Without action by the government and the energy intensive industry, there is a high risk that there will be insufficient demand for wind energy, as a result of which offshore wind farms will no longer be profitable and will not get off the ground. This jeopardizes the deployment of offshore wind and is a major risk in achieving the Dutch climate objectives. This is the outcome of the study “The Offshore Wind Business Case and Supporting Intervention“. The research is an arrangement within the Dutch Climate Agreement and was carried out by the research agency AFRY (formerly Pöyry) on behalf of the Ministry of Economic Affairs & Climate in collaboration with the wind sector.
On behalf of the wind sector, NWEA calls on the government to provide the industry with more certainty. This is possible by fully focusing on stimulating the demand of the energy intensive industry and thus ensuring that the Dutch tenders remain attractive for investors.
Research: investing in subsidy-free wind farms is becoming increasingly risky
The goal that’s been set within the Dutch Climate Agreement is that by 2030 11.5 GW of offshore wind energy will be realized without subsidy. The report draws four important conclusions:
- The business case for offshore wind is already under pressure at the moment and the market accepts unrealisticly low returns. The study sketches that the risks are increasing because the growth in demand by the energy intensive industry remains uncertain. The demand is thereby the most decisive in the business case. Right now, the supply of wind energy on the short term is growing faster than the demand. In particular because the energy intensive industry in the Netherlands is still not electrifying enough.
- Without additional policy measures by the government, it is likely that the goals will not be achieved. AFRY recommends, among other things, to make a road map for the demand for electricity, which can go hand in hand with the road map that already exists for the wind sector. Thereby the government must take control.
- Stimulating the demand of the energy intensive industry is essential to get a healthy business case. Although the costs continue to fall due to scaling up and innovations, the enormous potential to use wind energy is still not being exploited sufficiently. As a result, market prices fall even faster and wind farms are no longer profitable.
- Finally, the report concludes that the market itself cannot break through this impasse because the risks are too large and cross-sectoral.
Finally, AFRY sees opportunities for flexibility. By making the demand for electricity more flexible it will have a better fit with the variable sustainable supply. The use of wind power for direct electrification and production of green hydrogen helps the industry to become more sustainable in an affordable way. In this way, the wind sector can maintain a healthy business case due to sufficient demand for sustainable electricity. NWEA endorses this opportunity.
NWEA: Demand stimulation is seriously needed
NWEA has been flagging this problem for several years now, both in the energy-intensive industry and the government. However, it involves major long-term investments and (partly) new technologies. And also for the industry the timing is essential. For that reason, it is not wise to wait until “the market does its job”. Without these certainties, investments in industry will continue to lag behind. Here the government has an important role to provide clarity to all sectors through policy measures. Meanwhile, NWEA is working together with the energy intensive industry to look for opportunities for more cooperation.
NWEA: Continue to focus on cost reduction
In addition to a stable demand, it remains important to continue to facilitate the cost reduction of offshore wind. A simple measure is to issue a permit for 40 years instead of the current 30 years. This gives wind farms 10 more years to earn back their investment. In addition, it is important to continue to stay aware of cost-increasing measures – such as those that now follow from the North Sea Agreement – which can again offset the cost reduction.
NWEA: The Netherlands must remain attractive
Moreover, in the international market that offshore wind is, it is important to monitor the level playing field. Offshore wind is an international market and investors look at which country creates the best conditions for investment. In Great Britain and Denmark, the government opts for a backup system with which the government does not unilaterally transfer the risks of not achieving climate targets to the market, but rather distributes them. The wind sector thinks it is sensible if the renewal of the Offshore Wind Energy Act includes options that can be used in the future if necessary.