Sustainaweekly - Opportunities and challenges for wind power

Economist: Wind power is a main strategic source for renewable energy. Onshore wind is the cheapest renewable source for electricity. The Levelized Cost Of Electricity (LCOE) has been decreasing for both onshore and onshore power, which among other drivers, participated in boosting deployments globally. Spatial claims and social acceptance are main challenges for onshore wind deployments. Limited grid capacity may limit or slow down the deployments of wind power.Strategist: Issuance of euro denominated ESG bank bonds reached EUR 52bn 2023H1. The share in total issuance rose to 17%, up from 14% last year. More than 25% of senior non-preferred paper was issued in ESG format in H1. The split between green and social bonds dropped this year, especially due to covered bonds. Funding advantage remains strong, reflected by higher bid-to-cover ratios and lower new issue premia for ESG bank bonds.Sector: We have defined three possible future emission scenarios for trucks. We assume the following scenarios: policy/positive, base and negative. The positive scenario assumes that the government policy is according to plan and that the bottlenecks are sufficiently addressed. In the other scenarios we take into account bottlenecks such as affordability, technology, costs, shortage of metals and challenges to adjust the grid. ESG in figures: In a regular section of our weekly, we present a chart book on some of the key indicators for ESG financing and the energy transition.

The wind of change is blowing

• Wind power is a main strategic source for renewable energy

• Onshore wind is the cheapest renewable source for electricityThe Levelized Cost Of Electricity (LCOE) has been decreasing for both onshore and onshore power, which among other drivers, participated in boosting deployments globally

• Spatial claims and social acceptance are main challenges for onshore wind deployments

• Limited grid capacity may limit or slow down the deployments of wind

Windmills have long been an important way to extract power for different economic purposes. They played an essential role in agriculture and further became a national symbol for the Netherlands. Facing climate change and the prioritization of energy security by some countries such as the European Union, wind power has moved to the top of the list as a strategic renewable source for energy. Based on the location of the wind turbine, we can distinguish between offshore (wind turbines are located on a body of water, usually oceans) and onshore (the turbines are located on land) wind. Each of these turbines has its advantages and disadvantages. For example, offshore wind has relatively more stable blow of the wind, but it is more expensive to deploy and requires supporting infrastructure investments. In this article we set out the role of wind power in the energy transition, along with the associated trends in costs and investments and the challenges accompanying wind power.

The role of wind power in the transition

Next to solar, wind power is one of the main pillars for the energy transition. However, and in contrast to solar, households do not invest directly in wind deployments. Thus, wind installations are mainly deployed through large investments.

Europe is considered abundant in wind power. Under the REPowerEU plan, the European Union aims to reach a renewables share of 39% of the European electricity mix by 2030. This target was further raised to 42.5% in May 2023. To reach this goal wind power capacity is envisioned to increase by 129 GW for the EU over the 2023-2027 period, added to the current 255 GW already installed. Globally, and according to the Global Wind Energy Council (GWEC), wind capacity reached 906 GW by the end of 2022, with a year to year growth of 9%. GWEC further forecast new capacity additions of 680 GW over the 2023-2027 period. Accordingly, wind power has an essential role to play in the energy transition. The subsequent section dives into the trends in wind power and main drivers for wind investments.

Trends in wind power

Levelized cost of electricity (LCOE) is a useful measure to compare different electricity sources. LCOE is defined as the ratio between the sum of discounted lifetime costs of a technology and the sum of discounted energy production. Costs may include investment costs; operation and maintenance costs; or decommissioning costs. LCOE depends on many factors such as discount rate and current state of the technology. The maturity of the technology and high capacity factor (1) for wind turbines participated in reducing its LCOE. Accordingly, onshore wind is one of the cheapest sources of energy (for Europe the cheapest) followed by solar PV nuclear and offshore wind, as seen in the left hand side of the figure below. This highlights the competitive position of wind power compared to other alternatives. The right hand panel of the figure illustrates how LCOE have been evolving overtime. The chart shows a clear decrease in global LCOE for both onshore and offshore wind. Among all countries, China has the lowest LCOE for both onshore and offshore wind. Offshore wind’s LCOE is forecast to decrease for most countries, with an expected steep decline for France, Germany, and the Netherlands by 2025 and for the United states by 2030.

