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Southeastern Europe lags behind the rest of the continent in terms of investments in wind energy, according to the latest report by industry association WindEurope, titled “Financing and investment trends: The European wind industry in 2021”.
Europe as a whole moved forward in 2021 with new financing for wind energy. However, the pace of investment is not enough for the new 2030 goal, while in Southeastern Europe the major issue identified is the lack of a stable regulatory environment, the association points out.
UK and Germany lead the way in terms of new wind farms
More specifically, during 2021, EUR 41 billion was invested for the construction of new wind farms in Europe, financing a record 24.6 GW of new capacity (19.8 GW of onshore wind capacity and 4.8 GW of offshore wind capacity).
The UK again invested the most in new wind farms in 2021, EUR 9.4 billion, followed by Germany (EUR 8 billion) and France (EUR 4.6 billion). There were also record amounts invested in new wind farms in four other countries; Sweden (EUR 3.2 billion), Finland (EUR 2.8 billion), Poland (EUR 1.6 billion), and Lithuania (EUR 0.4 billion). In Spain investments in new wind farms totalled EUR 3.2 billion, the highest amount since 2009.
Offshore wind investments were concentrated in the UK (EUR 8.8 billion), Germany (EUR 4.9 billion), France (EUR 2.2 billion) and Denmark (EUR 0.7 billion)
In addition, there was EUR 15.6 billion of project acquisition activity, with a record 17.3 GW of projects changing hands.
Problems in the short term as a result of the Ukraine war and supply shortages
The European Commission’s REPowerEU communication has proposed a new target of 480 GW of installed wind energy capacity in the EU by 2030. In the EU, 19 GW of new projects were financed last year, well below the required rate of 32 GW per year to meet the current 40% renewable energy targets. According to the association, “wind energy projects make an attractive investment and in the long-term there should be plenty of capital available to finance them but issues with permitting must be resolved to prevent delays.”
Interest rates remain low for the time being, but there has been market turbulence caused by supply chain shortages and high energy prices, resulting in record high inflation rates in Q4 2021. At the same time, Russia’s invasion of Ukraine has added to the upward pressure on inflation and may weaken growth by disrupting trade. Market movements suggest that investors believe the ECB and other central banks will tighten monetary policies more slowly than previously anticipated. However, in the medium term, the conditions for financing wind farms should remain favorable, according to WindEurope.
For onshore wind farms using project finance, the debt/equity ratio was 89:11. For offshore wind, it was 78:22.
Regulatory issues delay new projects and increase cost in Southeastern Europe
When it comes to Southeastern Europe, 880 MW of new projects were financed with investments totaling EUR 1.4 billion, representing 6% of the new onshore wind farms financed in Europe.
According to the report, “in many EU markets there are no wind investments at the moment, despite some of these countries having significant potential for a further expansion of wind power. National energy policies and the lack of a stable regulatory environment have affected the level of investment and financial commitments across half of the EU Member States, including many in the SEE region.” Of the 880 MW of financed capacity, 685 MW, or 78%, was in Greece.
Of the EUR 41.4 billion of total capital raised for new wind farms, EUR 12.5 billion was in non-EU countries: the UK, Ukraine, Turkey, Norway, Russia, Bosnia and Herzegovina, the Faroe Islands, North Macedonia and Serbia. After the UK, Ukraine raised the most capital out of the non-EU countries, with EUR 1.2 billion, followed by Turkey, with EUR 1.0 billion, and Russia, EUR 0.4 billion.
It should also be noted that in 2021 there were project acquisitions of EUR 800 million in Romania, EUR 400 million in Greece and EUR 100 million in Bulgaria.
Differences in the cost of new projects across the EU
A crucial factor concerning new wind investments is capital expenditure (CAPEX). WindEurope calculated that in 2021 the average onshore CAPEX per MW was EUR 1.3 million for Europe as a whole, the lowest on record. However, in Germany, France and Greece, the average CAPEX per MW was clearly greater than EUR 1.3 million. This is likely the result of extended delays to project permits which have been particularly noticeable in these three countries.
“CAPEX per MW has been decreasing over the years for onshore and offshore wind,” WindEurope notes. “However, inflationary pressures resulting from high energy prices and disruption to global supply chains will likely mean there will be no further cost reductions.”
Another record year for corporate PPAs
When it comes to renewable PPAs, 2021 was another record year, with almost 7 GW of capacity contracted in 97 deals. Wind energy represents two-thirds of the total 18.8 GW of contracted capacity.
“Wind energy is very well placed to accommodate corporates’ needs for renewable electricity because of its modular scale, cost-competitiveness and low risk profile. Approximately 10% of new wind farm capacity financed in 2021 was supported by a corporate PPA”, according to the report.
Spain contracted more than 2.3 GW in 2021 alone, including 1.2 GW of solar and over 500 MW of wind PPAs. Significant volumes were also contracted in Germany.
These contracts offer price visibility over a long period of time and a guaranteed off-taker, which are both important in cutting the cost of financing.
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