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Redundancies, Bankruptcies, Unrealistic Power Contracts: The Wind Industry Crisis Deepens

November 26, 2019

By Paul Homewood

 

 

One of the great delusions of Labour’s green policy is that it will create a million new “well paid, unionised” jobs.

 

The reality in Germany is a bit different, as GWPF report:

image

Eddie O’Connor, the founder of Airtricity and Mainstream Renewable Power, is one of the most notable entrepreneurs in the wind industry and is consequently regarded with awe. His personal success speaks for itself, and if he chances to add anything further, obiter dicta, people pay attention. Speaking at a Reuters conference, Offshore and Floating Wind Europe 2019, which was held in London on the 11th and 12th of November this year, Mr O’Connor seems to have dropped a bombshell. Reports claim that he shocked his audience by describing the wind sector as “on its knees” and in a state of “failure”, because “cut-throat” competition has driven contracted power prices to levels so low that wind is no longer “profitable”.

No objective observer will disagree that the wind industry overall appears to be struggling. Enercon, the Mercedes Benz of turbine makers, has just announced 3,000 redundancies in its home town of Magdeburg, and admitted to a $220m loss in 2018, with worse to come in 2019 (“Thousands to lose jobs as German wind crisis hits Enercon” 11.11.2019).

Indeed, in a measure quite incredible for a flagship German firm, Enercon has explained that it can no longer afford to make wind turbine blades in Germany, and will perforce attempt to preserve its viability by manufacturing overseas, presumably in locations where lower energy costs mean that labour is much cheaper.

Senvion, another troubled German manufacturer of wind turbines, entered into self-administered bankruptcy/liquidation in April, but has subsequently struggled to deliver reassuring news to the markets. On the 1st of November, and in the light of the fact that Senvion had not provided financial reports since beginning of the year, Moodys withdrew all its ratings from both Senvion S.A. and its subsidiary Senvion Holding GmbH,  adding that it “continues to expect a meaningful loss to the current noteholders”.

It is clear that the problems summarised in an earlier Energy Comment post for this blog, “Is the Long Renewables Honeymoon Over” (11.05.19), are very far from diminishing and indeed seem to be growing still more serious.

Cutting through this miscellany of industry difficulties Mr O’Connor went straight to the heart of the matter, profitability, with his emphasis on contracted power prices. As is notorious, there has been a strong tendency in recent years for the wind sector in general to justify earlier and generous subsidies on the grounds that costs had, as a result now fallen. Offshore wind projects, for example, are claiming dramatic (and implausible) capital cost reductions, backing up such claims by signing contracts to supply electricity at surprisingly low prices, even at so-called Zero-Subsidy levels. In the UK the latest instance of this is the Round 3 Allocation of Contracts for Difference, which announced strike prices of £40/MWh for about 4.5 GW of capacity at five gigantic projects. This appears to be below the likely wholesale price, let alone below the fundamental price needed to deliver a return on investment for the wind farms themselves.

Mr O’Connor clearly has a point, and though he did not add that Hughes, Aris, and Constable were right in their study for GWPF in 2017, Offshore Wind Strike Prices: Behind the Headlines, his remarks are consistent with the view that those authors took, namely that the CfDs issued in that year  were at unrealistically low levels and could only be understood either as mistakes, which seems unlikely, or more probably as complicated options and high risk gambling, a view that Professor Hughes has developed in a subsequent paper for GWPF  (Who’s the Patsy? Offshore wind’s high-stakes poker game).

Nevertheless, the logic of the wind industry’s public relations agenda forces it to maintain its position and indeed to go beyond it. Bizarre though it may seem, analysts close to the industry such as DNV GL are now suggesting that future contract bids will be negative, in other words that wind power developers will actually be willing to pay for contracts in order to secure the option for development (When Will European Offshore Wind See Negative Bids?).

