Friday 30th May 2014


June 2, 2014

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Wind Watch

Talk in the French wind sector is dominated by the future of Alstom.

And yet, while this talk continues, moves are afoot to attract fresh investment into French onshore wind. An interesting situation, since France has an 8GW install base and is not an obvious candidate for what amounts to an industry kick-start.

This week, French energy minister Segolene Royal announced that new feed-in tariffs for the sector would be revealed imminently.

This follows the cancellation on Wednesday of a long-disputed decree about previous tariffs, which the European Union’s Court of Justice ruled was invalid in December because France had not followed EU state aid rules. Uncertainty over tariffs is one factor that has stifled investment in new wind farms since 2011.

Royal said that the new tariff rules would “end a long period of uncertainty that has destabilised the sector”. It is positive, but the end of investor uncertainty? Really?

The fundamentals for investors in France look good. The left-leaning government is trying to shift the country’s energy mix away from nuclear power, and it sees renewables including wind as the way to do this. Sounds good so far.

The country also has big plans to build on that 8GW. It wants 19GW of onshore wind by 2020, with 6GW offshore. It has to get motoring if it wants to achieve this, because it often takes between six and eight years to get a wind farm from first plans to energy production.

The government wants to remove blockages that stifle development. It adopted new measures in its Brottes law in 2013 to simplify the rules about wind projects, including the scrapping of locally-decided ‘development areas of wind energy’.

In theory, moves like this should help to promote investment. It is likely that it will start to reverse falling numbers of installations, which have dropped year-on-year for four years. Still, we won’t get too excited about what it means for the market’s long-term prospects.

Yes, it is good that the French government is seeking to remove blockages. However, for as long as the French government continues to tinker with the legislative framework, chopping and changing its policies as it reduces reliance on nuclear, uncertainty remains.

Moreover, the French government has been very hands on with General Electric’s bid for Alstom. It has not wanted vital French assets to fall into US hands, and it has been courting German giant Siemens for a rival bid.

This is the kind of behaviour that worries investors. And it underscores a long standing truth that energy remains wholly political.

That said, we’ve already seen good levels of deal flow in the secondary market, especially when schemes have secured consent or are already operational.

Velocita for instance, is building out a portfolio of 23 development projects totalling 750MW that it bought from E.On in May 2011; and Iberdrola offloaded a portfolio of 32 completed onshore projects to a group comprising EDF, General Electric and Munich Re. This proves that the French model can and does work for investors, when the certainty is secured.

The difficulty at the moment is getting projects to that stage of certainty.

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