“This is part of a transformation that almost all of Europe’s major utilities are currently undergoing in response to fundamental changes in their energy markets,” says Toby Couture, director of the Berlin-based consulting firm E3 Analytics. “They’re endorsing different adaption strategies. E.ON’s seems to be the boldest, the most far-reaching so far.”

“There’s never been such a radical restructuring in the German energy industry,” opined the national daily Süddeutsche-Zeitung.  “It is courageous because it will change the company and its culture from the ground up. And it is rational because E.ON is thus acknowledging the policies made in Berlin and Brussels in recent years.”

Actually, the surprise isn’t that one of Germany’s “Big Four,” the four giant utilities that dominated Germany’s conventional energy production and distribution until the 00s, is switching to a strategy based on green energy products, but rather that it took so long to do so.  The four — E.ON, RWE, Vattenfall and EnBW — own just 4.9 percent of non-hydro renewable capacity in Germany, a result of their stubborn resistance to the Energiewende. With such a heavyweight as E.ON on board, the parameters of the discourse about the Energiewende in Germany will surely shift — to the advantage of renewables and climate protection, which face unrelenting attacks from the fossil fuel lobbies. Yet, the determined entry of such a big player into the market will likely happen at the cost of Germany’s decentralized, small-scale producers — the backbone of the Energiewende until now.

Ultimately, E.ON had little choice but to make the jump or face a future of more losses, debt and eventually bankruptcy. The spread sheets of every one of Germany’s Big Four have been soaked in red ink for years now — a direct result of the Germany government’s progressive energy policies. This year alone, E.ON reported that its net income for the first three quarters of 2014 declined 25 percent from 2013. (The company has 62,000 employees and a turnover of $146 billion.) Last year its business was off 14 percent. The company, which is struggling under a $38 billion debt, has been shutting down coal and gas-fired plants as lower priced renewables force them out of the market. EON has shed roughly 10,000 jobs over the last five years, about 6,000 of them in Germany.

The losses are a direct result of the Energiewende. For one, Germany began phasing out of nuclear power in 2000. E.ON and its peers, however, refused to give up on nuclear waiting for a center-right government to come to power in 2009, which had promised extensions of the life spans of Germany’s reactors. This happened in 2010 but then was reversed by German Chancellor Angela Merkel in 2011 in the aftermath of the Fukushima nuclear disaster in Japan. Merkel shut down seven reactors in one swoop, a third of Germany’s fleet, and accelerated the phase out of all of Germany’s reactors by 2022.

Moreover, Germany’s rapid expansion of renewables — in particular solar PV and onshore wind — has both pushed down the wholesale price of electricity (25 percent since 2013 alone) and forced the higher priced fossil fuels, mostly gas, out of the market. Germany could produce as much as 30% of its power in 2014 with renewables.

A result of German polices and the low marginal costs of renewables, renewables form the new baseload of Germany’s power supply – while conventional sources make up the difference between the supply of renewables and demand — which is less every year and will be for the foreseeable future. The utilities’ last hope — capacity markets for their conventional products — seems now to be a lost cause. Given that Germany has pledged to turn 80% of its final energy green by 2050, the conventional utilities can only fight a losing, rear-guard battle with their current business models.

Adding fuel to the fire, the utilities received yet another piece of bad news this week. In view of Germany’s effort to hit its own national climate target for 2030 (a 40% reduction compared to 1990), the German government is ordering them to reduce their CO2 emissions by an additional 22 million tons. This could mean shutting down lignite-fired plants, reducing coal generation in favor of gas, or employing energy-saving measures in their production processes.

E.ON could also be responding to an opening that the Merkel government made to the big utilities earlier this year. It announced reforms of Germany’s seminal renewable energy law that would mean auctioning off large chunks of renewably generated capacity beginning in 2015. This was seen as an overture to the major utilities, which would be uniquely placed to provide such volume. Germany’s smaller producers couldn’t hope to compete. Germany also remains committed to its offshore wind program, which requires the kind of investment that a multinational the size of E.ON can muster.

