Can Wind Energy Developers Keep up with the Market?
Although the demand for renewable energy sources has been building for decades, 2022 will be remembered as the year that the geopolitical landscape pushed that demand ever higher. The impact of the conflict in Ukraine has heightened debates around energy security and magnified the increasingly important role that renewables play in stabilizing the energy market. At the same time, the energy sector is under increasing pressure to find solutions to the world’s climate emergency — and fast.
Renewable electricity capacity additions broke new records in 2021, increasing 6 per cent to almost 295GW, while in 2022, solar and wind power generated more than a fifth (22 per cent) of the EU’s electricity, overtaking fossil gas (20 per cent) for the first time. Despite these steps forward, renewable energy demand continues to outpace delivery. As the impact of climate change begins to be felt more and more, pressure from governments, stakeholders, and citizens has increased. This has driven the International Energy Agency (IEA) to issue a stark warning about the financing needed to transition away from fossil fuel dependence and achieve decarbonization goals. To reach net zero emissions by 2050, the IEA warns that annual clean energy investment worldwide will need to more than triple by 2030 to around $4 trillion (3.7 trillion euros).
To reach net zero emissions by 2050, annual clean energy investment worldwide will need to triple by 2030 to around 3.7 trillion euros.
Source: IEA, 2022
In Europe, the electrification of industry and the broader economy remains the most cost-effective way to decarbonize. While currently meeting 15 per cent of Europe’s demand, onshore and offshore wind energy is anticipated to make up half of the region's electricity supplies by 2050. Floating offshore wind offers an exciting opportunity to increase energy production and is attracting significant governmental and private industry funding. It is also a critical link to the growth of green hydrogen. The potential loosening of European Union (EU) subsidy regulations in response to favorable government policies in the United States (US) and China could also present new opportunities for growth within the industry.
Investment in both onshore and offshore wind power is not only fundamental to Europe’s energy security strategy but is also delivering wider social and economic benefits to the continent through the creation of jobs and investments in local communities — with each new turbine generating an average of 10 million euros of economic activity. In 2021 there was a steady stream of investment activity within the sector, bringing 41.4 billion euros of investments into the market, financing a record 24.6 GW of new wind farm capacity.
However, 2022 saw a significant drop in investment, despite the demand for industry growth. Orders for new wind turbines were down 47 percent compared to 2021, with capacity falling well short of the 30 GW of development needed each year to meet EU energy and climate security targets. Challenging headwinds in the form of economic and political volatility have tightened profit margins, increasing financial risks across this growth market. But, as we kickstart a new year, there are still plenty of opportunities for those players willing to evolve their agenda and adopt a revised approach to risk management.
To develop a path to commercialization while delivering on global climate targets, wind investors and developers can look to credit engagement and capital insurance vehicles to help address key financing risks. With credit enhancement policies and capital insurance vehicles, Special Purpose Vehicles (SPVs) can secure finance across the whole lifecycle of a project and ensure they have adequate protections in place to help them transfer risk and finance their future ambitions at pace.