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Wind Power

European Wind Booms as Competition Heats Up

a report by
Keith Hays

Director, Global Wind Research, Emerging Energy Research (EER)

The European wind energy market is booming as greenfield opportunities becoming much more difficult
competition accelerates between utilities, to find in Europe, M&A activity in the wind energy
independent power producers (IPPs) and investment sector shows no signs of slowing down.
firms to extend project portfolios. The dynamics of
Europe’s wind power industry are changing Europe’s Utilities Increase Role of
dramatically due to steady project activation in Wind Power in Their Overall
diverse markets, which leads to global shifts in Generation Portfolios
demand and supply, increasing merger and
Keith Hays is the Director of Global acquisition (M&A) activity and the scaling of wind European utilities have emerged as the major force
Wind Research for Emerging Energy power throughout the region. behind global wind power development in terms of
Research (EER), based in the
company’s Barcelona office, Spain. MW owned, international presence and investment
He has managed consulting projects European utilities continue to dominate global wind plans. Wind provides a new opportunity to expand
for top wind turbine manufacturers
and provided market analysis to
power ownership. The Spanish utility Iberdrola and the energy generation portfolio and improve overall
leading developers and utilities in the US IPP FPL Energy ended 2005 virtually tied positioning in Europe. Utilities are the major driver
the wind industry. Prior to joining for market leadership in global wind plant behind the wind power market’s consolidation, and
the EER, Mr Hays developed market
strategies as a consultant at ownership. The third largest owner of wind farms, they will determine wind’s long-term integration into
DiamondCluster Consulting, a the Spanish engineering conglomerate Acciona the energy mix. Several utilities, such as Iberdrola,
management consultancy specialising
Energia, is trailing by nearly 1,400 megawatt (MW) Endesa, Enel and RWE nPower, have already
in the technology sector. Prior to
that, he was responsible for
European research at Pyramid
Research, a telecommunications
research and advisory company.
Mr Hays received his BA from
Columbia University, New York.
The European wind energy market is booming as competition
accelerates between utilities, independent power producers
(IPPs) and investment firms to extend project portfolios.

despite its recent acquisition of the Spanish assembled wind portfolios of over 500MW (see
developer CESA. Major acquisitions have pushed Figures 1 and 2). For some firms, such as Danish
the European utilities Energias de Portugal (EDP), utilities, wind energy affords pioneering technical
Gas Natural and Vattenfall into the top 20, along experience that they can use to enter new markets,
with the Irish investment firm Trinergy. such as UK offshore. On the other hand, most UK
Meanwhile, developer acquisitions have been a utilities work in wind energy purely to cover their
major source of added capacity for several players in renewable obligation, and are not expanding into
Europe, including EDP (DESA), Gas Natural other countries through this experience. In Southern
(DERSA) and Vattenfall (Elsam assets). Europe, firms have built large portfolios of wind to
cover their expected emissions obligations and remain
Europe’s steady M&A flow will continue pending large competitive in the generation segment. The size of
transactions. Several groups of buyers, including opportunities in Southern Europe has caused utilities
utilities, IPPs and institutional investors, are looking for to leverage their wind experience into neighbouring
developer and project acquisitions for international markets. At the same time, Central European utilities
expansion in assembling portfolios. European utilities have focused on opportunistic market entry via wind,
will consolidate their positions in the rankings, as while their domestic markets have been led by small
multiple markets are poised for strong growth. With community and private investor initiatives.

40 EUROPEAN RENEWABLE ENERGY REVIEW 2006

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European Wind Booms as Competition Heats Up

Figure 1: Europe Wind Plant Ownership and 2005 Additions

Megawatts
3,500

3,000

2,500

2,000

1,500

1,000

500

0 EDF-EN/enXco

Gas Natural
FPL Energy

Acciona Energia

NEO Energia (EOP)

DONG/Elsam/Energi E2
Iberdrola

Babcock & Brown

Eurus
Endesa

Enel

(1) CESA

Essent

Mid American

E.ON
Scottish Power/PPM Energy

RWE

(2) Vattenfall

Shell
Net ownership YE 2005 Trinergy 2005 added

*Aquired by Acciona Energia in January 2006. **Includes 458 assets transferred from Elsam.
Source: Emerging Energy Research.