 There are also critics, though, who see E.ON looking for a way to dump its money-losing investments on the German public. Germany’s left-wing daily Die Tageszeitung warns that the utilities may try isolating their impaired, toxic assets, just as investment banks did with “bad banks” during the 2008 financial crisis. In fact, E.ON is dividing its businesses into two companies: one that deals with phasing out its conventional energy holdings, and another — the company’s new focus – working on renewables and smart energy systems. Skeptics argue that E.ON may try to sue the government for the losses that its fossil fuel production has suffered in the same way that the nuclear-invested utilities are attempting to recapture losses from the government for shutting down their nuclear plants ahead of schedule. 

Germany’s other major utilities tried to put a good face on the E.ON announcement. EnBW and the Swedish Vattenfall say they’re freeing up ever more financing for renewables, too, even if they’re not revamping their profiles as radically as E.ON says it will. Only RWE stuck steadfastly to the old script: «We want our company to continue business along the entire value chain,» said an RWE spokeswoman.

Couture of E3 Analytics says that German utilities are already successfully branching out beyond Europe by winning contracts for major energy infrastructures in the Middle East, South America and Asia. “German utilities are in a good position to take on these kinds of big projects,” he says.

“Spinning off coal, gas and oil from the core business is a smart strategy for a future-oriented company,” said Patrick Graichen, head of the think tank Agora Energiewende, told Bloomberg. “I’m sure additional utilities will follow suit — not just in Germany, but worldwide.” 

Lead image: Fossil and renewable via Shutterstock

This is an excerpt from EERE Network News, a weekly electronic newsletter.

November 19, 2014

New York State on November 12 announced $206 million in awards to four large-scale clean energy projects, including two large wind energy farms, a large new hydroelectric project and a small hydroelectric upgrade to an existing dam. All four projects will help reduce greenhouse gas emissions and improve the resiliency of New York’s energy infrastructure.

Once operational, the four projects will add approximately 164 megawatts of new renewable capacity, which will provide about 450,000 megawatt-hours per year of clean renewable energy to New York—enough energy to supply more than 60,000 average-sized homes per year. See the New York news release.

This is an excerpt from EERE Network News, a weekly electronic newsletter.

November 19, 2014

The U.S. Department of the Interior (DOI) on November 17 announced that it has offered a right-of-way grant to Deepwater Wind for the Block Island Transmission System off of Rhode Island to transmit offshore wind energy.

Deepwater Wind’s proposed project would install a bi-directional submerged transmission cable between Block Island and the Rhode Island mainland. The transmission system would serve two purposes: to connect Deepwater Wind’s proposed 30 megawatt Block Island Wind Farm about 2.5 nautical miles southeast of Block Island to the Rhode Island mainland, and to transmit power from the existing onshore transmission grid on the mainland to Block Island. The right-of-way corridor, which is about eight nautical miles long and 200 feet wide, comprises the portion of the transmission line that crosses federal waters. See the DOI new release.

This is an excerpt from EERE Network News, a weekly electronic newsletter.

November 26, 2014

The International Energy Agency (IEA) on November 12 released its «World Energy Outlook 2014» (WEO-2014) which projects that world energy demand will increase 37% by 2040—but demand would have been higher without global energy efficiency measures. At the same time, renewable energy technologies gain ground rapidly, helped by falling costs and subsidies.

The report sees a positive outlook for renewable energy sources, expected to account for nearly half of the global increase in power generation by 2040. According to WEO-2014 wind energy will account for the largest share of growth in renewables-based generation, followed by hydropower and solar technologies, including photovoltaic (PV) systems. As the share of wind and solar PV in the world’s power mix quadruples, their integration both from a technical and market perspective will become more challenging. See the IEA news release.

This is an excerpt from EERE Network News, a weekly electronic newsletter.

November 26, 2014

The U.S. Department of the Interior (DOI) on November 24 announced that more than 742,000 acres offshore Massachusetts will be offered for commercial wind energy development in a January 29, 2015, competitive lease sale. The Massachusetts Wind Energy Area starts about 12 nautical miles offshore Massachusetts; from its northern boundary, the area extends 33 nautical miles southward and has an east/west extent of approximately 47 nautical miles.

