Which are the greatest challenges to hitting 2030 green energy targets given current geo-political tensions and the aftermath of Covid-19?
When it comes to the situation with Russia and Ukraine, we are finding alternative sources, albeit with increased costs. However, there are supply chain complications that have risen out of the war. Firstly, commodity prices have gone up, raising component prices. The second problem is availability, which complicates things for turbine manufacturers when they’re signing contracts with developers. A contract signed today may only deliver turbines in one to four years. There is no control over the price of materials over time, or whether they will remain available. This leads to a paradoxical situation where turbine manufacturers may sometimes prefer to turn down orders.
Price-only criteria has driven a race to the bottom. This is an important reason why the wind turbine industry is not making a profit.
We have been forced to make turbines at unrealistic prices. Competition between companies intense, and oil and gas companies have come into the market in the last few years. Permitting bottlenecks have led to a shortage of bankable projects, so more operators are competing over a smaller pie. They bid aggressively against each other in auctions, keen for market share, even if that means having to buy turbines off manufacturers who cannot actually make turbines at that price and generate a profit.
What is the strategy to securing the green energy transition takes place in a timely manner?
Introducing non-price criteria will help create a different dynamic. Prices may well go up. Governments must provide indexation in the Co tracts that come out of auctions - inflation adjusting so that the contracts between windfarm developers and their supply chain are protected. We need to invest in supply, get governments to support that and start incentivizing European sourcing and manufacturing. In Europe this is not currently happening on the scale it needs to and we need to bear in mind EU law does not allow for national local content rules.
It would be uneconomical to have to build wind turbine factories or even component factories in every one of the 27 member states, however we do like the idea increasingly of European local content (not just EU). Nobody has an overarching umbrella plan, but there is the perception that parts of Europe where labour costs are cheaper might be better placed for this.
Some governments are introducing what they call non-price criteria in their auctions which can score companies extra points for the non-price added value they offer – such as on environmental sustainability or their support for the local communities and local economic benefits. We have to think creatively and do things that we would not have done before. Leaving this to the market absolutely does not work.
How is the reliance on China for materials and components shifting in the current landscape?
Nearly all European permanent magnets present in gearless wind turbines are imported from China. The rare earth elements contained within them, notably neodymium and dysprosium, are mined and placed into permanent magnets in their factories. Gearboxes in wind turbines are roughly 50% imported from China, 50% made in Europe. We have the capacity to produce them entirely on the continent, but it is not affordable to do so. For the blades, we import glass fibre rovings from China. Some of the steel in the towers and wind turbines is made in Europe, and some is imported from China, and previously Russia and Ukraine. Grain oriented electrical steel is imported from China and elsewhere, at times Vietnam. Steel towers are 80% made in Europe and 20% imported from China given we do not have enough factory capacity. Some of the major wind turbine manufacturers own factories in India and China, from where they sometimes import finished blades.
The current level of dependence on China is not where we want to be in the long term.
There are rising challenges of taking equipment out of China due to the government’s policy on Covid-19, logistics bottlenecks, rising fuel and transport costs. We want more European manufacturing of components and materials that we are currently importing, but this requires public financial support from the European Union and national governments. The tipping point would be when large wind farms are being built in Europe with Chinese turbines because the European industry cannot compete.
What final message would you wish to leave our Newsweek readers with?
Put in simple terms: the market alone only drives the race to the bottom, which does not work for anybody, and the energy transition will not happen. At the moment there is a very strong underlying commitment from all governments in Europe to the energy transition, and to investing in renewables; accelerating the expansion of renewables in order to deliver energy security as well as combat climate change. There is a very clear recognition that renewables are affordable, and long term will help us manage the costs of energy for society. There has been much progress technically on the integration of variable renewables. Across Europe, variable renewables now make up 21% of the electricity mix.