The decrease in LCOE, along with the policy support and energy security concerns have boosted investments in wind power as seen in the figure below. Capacity additions (left hand panel) reached their highest level in 2020. These investments were driven primarily by deployments in China as developers were speeding up to finish their projects to benefit from the last year (2020) of the subsidy scheme offered by the Chinese government. Noting that wind capacity additions in the EU were rising as well, driven mainly by deployments in Germany and Spain. According to the IEA, solar and wind deployments has helped the EU to mitigate the effects of the energy crisis with an estimated EUR 100 million as savings in energy bills.

Wind power challenges

Even with the potential and increasing role of wind as a renewable source of energy, there are several challenges that affect the deployment of wind power. Some of these challenges differ between onshore and offshore wind. Below we highlight some of these challenges.Spatial claim

Renewable energy sources require more space than their fossil counterparts. We can define two types of spatial claims. Legal and technical. For wind power, legal spatial claim can be defined as the legally determined space around the wind turbine usually for safety purposes. The technical spatial claim can be defined as the space needed around the turbine to work efficiently (see here for more). For example, distance from other wind turbines to avoid turbulence and wake losses, or distance to buildings to minimize noise and shadows of blades on buildings. Moreover, additional space is needed for supporting infrastructure, like storage and grid expansions. That is, the space needed for wind turbines exceeds that of the actual installations, which reduces the competitive position and may become a limiting factor for wind investments compared to other alternatives, especially for onshore wind. Permitting

Like any large scale long term investments, permitting and auction designs are one of the main obstacles that limit the growth of wind power. One solution could be a flexible permitting system that takes into account the fast change in technology. Site studies by the government could also play a role in cutting waiting times and reduce uncertainty for potential investors. Triggered by the energy crisis, the EU countries have been focusing on easing the regulations and policies that govern permitting in order to enable and accelerate the deployment of wind and utility solar PV (see here).Grid/system integration

The development of offshore grid connections is essential for wind power to flourish. Grid capacity is one of the major bottlenecks that could limit or slow down the deployment of wind projects. Grid connection solutions could entail a medium voltage grid for onshore projects and a high voltage for large farms, whether onshore or offshore. Balancing solutions on national and European levels could also play a role in making the grid more flexible. For example, increasing the usage of interconnectors; flexible demand and storage; along with creating capacity markets for long term adequacy.

Finally, challenges related to system integration can be alleviated by spatial smoothing, complemented with solar energy, market integration, storage and flexible generation/demand response.Social acceptance

Public acceptance is one of the major obstacle for onshore wind, especially in the cities where there are other competitive alternatives, which makes acceptance uncertain, time and shock sensitive. For example, energy security concerns in Europe, along with the rapid climatic changes, rearranged priorities and increased the social acceptance to renewable power installations, including wind turbines. Normalizing the required distance from wind turbines may increase the acceptability by the public for onshore wind. However, if such norms increases the spatial claim of the wind turbine, the feasibility for certain project could be compromised (see here).

Costs

Wind power has been witnessing rising costs following the increase in the prices of main inputs such as steel, along with bottlenecks in supply chains. Given the rapid decline in the costs of other alternative power sources such as solar PV, there is a need to lower the costs of wind turbines, particularly for offshore wind. This would increase the competitive position of wind power and give the technology more stability of financing and support regimes.

Economic and biodiversity impacts

Wind power would create a crowding out effect to other economic activities. For example, fishing will be hindered around offshore wind farms. In addition, concerns about biodiversity conservation form another challenge for wind power. For example, the blades of wind turbines along with the created noise would change animal behaviour and may affect biodiversity adversely. Furthermore, circularity of wind turbines is also a major concern that needs to be tackled. However, innovations in system integration concepts and designs that are nature inclusive are promising solutions in these areas.

(1) Capacity factor of an intermittent resource measures the power produced by a renewable resource in comparison to its maximum potential. Wind turbines have a capacity factor that ranges between 0.25 and 0.30 for onshore wind turbines, and between 0.40 and 0.45 for offshore wind.