But such tactics are clearly hazardous. Andrei Utkin of IHS Markit is quoted in the same source as sounding a warning note:

In a way, when we compare the French and U.K. winning bid levels with forward prices, we already see negative bids: forward baseload prices for year-ahead delivery are above those levels. […] More and more renewables coming onto the grid will result in more curtailment and lower wholesale power prices. […] As a result, the price that renewables will be able to capture in the market will decrease as well, going below their levelized cost of energy and potentially triggering the need for government support.”

Quite. But can the industry survive the transition period to renewed subsidy and will that subsidy actually be forthcoming? Mr O’Connor’s instincts, and he must have excellent instincts for such things, are that the industry’s position is perilous. Wind power may well be in desperate need, on its knees in fact, but sympathy is likely to be in short supply:

Eight times emerging from the flood
She mewed to every watery god,
Some speedy aid to send
No Dolphin came, no Nereid stirred;
Nor cruel Tom, nor Susan heard.
A Favourite has no friend!

Dr John Constable: GWPF Energy Editor.

https://www.thegwpf.com/redundancies-bankruptcies-unrealistic-power-contracts-the-wind-industry-crisis-deepens/

 

Of course, Labour may simply nationalise all of the UK firms taking part in their grand green revolution. If so we can look forward to having an extremely inefficient and costly energy system!

33 Comments
  1. JimW permalink
    November 26, 2019 2:34 pm

    Leading on from my comments on the previous article, as well as borrowing vast amounts to build the stuff, they will also borrow vast amounts to subsidise the running of them.
    Its truely Alice through the Looking Glass world. But don’t think this is only Labour, any government is going to do the same ,the only difference being the amount borrowed.

    • November 26, 2019 7:41 pm

      If they could just get the wind to blow 24/7/365 they might be on to something 😆

  2. Ian Magness permalink
    November 26, 2019 2:49 pm

    In a very recent conversation, a director (whose name I must withhold) of a major international operator of windmills told me not only that no offshore wind farms could ever be profitable without significant subsidies but also that everyone in the industry understands this and has always understood it. I have heard similar second hand from another such senior executive in an energy company. The whole corporate game is to target the most gullible, virtue-signalling politicians (no shortage of these types in Britain that’s for sure) and lobby for the farms to be built regardless. Oh, and that’s uneconomic even without bringing the decommissioning £billions into account when obsolescence is reached. Add that thought to all of the other serious environmental and CO2-emitting issues with the production, fitting, operation and maintenance of offshore windmills, and you really struggle to see how any have ever been approved.
    How stupid are we as a nation?

    • Roger Cole permalink
      November 26, 2019 8:26 pm

      Remember Warren Buffet’s famous remark about wind. “”I will do anything that is basically covered by the law to reduce Berkshire’s tax rate,” Buffet told an audience in Omaha, Nebraska recently. “For example, on wind energy, we get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit.”

  3. November 26, 2019 2:49 pm

    The greendream plays very well with media types
    Our BBC local radio stations love it.
    Last weeks local paper had a 2 page fluff piece on Grimsby wind farm base. then turn the page and there’s a photo of St Greta.

    Saturday’s Times had a full page advert of greendream from Exxon.
    Weird how media create the scarestories
    then benefit from advertising £ds when corps want to push back.
    ie Climate scarestory reporting creates advertising revenue from people selling the greendream, and corps negatively impacted by greendream.

    Saturday’s Times media pages had a 4 page wraparound joint advert from
    – WWF … a very POLITICAL ngo
    and SmartEnergyGB a body funded by the taxpayer.
    ..That seems unethical to me.

    • tomo permalink
      November 27, 2019 12:53 am

      Smart Energy GB are sometimes described as a “charity” – and they are a CIC … I wonder what the rules about public funding for CICs are?

      Smart Energy GB likely get their cash from arm twisting the energy retailers?

    • dfhunter permalink
      November 27, 2019 1:12 am

      com on stew, at least the kids on the tv advert for Smart meters Thank you for saving the Planet for them, bless!!

  4. Phoenix44 permalink
    November 26, 2019 3:43 pm

    Forced to drop prices to show that wind is “competitive”, they’ve discovered that it isn’t.

