Vattenfall, a Sweden-based producer and distributor of electricity and heat, won a tender this week to build two offshore wind farms with a record-breaking bid of EUR 60 ($67.33) per MWh – 20% lower than the previous record set by Dong Energy in July.The low bid is supported by the location of the wind farms, which are in close proximity to the shore in the Danish North Sea, leading to lower costs for foundations and transportation. “With our bid for DNS [Danish Near Shore Wind], we have demonstrated that we are able to reduce the costs of offshore wind faster than had been expected, only a few years ago,” said Gunnar Groebler, head of Vattenfall Wind.
This tender may not be the final word, however. Vattenfall still needs final approval from the Danish government, which is considering an end to support for near-shore wind farms.If approval is forthcoming, Vattenfall will initiate final preparations for the wind farms, including procurement, services, optimisation and final design, with the aim to start construction in 2019 and to begin producing power in 2020, according to the company.The projects are expected to have a total capacity of 350MW and will provide sustainable energy for 375,000 households once complete, according to a company statement. Bloomberg New Energy Finance’s latest outlook on the wind sector can be read here.
In other news in the region, Innogy, the renewables, grid and retail business being split out of German utility RWE, will announce plans for an initial public offering to raise about EUR 2bn ($2.2bn), according to people familiar with the matter.The Essen-based company is expected to publish its intention to float a 10% stake in the company through an IPO and it is also considering a secondary share offering, the people said.German power companies have begun separating conventional plants from their green-energy initiatives in reaction to the government’s shift toward wind and solar generation. The policy has hurt profitability at traditional utilities and driven down wholesale energy prices. EON, for example, spun off and bundled its renewable, energy network, and customer solutions business, from the rest of the company in January this year.
Meanwhile, a group of 44 countries in Europe committed to participate in a global carbon market for airlines starting in 2021.The European Union, its 28 member states, and 16 other nations adopted a political declaration on emissions ahead of a United Nations’ aviation body meeting next month. The International Civil Aviation Organization plans to agree on how airlines are charged for carbon emissions after 2020. According to the European Union, direct emissions from aviation account for roughly 3% of the bloc’s total greenhouse gases, with a large majority arising from international flights.
Over in the Western Hemisphere, the US recorded a 43% surge in solar installations in the second quarter. This was due to a wave of utility-scale projects taking advantage of an extension to the federal Investment Tax Credit. The ITC was scheduled to expire in December last year, but was unexpectedly extended by Congress at the end of 2015 for another five years.Developers added 2,051MW in the quarter, up from 1,436MW a year earlier, according to the US Solar Energy Industries Association. With an additional 7.8GW under construction, more solar capacity is on pace to be connected in the second half of this year than has ever come online in a single year, the Washington-based industry group said in a report.
In electricity innovation, Bitcoin technology is being harnessed in the energy sector to shake up the way payments are managed. Researchers and utilities are adapting the cloud-based ledger system used to track bitcoins as a replacement for the slower administrative systems that require constant human input and multiple spreadsheets. Once set up, the database, called blockchain, automatically records individual actions within a system, formats them, and stores the results in a secure online listing available to anyone anywhere with access.
The technology is spurred by utilities shifting away from a century-old arrangement where they monopolised both supply and distribution. Now, independent wind and solar farms are feeding into power grids in short, sometimes unpredictable intervals that require transaction systems to be more nimble and decentralized. Utilities including RWE in Germany and Fortum in Finland are looking to blockchain technologies to do just that.Finally, in emerging markets, Argentina received huge interest in its renewable energy auction held on 5 September – over six times the capacity it could accept. In response, the nation’s energy and mines minister, Juan Jose Aranguren, told reporters the interest “exceeded our expectations” and described it as a good sign for the country’s ambitious clean energy plans.
The government invited bids for 1,000MW of renewable power, but it received offers for 6,366MW. Winning bids are scheduled to be announced in October, and Aranguren expects “to sign the contracts as soon as possible”.The nation currently gets about 2% of its power from renewables but targets 20% by 2025.
Q&A of the week
BlackRock to boost offshore wind, eyes energy storage
The fast-expanding sectors of energy storage and power transmission offer investment potential for BlackRock, even as the company continues “investing ahead of its targeted pace” in its established markets of wind and solar in Europe and North America, said Rory O’Connor, head of BlackRock’s renewable power European division.
“There is logic for ongoing support by policymakers” for new-build wind and solar projects, because they are quick to build and are securing ever-lower price points, he said.
The world’s largest publicly-listed investment manager has committed $2.5bn to renewable power and owns more than 2GW of wind and solar capacity — helping it to satisfy client demand for yield, portfolio diversification and inflation protection, O’Connor told Clean Energy and Carbon Brief in an interview. Most of its wind investment has so far been in onshore turbine projects, but O’Connor expects the offshore wind segment to grow.
BlackRock welcomes the onset of auctions in Europe, and the increasing cost-competitiveness they will help to bring about. “[Renewables] are becoming a core, mainstream part of how we generate power globally, and the cost thesis is an important contributor to that,” said O’Connor. He is comfortable that the team will have sufficient investable capacity to play with, as their strategy of doing both new-build and operational assets will help them remain stable even under auction caps.
Japan and Mexico are locations where O’Connor’s team may consider investing capital in the future, given BlackRock’s established infrastructure business in both markets.
Meanwhile, the growing interest from corporates such as Google, which is purchasing 160MW of power from the BlackRock-funded Rogaland wind farm in Norway, is a “prevalent theme” that O’Connor hopes to build upon in the future. The agreement from Google was a “key component of the project”, which added a “sense of robustness and certainty” to the investment process, he said.
Q: Tell us about BlackRock’s activities in renewable power investment?
A: BlackRock has a $2.5bn investment program in renewable power assets and operates more than 2GW of wind and solar projects across North America and Europe. In Europe, we’ve invested in approximately 65 wind and solar projects in Norway, Sweden, Ireland, the UK and France, although we could potentially expand into other markets. On the wind side, it’s predominantly onshore wind although we have done some offshore wind and expect this to grow.
We invest long-term capital on behalf of clients through a series of funds. Many are long-term institutional clients seeking yield, portfolio diversification, low-correlation with the rest of their portfolios, and inflation protection. We tend to invest in projects through long-term partnerships with developers or utilities that can deliver a portfolio of projects.
Q: How is your portfolio divided between acquisitions and new-build?
A: It’s a mixture of both. We tend to invest in relatively young projects either at the construction or the operational phase. We’re happy to invest in new-build construction assets — for example the 160MW Rogaland wind park in Norway is a new-build construction project…