Yesterday, 2 October 2020, Invest-NL CEO Wouter Bos handed over the new report ‘Financing offshore wind’ to Ed Nijpels, chairman of the Climate Agreement Progress Meeting (Voortgangsoverleg Klimaatakkoord). Invest-NL is positive about the long-term offer of financing for offshore wind. However, more certainty on the demand side is required.
The report “Financing offshore wind” is a result of the Climate Agreement. The Climate Agreement contains a target for 11.5 GW of installed offshore wind power by 2030. The parties involved have raised the question whether this target is realistic as the Government moves to a zero subsidy regime.
Commissioned in April this year by Invest-NL, consultancy firm PriceWaterhouseCoopers conducted a market consultation and desk research among 15 developers and project finance providers. The research explored how the transition to a zero subsidy industry affects the availability and cost of capital for offshore wind and how the availability of capital can be further improved.
The report shows that investors see offshore wind as a mature market. There is growing interest and the availability of capital for this market is increasing. However, the risk profile does increase with the transition to a zero subsidy regime. Investors will be exposed to the risk of varying electricity prices. In general, this will increase the capital costs for offshore wind projects. This in turn can affect the availability of capital for offshore wind projects.
Role for the government
More than half of the offshore wind power required to meet the 2030 target will be tendered in the coming years, up to 2025. There is a risk that zero subsidy tenders will not result in sufficient bids.
Government intervention can help in a smooth transition to a market without subsidies and with trade price risks. The report believes that government policy should primarily focus on facilitating a zero-subsidy environment. However, a temporary back-stop policy instrument
may still be needed to support the 2030 offshore wind target. A recommendation is given to investigate what such a backstop
should look like and to anchore the details in the offshore wind law (‘Wet windenergie op zee’).
Increased demand for long-term green PPAs and a more liquid PPA market could help hedge trading price risks for developers. However, demand for green power PPAs is currently lagging due to a lack of concrete policies to electrify and decarbonise the industry. The government can unlock demand for green PPAs by coordinating new supply chains, solving infrastructural constraints, effectively pricing carbon and offering access to support schemes.
Ed Nijpels said he was glad to hear investors see opportunities in offshore wind in the Netherlands and understands the need for sufficient demand for sustainable electricity. He stressed that that demand is to be stimulated quickly in industry, in mobility and in the built environment.
In a reaction by NWEA yesterday, the Dutch wind organisation endorsed the conclusions of InvestNL and sees them as an underline of the AFRY report that was published at the beginning of this year, which also concluded that subsidy-free wind at sea is not feasible without additional policy from the government to stimulate demand. It is also important for the Netherlands to maintain its international level playing field in all developments at sea.
NWEA is already working with financiers on a plan to strengthen the PPA market, so that when the demand for green power grows, supply and demand will find each other more easily.