    • November 27, 2019 9:29 am

      And a million new “well paid, unionised” jobs won’t change that. Somebody has to pay those wages.

  5. Mark Rogers permalink
    November 26, 2019 4:42 pm

    I think it is quite ironic that the the wind turbine manufacturers can no longer build their turbines in Germany because they have driven the energy costs so high that manufacturing is no longer viable.

    • JerryC permalink
      November 26, 2019 5:06 pm

      Yes, exactly. The chickens are coming home to roost.

  6. Dave Ward permalink
    November 26, 2019 5:43 pm

    “Presumably in locations where lower energy costs mean that labour is much cheaper”

    And also, presumably, in locations where environmental standards are lower, or non-existent…

    • bobn permalink
      November 27, 2019 11:24 am

      In locations with plenty of coal fired power stations running – hmm – china for example.

  7. Oliver King permalink
    November 26, 2019 6:33 pm

    Have you forwarded this to Ambrose?

    On another subject the BBC let a XR activist get away with blaming flooding on increased air press caused by CO2. About 6.50 am I believe.

    • dave permalink
      November 27, 2019 9:04 am

      “…blaming flooding on increased press[ure] caused by CO2.”

      Well, I thought I had heard it all!

      I suppose it is arguable that emissions of carbon dioxide resulting from human activity are increasing the mass of the atmosphere, and therefore pressures, by (1/250,000)th every year. Quite how that would make it rain in Yorkshire, I do not know.

      Actually, simply increasing the mass of the atmosphere without increasing the input of energy from the sun, would simply increase the inertial resistance, and slow down the bulk movement of air masses. I should guess that that would reduce weather system activity very slightly.

      • Phoenix44 permalink
        November 27, 2019 9:13 am

        Are they though? Dont forget CO2 production involves removing an O2 molecule from the O2 column.

      • dave permalink
        November 27, 2019 9:56 am

        “…removing an O2 molecule…”

        Good point. So the addition of mass is only the carbon atom. In which case, the atmosphere yearly gains mass at about one part in a million. I way overstated it!

        Of course, there is another species of wailing idiots, who think we are going to suffocate – because all the oxygen in the world will be used up burning fossil fuels!

      • dave permalink
        November 27, 2019 10:07 am

        Update from Dr Ryan Maue on frequency of tropical storms and hurricanes, for the whole globe, over last fifty years:

      • dave permalink
        November 27, 2019 10:56 am

        Re: Ryan Maue and storm frequencies:

        It is in his tweets for Nov 24

        So just click on ” @ ryanmaue ”

        IMO, he is THE expert on the empirical data for this particular subject.

        Spoiler alert. There is no trend at all.

  8. MrGrimNasty permalink
    November 26, 2019 7:13 pm

    Daily Mail relentless propaganda stream continues from last 2 days:

    More climate advocacy junk science.

    https://www.dailymail.co.uk/news/article-7721197/Research-suggests-living-near-busy-road-raise-risk-lung-cancer-10-cent.html

    https://www.dailymail.co.uk/wires/pa/article-7723521/Air-pollution-linked-higher-glaucoma-risk.html

    Glacier melt…we’re doomed…. yawn, why are old tree stumps being revealed by the melt meaning there were pretty much no glaciers 4000 years ago then?

    https://www.dailymail.co.uk/sciencetech/article-7722355/New-photos-vs-old-comparisons-dramatic-Swiss-glacier-retreat.html

  9. Gerard permalink
    November 26, 2019 7:44 pm

    Who picks up the cost of decommissioning these things?

    • Adam Gallon permalink
      November 26, 2019 9:37 pm

      Two guesses!

  10. swan101 permalink
    November 26, 2019 9:17 pm

    Reblogged this on ECO-ENERGY DATABASE and commented:
    UK voters who have a spark of knowledge about the energy sector and the effects of wind power upon it, and that is without also recognising as the World Health Org. finally has, the negative health impacts of wind power, should mark well the last comment….

