The Interview: Christian Kjaer

Gail Rajgor

Part 1. Christian Kjaer is soon to leave his role as CEO of the European Wind Energy Association, departing for pastures new in April. Here he speaks to Gail Rajgor, giving his final thoughts on the state of the wind industry.

Note: this article first appeared in Renewable Energy Focus January/February 2013. Click here for a free signup.

When I last interviewed Christian Kjaer for Renewable Energy Focus back in early 2010, the Chief Executive Officer (CEO) of the European Wind Energy Association (EWEA) stressed that for all countries the key to successful market development is generating long-term investor confidence. “In terms of policy framework investors need predictability and stability,” he said.

That requirement of course remains. At the time, the EU's member states were just reaching the deadline for submitting their national action plans (NAPs) – these outline precisely how they intend to meet their individual obligations and binding targets under the EU Renewable Energy Directive, which sets an overall target for 20% of all EU energy to come from renewable sources by 2020. Perhaps with NAPs in mind, optimism abounded.

In part that optimism has been more than justified. The market is worth far more than EWEA predicted. Today it's a €50bn market – double EWEA's 2010 forecast for the market to be worth €25bn by 2030. But then the wind industry seems to have continually exceeded expectations since it first took shape.

However, not all has gone to plan in the last two to three years. In 2010, as an example, Kjaer praised the UK's outgoing Labour government – and the incoming coalition government – for sending the right signals to investors. Today he describes the policy behavior of the coalition in the time since then as “poisonous”. The disappointment he feels is not saved solely for the UK of course (not is he alone in his concerns about UK policy), but it's certainly a dramatic shift in a relatively short space of time.

Dramatic shift

But then a dramatic shift is what has taken place for the fortunes of the global wind industry per se, when comparing it today with how it was just a few years ago, Kjaer says. “If we take the last two years, there's been a dramatic change in the entire sector,” says the man who relinquishes his role as EWEA's CEO on April 1st, after a 11-year stint at the association (as CEO since 2006, and policy director before that). “We've gone from a seller's market, if you look at wind turbines, to a buyer's market.”

Indeed, two to three years ago, if you wanted to build a wind farm and you called up manufacturers to order turbines, more often than not the answer you got was that you could have them in two-and-a-half years. Moreover, because demand for wind turbines was so high, prices were too.

Today, “it's very clear that globally there is an immense amount of over-capacity”, says Kjaer. “We've invested in production capacity in anticipation the market would continue to grow dramatically globally, but it hasn't. That means we've had a very dramatic change in the whole supply/demand balance in the sector.”

For a project developer, that means a readily available supply of cheap turbines at its disposal. And, “overall it means the cost of producing wind energy has come down”, notes Kjaer. However, while there have been similar shifts in the balance between supply and demand for the technology before, they have never occurred at this peak. “It has really gone very fast, and never at this scale for a global market worth over 50 billion Euros,” says Kjaer. “It is a challenging time for the sector, aggravated by the financial crisis, which has meant governments have put stricter requirements on banks, which has meant banks are more reluctant to lend.”

Meantime, a big issue is constructing the necessary electricity infrastructure fast enough to dramatically grow the share of wind energy, he adds. “So, it's a completely different situation we're seeing today. That said, the fundamentals of the technology continue to be very strong,” he says. “We have arrived at a point where onshore wind has proven itself to be very cost-competitive, and [has] the biggest advantage in that it can scale up very rapidly and reduces investor exposure to carbon and fuel prices. This is the long term fundamental that makes me absolutely certain this technology has a bright future ahead of it, in the long term.”

In the short to medium term there are some critical challenges. The cost of and availability of capital, as a result of all the measures taken after the financial crisis in the banking sector, is the first one. “Secondly, we are challenged by the fact we're not building infrastructure fast enough.”

To subsidise or not?

Two other key issues plague the sector. Subsidies and local content mandates. Of course, anti-wind lobbyists frequently slam the fact it is subsidised via Feed-in Tariffs and other incentive mechanisms. And recently, we've seen Exelon expelled from the American Wind Energy Association (AWEA) for its comments suggesting wind power should no longer be subsidised too.

