Permits and connections a bigger challenge than finding investors, say asset managers.
Wind, the world’s cleanest source of energy, is coming into its own, but its anticipated growth trajectory will not meet net zero ambitions.
The alignment of carbon-reduction targets, the quest for energy independence in the wake of Russia’s invasion of Ukraine and official encouragement from governments on both sides of the Atlantic means wind power is emerging as a high-value card in the world’s energy deck.
Past controversies about cost, environmental damage, residential opposition to onshore installations and intermittency are being gradually side-lined with billions pouring into the sector.
In a recent report, investment data and analytics provider Morningstar said: “We forecast global wind capacity to grow 2.7-fold by 2030, or an average of 165 gigawatts (GW) per year, which falls well short of the 390 GW annual installations that the International Energy Agency estimates will be required to be on the right path towards net zero carbon emissions by 2050, leaving even further upside potential in an ideal scenario.”
Between 2009 and 2021, the average cost of generating energy from onshore wind has fallen by 51%, Morningstar notes, nearly halving for offshore wind, due to declining equipment costs and the increasing efficiency of taller wind turbines. This has helped to stimulate growth globally, with overall capacity growing 15% year on year since 2010, including a 16-fold increase in offshore wind. China has grown capacity at an annualised rate of 25% to reach 353 GW, while all other markets have collectively registered an 11% year-on-year increase.
The quest for energy independence, said Morningstar, is now a bigger driver than carbon reduction. “Our optimistic outlook for wind is supported by steps that have been taken in response to uncertainty over energy security, rather than ambitious environmental targets that had typically lacked much substance in how their goal was going to be achieved.”
Governments give go-ahead
US President Joe Biden’s Inflation Reduction Act (IRA), signed in August, authorised US$391 billion spending on renewable energy and climate change.
On August 23, Forbes magazine noted: “Resources for the Future [a non-profit research institute] projects the IRA will save average US households up to US$220 annually on electricity bills while protecting against volatile fossil fuel price swings.”
Wind and solar capacity, added Forbes, will, by 2030, have expanded by two to 2.5 times pre-IRA projections.
According to research by Rystad Energy, the IRA will boost the internal rate of return of wind projects by 1-2%, which could add 85 GW of incremental capacity to the US fleet by 2030.
Even the UK’s new Conservative government, generally thought to be less keen than its predecessor on the greening of the UK economy, has enthused about the potential for wind power. In his document The Growth Plan, published alongside the recent Budget, Chancellor Kwasi Kwarteng said: “The Government will unlock the potential of onshore wind by bringing consenting [the granting of planning consent] in line with other infrastructure.
Subsidies no longer needed
“The UK is a world-leader in offshore wind, with 8GW of offshore wind currently under construction,” it added. “By 2023 the government is set to increase renewables capacity by 15%, supporting the UK’s commitment to reach net zero emissions by 2050.”
Last month, Swiss Life Asset Managers launched its second international renewable energy infrastructure fund. Marc Schürch, its Head of Renewable Energy, said of wind power: “With energy prices generally increasing, the challenges are to do with permits and connection to the grid, but no longer to do with finding investors. The rise in the price of electricity has given wind power a huge push, and that is a good thing.”
One result, he said, is that the sector can now stand on its own feet. “In today’s world, neither onshore nor offshore wind power is dependent on subsidies. Some countries continue to offer such support, but it is currently below the open-market prices. As for the longer term and the possibility of prices coming down, I would say that wind-power companies will be able to take care of their revenues themselves by organising corporate power purchase agreements.”
He added: “Offshore wind will probably prevail as it has an easier time in terms of public opinion than onshore. Furthermore, the potential is much larger.”
“Cheaper, greener and fairer”
Octopus Energy has closed two wind-farm deals in Germany recently on behalf of investors and its fund management team is acquiring a further 15.5% stake in the 270 MW Offshore Wind Farm off the east coast of the UK.
Matt Setchell, Co-Head of Octopus Energy Investments, said: “In the drive towards a 100% renewable energy system, we need a range of technologies, and wind energy – both onshore and offshore – will play an absolutely integral role. We’re ramping up our investments across Europe in onshore wind farms, offshore wind farms, as well as developers of floating offshore wind energy to harness strong winds deep at sea.”
He added: “Wind energy is now consistently one of the cheapest forms of energy, which will accelerate the transition to a greener, cheaper and fairer energy system for everyone. There is significant untapped potential for wind energy to help bring about energy independence for countries and lower energy bills.”