Rishi Sunak Is Full of the Wrong Kind of Wind
(Bloomberg Opinion) -- The setting couldn’t be better. In the face of an energy attack from Russia, Europe is trying to move as fast as possible into renewable energy. Climate change is a top policy priority, further boosting the case for green electricity. Wind turbine manufacturers should be enjoying a boom. But they aren’t. At all.
Take Vestas Wind Systems A/S, the world’s largest. In the third quarter, it didn’t get a single new order for offshore turbines. Let me repeat: zero. . Fresh orders came for the less powerful onshore turbines, but those still dropped nearly 50% from a year earlier.
And Vestas isn’t an isolated case.
WindEurope, an industry association, says none of its members got a single order for an offshore turbine in the third quarter. I had to read the WindEurope data repeatedly to be sure it said what it said. This makes no sense at all: In the middle of the worst energy crisis Europe has ever faced, nobody is ordering powerful offshore wind turbines.
Even if you add in smaller onshore turbines, European orders were down 36% in the third quarter compared to a year earlier, exacerbating a downward trend already visible since early 2022. Year-to-date, European countries have ordered equipment able to produce just under 8 gigawatts of electricity, well below the 39 GW needed per year to meet the region’s 2030 green targets.
Several factors explain why orders are falling. A good place to start is British politics. In London, the current prime minister, Rishi Sunak, is under attack from his two predecessors — Boris Johnson and Liz Truss — over what is, in effect, a ban on new onshore wind turbines. Sunak wants to extend the ban because he is cultivating “not-in-my-backyard” voters in rural England who largely dislike the turbines. Johnson and Truss want to end it.
Johnson and Truss are right: The de facto ban should be lifted immediately. And the permit process for the turbines needs to be streamlined so local councils can’t obstruct the work. The “turbines-are-ugly” protest is nonsensical. Sunak is so wrong on this issue he has made Johnson and Truss look prime ministerial again. That says a lot.
Across Europe, the same NIMBY attitude is delaying other projects. The European Commission has promised to make approval easier, but several ongoing reviews mean improvement is unlikely until 2024. That’s way too late. Brussels should find a way to speed up the process and force changes. If countries do not collaborate, the commission should name-and-shame them.
But slow permissions isn’t the only thing governments are to blame for. Windfall taxes are reducing the incentive to invest in new wind farm projects. The taxes aren’t — on their own — the big problem. That would be regulatory uncertainty. Investors fear further changes that could reduce the profitability of projects.
The issue then is cost. Vestas told investors that the average selling price of a turbine climbed to €1.06 million ($1.1 million) per megawatt, up roughly 30% over the last year. The average selling price per MWh for an onshore turbine hit a 10-year record last quarter. Cost inflation — and the ability of the industry to protect some of its margins — explain the increase. The turbines, in some cases nearly as tall as the Eiffel Tower, require lots of steel, copper and other commodities whose price has surged recently.
In a perverse way, the industry is suffering because the efficiency of its technology prompted a lot of initial investment and expansion. On a good day, the UK — for example — can produce as much as 20 GW of wind power. Legacy nuclear plants produce something like 1 GW each. However, on a bad day, when the wind stops blowing, the UK produces as little as 0.3 GW. That was the case earlier this week. The swings that wind farms create are becoming increasingly difficult to manage. Gas-fired stations are needed as back up, and that’s expensive. In Germany, coal is, sadly, the back-up.
The intermittency problem isn’t easy to solve. Storing power isn’t feasible: Batteries simply are too small and too expensive. For now, the only option is to keep gas-fired stations in reserve. Nuclear plants will also help as backup. Europe should also invest in and allow grids that move wind electricity more economically not just within countries but across borders.
That doesn’t detract from the need to expand wind power capacity by buying and erecting more turbines — offshore and on. The moment is now.
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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. A former reporter for Bloomberg News and commodities editor at the Financial Times, he is coauthor of “The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources.”
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