According to an analysis prepared by the Energy Department’s National Renewable Energy Laboratory, if fully developed, the area being offered could support between 4 and 5 gigawatts of commercial wind capacity, enough to power more than 1.4 million homes. Twelve companies have qualified to participate in the auction for the Massachusetts Wind Energy Area. See the DOI news release.

For example, three models have been utilized for financing offshore wind projects. The first is the utility equity model, in which a utility finances the project entirely on its balance sheet. Until recently, offshore wind was mainly funded in this manner. Second is the developer model: the company develops, builds and finances a project itself, thereby retaining the construction risk, before selling down its equity interest once commercial operation is achieved. In the third project finance/developer model, construction risks are assumed by the equity investors, as well as by commercial bank lenders via construction/term financing.

Success in the wind sector may be due, in part, to integrated offerings of technology and finance, which should be strongly positioned to address the challenges project developers currently face.  Siemens Financial Services (SFS) supported Kawailoa Wind, the largest wind farm in Hawaii, with $50 million of debt financing. In addition, the 69-MW wind facility uses 30 Siemens wind turbine generators. Developers often seek assistance with both financing and technology, and Siemens’ ability to invest its own capital to support its technology helps instill the necessary trust to attract the remaining debt and equity capital necessary to finance the project.

A number of external factors determine the structure and technology used for a wind power project, including location and the wind regime. New turbines on the market now provide high energy yield at low wind sites. By analyzing the global market, companies can use their resources and technology in the most effective and efficient ways possible.

The Gemini offshore wind farm in the North Sea is one of the largest in the world. SFS supported the 600-MW wind power plant consisting of 150 Siemens wind turbines, with a 20 percent equity investment. In total, over 20 parties were involved, making Gemini the world’s largest project-financed offshore wind farm. This multi-source financing model shows the increased need for capital investment in today’s market. Additionally, the wide range of investors in this transaction proves the broad-based appetite for offshore wind assets.

The North American market has been a big focus in recent years, with a great deal of onshore wind activity in the U.S. and Canada. Up until now, these wind projects have been located onshore and are driven mainly by renewable portfolio standards imposed at the state or provincial level. However, the Gemini offshore wind farm is a great example of the type of offshore projects that are attracting increasing investor interest in Europe and may eventually be pursued in North America.

Renewable energy is now one of the greatest single asset classes held by SFS, and revenue from renewables has increased significantly since 2005. As the demand for energy continues to expand, the world needs new ideas to further promote renewable power generation.

We are fortunate to play a role in developing, building, and investing in these projects. The cost of wind-generated power has declined at a steady pace as the technology has evolved. Despite uncertainty over the extension of production tax credits in the US, Siemens has a full slate of projects currently in development and construction.  We are on the right trajectory to see continued long-term investing success in this sector and see the market continue to expand in for the near future.  

Lead image: Wind turbines via Shutterstock

For example, three models have been utilized for financing offshore wind projects. The first is the utility equity model, in which a utility finances the project entirely on its balance sheet. Until recently, offshore wind was mainly funded in this manner. Second is the developer model: the company develops, builds and finances a project itself, thereby retaining the construction risk, before selling down its equity interest once commercial operation is achieved. In the third project finance/developer model, construction risks are assumed by the equity investors, as well as by commercial bank lenders via construction/term financing.

Success in the wind sector may be due, in part, to integrated offerings of technology and finance, which should be strongly positioned to address the challenges project developers currently face.  Siemens Financial Services (SFS) supported Kawailoa Wind, the largest wind farm in Hawaii, with $50 million of debt financing. In addition, the 69-MW wind facility uses 30 Siemens wind turbine generators. Developers often seek assistance with both financing and technology, and Siemens’ ability to invest its own capital to support its technology helps instill the necessary trust to attract the remaining debt and equity capital necessary to finance the project.

A number of external factors determine the structure and technology used for a wind power project, including location and the wind regime. New turbines on the market now provide high energy yield at low wind sites. By analyzing the global market, companies can use their resources and technology in the most effective and efficient ways possible.

The Gemini offshore wind farm in the North Sea is one of the largest in the world. SFS supported the 600-MW wind power plant consisting of 150 Siemens wind turbines, with a 20 percent equity investment. In total, over 20 parties were involved, making Gemini the world’s largest project-financed offshore wind farm. This multi-source financing model shows the increased need for capital investment in today’s market. Additionally, the wide range of investors in this transaction proves the broad-based appetite for offshore wind assets.