  11. It doesn't add up... permalink
    November 26, 2019 10:09 pm

    If forward prices are higher than CFD bid levels it becomes possible for a sister company to buy all the output at the CFD price and sell in the forward market at the higher prices, locking in a guaranteed profit – doubtless “offshore” and untaxed! The effect is to lock in the forward price for the parent company. They can do this in tranches, taking advantage of price spikes in the market – all they have to bet on is that enough big enough price spikes will occur to allow them to cover the lifetime output (or most of it) as time passes. Moreover, they will not care what the spot market price turns out to be when electricity is generated to meet the forward sales. Tax losses for the nominal company that operates the wind farm can be utilised to offset other profits from gaming the market, or simply to allow it to go bankrupt when asset end of life beckons and decommissioning costs loom.

    So long as there is cross selling (you’ll scratch my back, and I’ll scratch yours), there isn’t even any need for the specific output of a wind farm to be sold to a sister of its owner. Any circles of sales will do.

    Of course this makes a nonsense of claims about the real prices at which the output is sold, and sidesteps the CFD mechanism.

  12. tomo permalink
    November 27, 2019 12:50 am

    but, but….

    I was reading only a month a go about how Vestas was sitting on a ‘uge pile of cash and was the sort of industrial endeavour that everybody should aspire to?

  13. November 27, 2019 2:43 am

    Reblogged this on ajmarciniak.

  14. Ben Vorlich permalink
    November 27, 2019 8:49 am

    Audi plans 9,500 job cuts to save £5bn for electric car investment That’s not what I expected.

    https://www.theguardian.com/business/2019/nov/26/audi-plans-9500-job-cuts-to-save-5bn-for-electric-car-investment

  15. Nial permalink
    November 27, 2019 9:00 am

    “Indeed, in a measure quite incredible for a flagship German firm, Enercon has explained that it can no longer afford to make wind turbine blades in Germany, and will perforce attempt to preserve its viability by manufacturing overseas, presumably in locations where lower energy costs mean that labour is much cheaper”

    The irony of this should be pointed out to anyone who says ruinables are getting cheaper.

  16. john cooknell permalink
    November 27, 2019 9:44 am

    My professional observation is that most of the CHP plant installed in the UK to save the planet is not actually working as designed.

    It is turned off!

  17. November 27, 2019 11:17 am

    We keep reading sob stories in the Press from the wind industry about lack of subsidy etc. yet where I live (far north Scotland) it makes absolutely no difference as they keep applying for more windfarms. On the rare occasions their applications are refused they simply come back for another go; when they get consent they add more turbines or increase the tip height or extend the life of the windfarm. The normal was 25 years but now they’re applying to extend existing ones to 30 or 40. No doubt the millions paid in constraints helps these poverty stricken developers who pay their workers peanuts. Offshore are paid to switch off at a higher rate than onshore. It must be well worth their while – otherwise why would they persist?

  18. J Vaughan permalink
    November 27, 2019 6:50 pm

    Meanwhile biomass and pellets: Investment Trust Hadrians Wall, who invested in these schemes, share price from 97p a year ago to 58p today. Recent press on the Investment Trust: “…the total provisions against Biomass Premium Fuels Limited (BPFL) and Biomass Optimum Fuels Limited (BOFL) came to £18.1 million, effectively writing off the full value of the loans………” Details: https://quoteddata.com/2019/11/partial-collapse-hadrians-wall/ Don’t invest in renewables.

  19. Rudolf Huber permalink
    November 29, 2019 7:26 am

    Renewable reality kicks in for Germany and no doubt for many other holdouts. But don’t count on the renewable angels of doom to lay low. They fully expect your money to save their chimeras. Because renewable entrepreneurs need their Teslas and their do-gooder image and that’s expensive to maintain so I call on all German voters to radically think through their personal financial situation what they can spare in order to save those that pretend to save us. Your money – all of it – is just good enough for that.

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