Even, AWEA – in its efforts to secure the recent extension of the production tax credit – has said it believes wind power can go subsidy-free, albeit from 2019. AWEA's analysis suggests the tax credit would start at 100% of the current 2.2 cents a kilowatt-hour for projects started in 2013, and be phased down to 90% of that value for projects placed in service in 2014; 80% in 2015; 70% in 2016; and 60% in both 2017 and 2018, ending after that:

“With the policy certainty that accompanies a stable extension, the industry believes it can achieve the greater economies of scale and technology improvements that it needs to become cost-competitive without the PTC,” it said in a letter to US policy makers in mid-December.

So what's Kjaer's take on subsidies?

“There's a very good example, New Zealand – it's the only country that I know of that has passed legislation stipulating that we're going to end all subsidies to the agricultural sector, and we're going to end all subsidies to the energy sector – not the renewable energy sector; the energy sector,” he says. “In New Zealand, wind energy is the most cost-competitive technology, and that's interesting from the perspective of your question, because I can tell you that, no, I don't think onshore wind will need any additional subsidies in Europe in 2020. But the likelihood of the technology not needing any subsidies is that governments, when they talk about subsidies, need to broaden their perspective, in terms of energy subsidies.”

He points out that in the EU today, 80% of all subsidies are still paid to nuclear energy and fossil fuels, while the IEA has said fossil fuel subsidies amount to about $500bn a year “If we had a level playing field in which we removed all these subsidies, you wouldn't need to provide additional subsidies for new technologies, and as the most competitive of the new renewables, wind energy most likely would not need any subsidies.”

In fact, he continues, if we had a world in which the price of energy reflects what it costs to produce it without any intervention, “onshore wind would do fabulously”, especially in those areas where there's a need for new generating capacity, in countries like Brazil, where that reality is reflected in recent tenders for new power proposals. “Onshore wind is beating gas, and it's only marginally more expensive than large hydro, and it beats anything else,” says Kjaer, noting another sign of the technology's maturity is that today some of the largest organisations in the world are involved in wind power, such as Mitsubishi, General Electric, and Siemens, while wind accounts for 30-40% of new power generating capacity being built in the US and Europe:

“I don't think there is a large utility in the world that doesn't have an investment plan for wind energy. It is much clearer now that the technology is being embraced and accepted by the largest companies in the world, and that's the difference from five years ago.”

But the issue of costs and subsidies still looms for wind power. “It beats coal, it beats nuclear facilities, it beats gas. But unfortunately, you don't have to dig very deep in the energy market before you hit politics, and when you hit politics, you hit subsidies.

“We see the same thing in the United States.” The US wind industry was again forced to endure the usual boom-bust cycle relating to the PTC regime, along with the now-typical arguments about whether or not to extend it before an agreement to extend was reached. But as Kjaer says: “Noone seems to be debating the tax credits for oil and gas, and coal.”

Indeed, he adds: “Governments would do themselves a great favour by making good on the promises that they've made themselves. They keep saying, we need to get rid of these [general energy] subsidies, and they increase every year, to fossil fuels and nuclear. If you remove that, you wouldn't have to subsidise or provide support for onshore wind energy in most places for very long.” If governments were to stop subsidising technologies that do not need it, they could “focus support on developing new technologies, such as offshore wind energy, which still is tracking behind onshore development in terms of cost by twelve to fifteen years”, he says.

But certainly, onshore wind has developed to a point that it could compete and win against non-subsidised fossil fuels and nuclear for the most part. However, “if we want to use the full potential of this technology, we need to get to grips with the infrastructure, that it's not being built fast enough, and is not co-ordinated well enough, between the European member states, or the individual states in the United States”, he says, although these are the short-term challenges in his view.

“We will see a lot of bumps on the road in the short term, but the medium to long-term prospects, certainly for onshore wind, are very good, because fundamentally the technology is very affordable, it's extremely competitive, and you don't have to worry about what fuel prices are twenty years from now.”

In part 2 - local content concerns

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