The North American market has been a big focus in recent years, with a great deal of onshore wind activity in the U.S. and Canada. Up until now, these wind projects have been located onshore and are driven mainly by renewable portfolio standards imposed at the state or provincial level. However, the Gemini offshore wind farm is a great example of the type of offshore projects that are attracting increasing investor interest in Europe and may eventually be pursued in North America.

Renewable energy is now one of the greatest single asset classes held by SFS, and revenue from renewables has increased significantly since 2005. As the demand for energy continues to expand, the world needs new ideas to further promote renewable power generation.

We are fortunate to play a role in developing, building, and investing in these projects. The cost of wind-generated power has declined at a steady pace as the technology has evolved. Despite uncertainty over the extension of production tax credits in the US, Siemens has a full slate of projects currently in development and construction.  We are on the right trajectory to see continued long-term investing success in this sector and see the market continue to expand in for the near future.  

Lead image: Wind turbines via Shutterstock

“This sale will triple the amount of federal offshore acreage available for commercial-scale wind-energy projects,” Interior Secretary Sally Jewell said in the statement.

The department’s Bureau of Ocean Energy Management has awarded seven leases — two through non-competitive bids — for projects in the Atlantic Ocean, including Cape Wind in Nantucket Sound. Five competitive sales for more than 357,000 acres off Maryland, Virginia and New England have generated more than $14 million.

BOEM in 2015 plans to hold another competitive auction for lease areas off the coast of New Jersey, where last week the state’s Board of Utilities rejected a proposal for a wind farm near Atlantic City.

The U.S. has no utility-scale offshore wind installations, and development has lagged elsewhere, including in China. Offshore wind energy costs about twice as much to produce as power from coal, according to data compiled by Bloomberg New Energy Finance.

Copyright 2014 Bloomberg

Lead image: Offshore wind via Shutterstock

By the end of September, wind power connected to the grid totaled 106 billion kWh, rising by 7.6 percent year-on-year. During the none-month January-September period, wind energy curtailment in the country amounted to 8.6 billion kWh, a decrease of 28.3 percent year-on-year. The average wind power curtailment rate had dropped to 7.5 percent by the end of September, a fall of 3.36 percentage points on a yearly basis.

Despite the decline in wind power curtailment, 28 provinces, cities and regions across China saw a decrease in wind power utilization hours, led by Xinjiang semi-autonomous region, Chongqing municipality and Shanxi province, all located in the Western part of China. The regions posted a year-on-year decrease of 503 hours, 4,213 hours and 402 hours, respectively. Jiangsu and Yunnan provinces saw an increase in utilization hours. In the first nine months of this year, the country’s average wind power utilization time reached 1,336 hours, a decline of 196 hours year-on-year.

Zhou Yiyi, a wind analyst at Bloomberg New Energy Finance, explained that the number of wind power utilization hours depends on the availability of wind resources. A windy year occurs every four years in China, and the average wind speeds this year have been significantly lower than last year’s.

Ren Haoning, an energy researcher at China’s leading industry research institution CIConsulting, said that despite a reduction in both wind power curtailment and rate, the curtailment issue has not been resolved and the country needs better and more detailed planning for wind power projects. 

Ren added that a boom in the number of new wind power projects requires a matching rise in operational efficiency and the wind power utilization hours define the rate of return on wind power projects, something which the grid companies need to constantly monitor.

A wind farm industry insider said that he foresees onshore electricity prices dropping next year, with the warning that the construction of wind power projects should start before the prices go down. However, Wind power projects are built much faster than grid infrastructure.

SP Consulting analyst Zhang Jiao said that the construction of a typical wind power project is completed within one year, while the supporting grid facilities for cross-district transmission takes about two years. He sees this construction period imbalance as the fundamental cause of wind power curtailment.

Ren added that grid companies are concerned that large and unstable wind power projects may affect the safety and stability of the grid and that it is a global necessity to ensure the stability of grid-connected wind power projects. 

Lead image: Wind turbines via Shutterstock