Note: this article first appeared in Renewable Energy Focus January/February 2013. Click here for a free signup.
For part 1 of this interview, in which Kjaer talks about subsidies and infrastructure, click here.
Local content concerns
Meantime, local content mandates have also been causing a stir. In December, the World Trade Organisation ruled the requirement that 50% of wind energy projects are sourced locally to qualify for FIT support in the Canadian province of Ontario is illegal. The ruling, following challenges by Japan and the EU, “sends a clear message to other governments with such requirements for wind power – Brazil, South Africa, Turkey, Ukraine, Croatia – that local content requirements are incompatible with their WTO commitments,” EWEA said in a press statement.
“The European Commission must use the impetus provided by this ruling to enter discussions on an international free-trade agreement on renewable energy, tackling both tariff and non-tariff barriers, ensuring a level playing field for wind power products and services, with all willing parties,” said Justin Wilkes, EWEA's Policy Director. “A free trade agreement on renewable energy goods and services would bring more renewable energy online and drive down costs.”
EU-based wind energy companies stand to benefit significantly from free trade, the association noted. The sector exported €8.8bn worth of products and services in 2010, up 4.2% on the previous year and up 33% since 2007, making net exports of €5.7bn. It is not a European-only concern, but one for the global industry, as Steve Sawyer, Secretary General of the Global Wind Energy Council stressed in his article No bed of roses for Brazilian wind plans in the September/October issue of Renewable Energy Focus (see page 24).
“Every country wants local manufacturing,” he wrote. “That just can't work, and our industry is going to have to face up to the fact that, if the wind industry is going to succeed on a global basis, it needs to act like a global industry and demand free trade.”
Kjaer agrees. “It has to be addressed,” he says. “It is very serious, for many reasons. The logic, from a politician's perspective, is saying, OK, we now have a technology which is cost-competitive, we want to develop it, but we also want to create an industry in our country, and provide jobs. So, we will put in place local content requirements. It's quite simple logic, but we need to find ways to explain that you are not benefiting your economy in the long term by providing these measures.”
Brazil is a good example. The market is looking for around 1GW a year to be built while production capacity amounts to a staggering 7-8GW, because of local content requirements. “This is not healthy in a market where there is already overcapacity,” sighs Kjaer.
He stresses that job creation via manufacturing or other parts of the wind sector would come naturally where there are stable long term markets. “If there is a certain market of a certain size, and it's predictable to some extent, or at least stable, for four or five years, any manufacturer would set up production locally,” says Kjaer. “Local content requirements are a sub-optimal way of developing wind energy. You're paying more than you need to for the electricity, and you are creating disturbances and over-capacity in the global market.”
A local content mandate introduced in a bid to create local jobs is “unnecessary; delays the process; makes it more expensive,” he insists. “As a sector, we don't benefit from having domestic industries being protected, for shorter or longer times. If we want to maintain our competitiveness, and deliver ever more cheaper electricity, we need competition to be as effective as possible, among the manufacturers around the world, including the removal of trade barriers.”
He adds, that in Europe, it is not the Chinese wind turbine manufacturers, or the Koreans or Americans that are the industry's biggest competitors. “It's still coal and gas and oil that we have to compete with, and if we don't keep trade free around the globe, our technology is more costly than it needs to be,” he says. “We need to be cost-competitive with coal, gas and nuclear in order to ensure that the industry grows over the long term.”
EWEA does not see it as a bad thing if a South Korean company comes and builds 200MW of wind farms in a European country. “It creates local jobs, economic activity, and God knows, that's what's needed, and it's jobs to thousands of European workers. Whether the name of the turbine supplier is Korean or European is less important.”
Meantime, EWEA is pushing for the binding global targets for 2030. There's no doubt, Kjaer says, that both the Eueopean Comission and the European Parliament get the message loud and clear, calling for 2030 targets themselves in their communiqués.
“Where things are faltering is in the council, meaning the 27 member states of the European Union, where, at least currently, it seems to be very challenging for the 27 member states to agree unanimously for 2030 targets.”
The drive offshore continues unabated, of course, particularly for Europe. “We have some ambitious plans, a lot of it around the North Sea, the Baltic Sea, but there is surprisingly little co-ordination between member states in terms of figuring out how all of us are building,” he says. “It's still a very national approach, which, at least in a European context, is problematic because just the infrastructure part of building offshore wind requires transnational coordination, and we don't see that enough.” This needs to change, he insists.
Meantime, for the market to move forward, long term stability and investor confidence remain crucial. “If you take the supply chain, there are companies in Europe who have blueprints for installation vessels that can very cost-efficiently transport a lot of turbines offshore, and install them. The first ship costs €200 million, so to take it from the blueprint to actually building it, might be an investment of €200 million.
“If you don't have clarity more than six or seven years ahead for offshore, there's too much risk in that investment, so it's about sending that long-term signal, because otherwise the supply chain will not develop, and the cost of building the projects becomes higher than necessary,” he says. “This is really why it's so important to have that long-term signal from the political side.”
The political signaling emanating from the UK – a key offshore market – has been very confusing, he continues. “That's poison for investors, and that makes it much more challenging to build up a supply chain that can deliver the ambition level.” Currently, the only relatively clear investment horizon for players in the UK market is still up to 2017.
“Getting a return on an offshore project within that timeframe, also giving time for actually building the wind farm, it's just not realistic.”
While the UK government may well have finally published its Energy Bill, Kjaer is bemused by the fact that after it kept the industry waiting for so long, it still remains none-the-wiser about post-2017 pricing. “This is why it's very difficult for the UK to attract production manufacturing. You can't just do it by saying, we want to build 25 gigawatts by 2020. It has to be followed by supported regulation, and that regulation is being delayed.” Without clarity, the industry is stuck. “It's poison for developing the technology, for creating the jobs and for building up a supply chain,” Kjaer says again.
While he is still unable to say where his next move is come April 1st, Kjaer says he “would love to continue being involved with wind energy”. It's been “fascinating”, he says.
Prior to joining EWEA, Kjaer worked for the Danish Wind Industry Association, giving him a combined total of 13 years in the wind industry. “Seeing how the sector has developed over those 13 years is just amazing. We tend to sit and focus on all the short and medium-term challenges that we have in the supply chains and financing, and Basle III regulation, he says. “But then looking back where we were 13 years ago, if anybody had said that we were sitting here talking about wind energy producing 15% of US electricity in 2020, no-one would have believed it.”
Christian Kjaer is stepping down from his role as CEO of EWEA on April 1st. His replacement is Thomas Becker, CEO of Genan – a company that recycles used tyres on a very large scale globally. Prior to that, Becker was Deputy Permanent Secretary at the Danish Ministry of Climate and Energy.
About: Gail Rajgor is Managing editor of Renewable Energy Focus magazine. To subscribe, click here.