Going forward, utility pipelines indicate that the consolidation in mature European markets over the
ranking of wind portfolios in Europe will change next two to three years. These IPPs seek scale and
significantly in the next five years, mainly due to global reach to compete with utilities and, in doing
offshore projects of 500MW or larger. Several firms so, their first objective is to build a European or even
with portfolios under 300MW, including RWE, EDF global project portfolio. Several finance players
Energy and ScottishPower, are set to add well over descending on the market recently have either bought
1,000MW, mainly from UK offshore. Other firms individual projects or developers in individual
banking on major additions via offshore include Energi markets, but have yet to establish global portfolios.
E2, Statkfraft, Elsam, Essent and Vattenfall. Energi E2 Recently, several investment firms, including GE
and Elsam already have experience in Danish offshore Commercial Finance, Trinergy, Allianz and Goldman
that they aim to leverage in the UK, while Essent’s Sachs, have bought wind assets, illustrating the
German subsidiary is positioned for a large project. increasing competition for turnkey projects.
Cost/MW installed is topping €1.5 in several cases
Southern European onshore firms have the largest and will not clear hurdle rates for several turnkey
pipelines in place, as these markets offer more room to project buyers. This dynamic of a seller’s market in
grow. Iberdrola, Enel, Endesa and EDP all have major Europe forces investment players to take on more risk
plans for onshore projects in the Iberian market, as by acquiring earlier phase developments. To stomach
Spain will become Europe’s largest market in 2005. this risk, it is becoming more attractive for larger
Projects are also growing in size in the UK, where investors to purchase developers that offer a mix of
ScottishPower and Statkraft both plan significant assets and pipeline – hence the recent acquisitions of
onshore growth. Other major onshore activity firms such as CESA, IVPC4 and Enersis.
includes Electrabel’s more than 300MW pipeline in
Portugal and Edison Italia’s 400MW in Italy. This new breed of institutional investor-owned IPPs
has nimble development teams backed by heftier
Investment Players Evolve into IPPs balance sheets. Whereas most wind IPPs in Europe
to Fortify Competition Versus Utilities are offsprings of construction, real estate or industrial
groups such as Acciona Energia or Enerfin, investor-
A new breed of investment-backed IPPs are backed IPPs are not out to feed parent company
challenging traditional IPPs for scale to drive industry divisions with engineering, procurement and

EUROPEAN RENEWABLE ENERGY REVIEW 2006 41

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Wind Power

Figure 2: European Utility Wind Portfolios (2005)

Capacity (MW)
3,500

3,000

2,500

2,000
>500MW 300-500MW <300MW
1,500

1,000

500

0
Endesa

Fortum
Iberdrole

RWE

Scottish & Southern

Essent

Statkraft
Vettenfall
DONG/Elsam/EnergiE2
Enel

Nuon

Electrabel

Verbund
EDP

E.ON

Scottish Power
EDF

Edison Italia
Owned 2005 Owned 2004

Source: Emerging Energy Research.

construction (EPC) contracts. This structure in turn pipelines solidify market growth. Nordic Europe
gives these firms a more agile approach to may follow this trend as Sweden ramps up with
development, although they may not capture as much utility entry. New EU countries and EU candidates
value from all aspects of projects. This new breed of will contribute between six and eight project
IPPs will draw on its strengths of M&A execution and activations from Poland, Estonia, Hungary and the
financing to drive industry consolidation in mature Czech Republic of approximately 80MW to
European markets over the next two to three years, 100MW combined.
which will challenge traditional IPPs for scale and
give utilities a run for their money. Offshore wind power will account for a growing
portion of new capacity, representing more than
Europe Continues to Lead the 20% of new wind capacity added in Europe by
Global Wind Power Industry 2010. The UK was the only market to connect an
offshore project in 2005 – a 90MW project at
With these new players driving competition and the Kentish Flats. The UK has five more offshore
industry scaling, European wind energy markets are projects planned through 2008, but projects still lack
expected to experience a boom over the next three permitting clarity and grid connection. However,
to four years. However, until the offshore market utility project acquisitions in Sweden indicate a
takes off, the region will experience a slight dip in revived offshore market that will add 50MW to
MW added at the end of the decade, as some onshore 100MW yearly by 2008 to 2009. Across the Baltic
markets, such as Germany, The Netherlands and Sea, Germany is expected to install a pilot project by
Denmark, face saturation. 2008, and Ireland and The Netherlands are likely to
install individual projects.
The European wind industry showed resilience in a
challenging market environment in 2005 despite Europe’s wind energy market is reaching a new level
regulatory uncertainty, turbine shortages, grid of maturity and professionalism with the entry of
bottlenecks and permitting blockage. Spain will better financed, more experienced players. These
continue to lead the way, with the German market new entrants are driving the execution of even larger
declining due to saturation. New markets entering pipelines and pushing forward development in new
boom phases, including the UK, France, Portugal markets. With increased competition, Europe is
and Italy, all contributed 300MW to 500MW entering a new boom phase onshore through the end
apiece. They are likely to accelerate this pace in the of the decade until it meets its next major challenge:
forecast period as consolidation and long-term scaling growth offshore. ■

42 EUROPEAN RENEWABLE ENERGY REVIEW 2006

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