Rocketing energy prices topple UK suppliers; Vestas to shut three factories in Europe

Our pick of the latest wind power news you need to know.

UK energy groups take on over 1 million customers from failing suppliers

UK energy regulator Ofgem ordered EDF, British Gas, Octopus Energy and Shell to take on more than 1 million household customers after their suppliers ceased trading due to soaring gas and electricity prices.

UK domestic energy tariffs are capped by Ofgem and rising wholesale gas and electricity prices left some UK suppliers unable to cover their costs. Under Supplier of Last Resort (SoLR) rules, Ofgem re-allocates the customers of failed suppliers under a competitive process.

On September 17, Ofgem ordered EDF to take on 220,000 household customers from People's Energy and on September 20 the regulator appointed British Gas to take on 350,000 customers from People's Energy. A week later, Ofgem ordered Octopus Energy to take on 580,000 customers from Avro Energy and selected Shell Energy to take on 255,000 customers from Green Supplier Limited.

Despite appeals from suppliers, the UK government stepped back from issuing loans to energy companies that acquire customers from failed competitors. The number of UK energy suppliers has halved in the last two years to around 30 companies.

Energy-intensive companies including suppliers of CO2 and steel also called for state intervention after high energy prices prompted them to temporarily shut down facilities.

Vestas to shut three factories in further supply chain consolidation

Turbine supplier Vestas is to shut three manufacturing facilities in Germany, Spain and Denmark as it continues to integrate its onshore and offshore wind activities, the Danish company announced September 20.

“Today’s fast-moving energy transition, rapid introduction of new products and recent integration of our onshore and offshore business require us to further mature and evolve our supply chain network and manufacturing footprint," Tommy Rahbek Nielsen, Vestas Executive Vice President and COO, said.

Intense market competition has crushed the margins of turbine suppliers and onshore wind projects face increasing competition from solar. Turbine suppliers have expanded service operations in recent years to gain access to higher margins and Vestas is also looking to catch up with turbine supplier Siemens Gamesa in the fast-growing offshore wind market.

                   Turbine suppliers' share of installed offshore capacity

                                                               (Click image to enlarge)

Data at end of 2020. Source: WindEurope

Vestas will close its Lauchhammer blade manufacturing facility in Germany by the end of the year and is looking at ways to relocate the site's 460 employees across its manufacturing and service divisions, it said.

The company has installed 15 GW of turbines in Germany, has service contracts for 11 GW and employs 2,500 staff.

Vestas "sustains its commitment to the German market and our established supply chain," it said.

Vestas will also close its factory in Viveiro, Spain, which manufactures generators for 2 MW onshore turbines as well as control panels for offshore turbines. The site will be closed by the end of the year and the 115 employees will be offered work at other Vestas sites in Spain.

"Due to both the decrease in demand for the 2 MW platform and the need to optimise offshore manufacturing, it is no longer sustainable to continue activities in Viveiro," the company said.

Vestas will also shut its factory in Esbjerg, Denmark, which manufactures power conversion modules for offshore turbines.

Demand for these modules will "gradually shift to markets primarily outside of Europe and be delivered via more localised manufacturing facilities," the company noted.

Vestas will look to redeploy the site's 75 employees elsewhere in Denmark, where the company employs more than 5,900 people in total.

Last December, Vestas acquired 25% of renewables investor Copenhagen Infrastructure Partners (CIP) in a move which widens its role in offshore wind and solar and expands its long-term income potential.

First large US offshore wind farm reaches financial close

Avangrid and Copenhagen Infrastructure Partners (CIP) have reached financial close on Vineyard Wind, the US' first large-scale offshore wind project, allowing construction to start immediately, the companies announced September 15.

The 800 MW Vineyard Wind project in Massachusetts is jointly owned by Iberdrola subsidiary Avangrid and CIP and will be fully installed by 2024.

The project partners secured $2.3 billion of senior debt with nine international and US banks, enabling them to issue a notice to proceed (NTP) to its contractors "in the coming days and weeks," they said. Onshore work will begin this autumn and first power will be delivered to the grid in 2023.

The financial closure of Vineyard Wind follows the completion of its environmental review earlier this year and approval by the Biden administration in May.

The environmental approval took three years to complete as the developer and the federal Bureau of Ocean Energy Management (BOEM) tackled first of a kind issues for large-scale offshore wind development.

In 2018, the BOEM expanded the scope of the review to take into account previously unavailable fishing data, a new transit lane alternative, larger turbine considerations and cumulative risks from multiple offshore wind projects.

President Biden has set a target of 30 GW of offshore wind by 2030 as part of plans to decarbonise the power sector by 2035. The Biden administration plans to accelerate environmental reviews of offshore wind projects and complete 16 reviews by 2025.

                        US offshore wind development activity (2018)

                                                              (Click image to enlarge)

Source: US DOE's Wind Technologies Market 2018 report

In December, the U.S. Congress agreed to implement a new 30% investment tax credit (ITC) for offshore wind farms that start construction by 2025 as part of a COVID-19 recovery package. The Internal Revenue Service (IRS) also extended the deadline for project completion from four years to 10 years. Projects could also benefit from support proposed in the Biden administration’s $3.5 trillion budget bill that is currently being fleshed out by Congress.

European power exchange starts trading 10 years ahead

The European Energy Exchange (EEX) has expanded its power futures contracts in Germany, Italy and Spain to 10 years ahead to accommodate more renewable energy trading in the wholesale power market, Reuters reported September 27.

Until now, EEX participants could trade up to six years ahead, but demand for longer contracts is growing as wind and solar developers look to mitigate financial risks with long-term power agreements.

Falling wind and solar costs have prompted governments to scale back subsidy programs, requiring developers to secure long-term power purchase agreements (PPAs) with consumers or take on wholesale market risk. Longer futures contracts will provide investors with more clarity over long term prices and improve their ability to hedge output.

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