CfDs deliver stable revenues for project developers at low costs to Governments – because Governments only payout when the electricity price is below the auction price but get paid back when it’s higher. CfDs also reduce finance costs because the clear revenue perspective means banks to finance projects at favorable rates of interest.
PPAs reach new highs
2021 was a record year for corporate renewable Power Purchase Agreements (PPAs). 6.9 GW of new PPA deals were announced, raising the total amount of renewables under PPA by a massive 58% in one year alone to 18.8 GW. The wind was 60% of the new PPA capacity with 41 new PPAs for onshore wind farms and 11 for offshore wind farms.
Wrong auction designs increase the costs of wind energy
Europe will only reach its climate targets and ensure energy security if it removes barriers to the expansion of renewables and ensures wind remains an attractive investment. Governments should avoid running auctions that allow for zero bidding or negative bidding.
Zero bidding increases the financial risk associated with wind farm development. Even worse, negative bidding, as seen in the Danish tender for the Thor offshore wind farm last year, requires developers to pay for the right to build a wind farm. These additional costs have to be passed on to electricity consumers – already struggling with higher electricity bills – or the wind industry supply chain – already strained by increasing costs for materials and components.