Europe’s emerging wind energy markets set to grow while mature markets experience difficulties

Spain and Portugal both have significant electricity tariff deficits. In recent years the electricity prices have not reflected generation costs due to a political decision.

Renewables are disproportionately blamed for increasing electricity prices in these countries. The national authorities are taking tough measures to deal with the deficit in particular Spain whose government has just proposed a 6% tax on electricity generation which will heavily impact the revenue of wind power generators.

This comes on top of the current moratorium on new wind energy development in the country.

Italy is in the process of going from a tradable green certificate mechanism to a combination of Dutch auction for installations over 5 MW and a feed-in tariff under 5 MW.

Some wind energy markets across Europe are experiencing damaging changes to their national support schemes which are counterproductive since they set back the prospect of renewables being able to compete without support in the near future.

This represents a major challenge for the sector which will have to adapt to the new scheme in a matter of months (the new scheme will be effective as of 2013).

Portugal is also in the process of implementing major changes in its energy legislation. A deal has recently been struck by the Portuguese authorities and the wind energy sector to help tackle the consequences of the economic downturn. The government and developers have agreed to safeguard the legal framework and contracts for part of the installed capacity, in exchange for developers agreeing to payments from 2013-2020 that amount to a decrease in revenue of €140 million. However, it should be remembered of course that a de facto moratorium on the installation of new wind is in place with little clarity on when it will be lifted (in Portugal, no new production licenses should be issued between now and at least 2014).

The UK, one of the motors for growth in the EU sector especially offshore, is turning its support scheme on its head with their Electricity Market Reform. The tradable green certificate system will be phased out in favour of a Contract for Difference model (a complex version of a feed-in tariff). This is supposed to be effective in 2017. In the meantime the government has decided to modify the value of the ROC (renewable obligation certificates) a process known as re-banding. For onshore wind energy this has been cut by 10%, not as deep as the 25% that was feared.

Such political about turns increase the level of risk for a potential financer since future support levels are unpredictable. This makes lending more expensive for wind farm developers. Moreover, European Commissioner for energy Günther Oettinger has warned against making renewables a scape goat for the crisis saying that retroactive or sudden changes to support schemes damage investor confidence and drive up costs just when governments expect the wind industry to reduce costs. Added to that is the fact that changes are being made to renewable support schemes without reducing long-standing and significantly higher subsidies to fossil fuels and nuclear.

Among the mature markets there are islands of stability such as Germany and Denmark. The governments there are reforming their support schemes following discussion with the wind sector and are proposing manageable and predictable changes. As the penetration levels of wind in these countries increase, they are turning to feed-in premiums. These market-oriented and concerted reforms are part of the reasons why these countries remain ahead of the European pack in terms of wind energy development.

Meanwhile things are moving in a more positive direction in some Eastern European countries. In Romania the law implementing the renewables directive has finally been signed by the President. This will be extremely helpful to investors as its support scheme had until now been under the scrutiny of the European Commission. This confirms that each megawatt hour of wind power will get two green certificates at the price dictated by the market, promising good development up to 2017.

Poland suffered a scare in December 2011 when the government proposed ill-advised changes to their legislation (including retroactive changes), but now the discussion seems to be moving in the right direction although many key elements remain to be settled. In fact Poland plans to attract new investments in offshore with an objective of 1 GW by 2020.

The biggest barriers remain administrative barriers and the development of the electricity grid. These are by no means exclusively central or Eastern European problems.

Eastern Europe, including Ukraine may have great potential as there are good wind resources and space for development. This is also the case of Turkey which has very ambitious objectives: 20,000 MW by 2023.

Next year EWEA holds its 2013 Annual Event in Vienna – a location that is at the cross-roads between Europe’s developed wind energy markets and countries in which the potential is growing. Right now we are also working on a new report on emerging markets that will be launched at the event. Find out more about the key topics on emerging markets here: