Onshore wind energy is becoming increasingly attractive in Europe, as a range of technological advancements, government regulation and industry experience come together to lower energy generation costs. However, while there is growing investment in the generation of wind energy, the distribution of wind energy is met with considerable bottlenecks in Europe. Large scale investments in grids are needed to keep pace with the sustainability boom.
According to a study by Roland Berger, onshore wind energy has over the past years significantly boosted its competitive position vis a vis other renewable energy sources. An analysis of the levelized cost of electricity across energy sources shows that only hydropower is cheaper, while offshore wind energy, although it is becoming rapidly more competitive, is roughly twice more expensive than onshore wind energy. "Efficient turbine and drive systems, lightweight aerodynamic rotor blades and remote controlled wind farms that optimise wind yields are making onshore wind power very competitive," find the authors.
Against this backdrop, global installed capacity of onshore wind energy is increasing. Between 2000 and 2012, capacity rose by more than 23% per annum. Three years ago, wind power accounted for more than 2.5% of the world's power generation. 140,000 wind turbines are already in existence, and the analysis shows that 120,000 new or repowered ones will be on the grid by 2020. The growth rates anticipated for installed capacity are enormous, not only in Europe (+55%), China (+106%) and North America (+53%). India (+101%) and above all Latin America (+296%) are taking huge strides forward to catch up, albeit from a low starting level.
Between 2000 and 2010, three to twelve billion euros was invested into onshore wind power in Europe – with investment ramped up further, between 2015 and 2030, to the tune of fifteen billion euros annually. According to analysis by the consultancy, onshore wind will be responsible for 13% of Europe’s electricity generation by 2030, increasing from 6% in 2012. To meet its ambitious sustainability goals in the face of climate change, the share of coal is projected to decrease from 29% to 15%.
Across the continent, different regions have reached different levels of maturity regarding their continued investment into onshore wind infrastructure. The consultancy divided regional players into three groups, including climbers, growth leaders and saturated market. The climbers group, which includes Poland, Turkey and Norway, have considerable potential for new instillation growth that trends upwards. The growth leaders, including Portugal, Austria and Germany, will see considerable investment in the coming years although growth is expected to taper off beyond 2024. Saturated markets, including the UK and Ireland, will see decreased numbers of new projects adding MW in the coming years.
Besides looking at the growth in onshore wind energy capacity, the consultants also assessed the overall attractiveness of European markets, additionally taking into account factors such as energy consumption, growth in energy consumption, dependence on imports, fossil fuel reserves, electricity prices and public subsidy instruments.
The analysis clearly identifies France, Germany, Poland, the UK, Italy and the Scandinavian countries as key markets. On the other hand, many young markets are less attractive – due partly to lower volumes, but partly also to relatively unfavourable local conditions. At present, Germany, France and Sweden are the markets with the lowest risk, but only deliver a low return on capital invested.
In the UK, intractable administrative processes and a London-centric focus can hold up transactions that nevertheless remain promising. In Sweden, high price risks are a danger and the country's expansion targets for wind power have nearly been met.
While the number of installations increase as more and more European players invest in the onshore wind market, the grid on which that electricity is distributed will need to be able to meet a range of relatively complex criteria. The cost of upgrading the grid to be able to meet the demand made on its renewable generation will be high. Currently, the European grid network faces a host of challenges, with bottlenecks creating what are effectively "electricity peninsulas". Fluctuations in power generation caused by the use of renewable energy are exposing these bottlenecks with increasing regularity.
Upgrading the grid is a slow and expensive process. As it stands, around €150 billion is needed to complete the most important stages of expansion in the European power grid. Different regions require different levels of upgrades, with the UK needing to expand grid capacity by a factor of two or three between now and 2030. The Baltic countries would likewise have to triple their transmission capacity, while the Iberian Peninsula would need a ten-fold increase. And while investments are being made to upgrade the grid, a large number (32%) of projects are delayed while 12% are being rescheduled.
Upgrading the grid is only one aspect of the wider need to improve grid efficiency to meet the changing dynamics of the sustainable market. Many of the generation technologies produce electricity in intermittent ways, resulting in energy being supplied to the grid at unexpected times or in unexpected quantities. One way of dealing with this issue is the development of ‘smart grids’. Smart grids can do more than simply carry electricity: They exchange data between producers and consumers, as well as featuring control technology that allows power grids to be operated more flexibly and efficiently.
Investment in smart grids has been relatively muted in the EU however, with the majority of the funding into smart grid R&D taking place in the US and China. As it stands, the US and China are investing €4.9 billion and €5.1 billion annually, while Europe is investing €0.4 billion. Even relatively small economies, such as South Korea, are outspending the EU in the development of such grids.