TODAY’S STUDY: EUROPE’S HOTTEST WIND MARKETS

Eastern Winds; Emerging European wind power markets

February 2013 (European Wind Energy Association)

Executive Summary

Central, eastern and south-eastern Europe is Europe’s new wind energy frontier. Significant growth, opportunity and benefits can be expected from and for the region in the years ahead. This applies equally to cen- tral, eastern and south-eastern European countries already in the European Union, and those which are applying to join, or could potentially join in the future.

These newly emerged and emerging markets are not only important in their own right, but they have increased perceived importance given the state of wind energy markets elsewhere in Europe. These new markets look set to offset, to a greater or lesser ex- tent, declines in the near future in some of the more mature southern European markets. It therefore be- comes all the more important for the European wind energy industry that the newly emerged and emerging eastern European markets are able to achieve their full potential.

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The European Union’s newer Member States

• Installed wind energy capacity in the EU’s newer Member States1 increased from 208 MW in 2005 to 4,200 MW by the end of 2011, growing annually by 665 MW on average. This growth is in large part driven by the EU’s energy policy: indicative 2010 tar- gets for renewable energy in all Member States2 and binding 2020 targets set by the 2009 renewable en- ergy directive3.

• Wind energy development, like the policies and in- centives it requires, is diverse across the region. There are as many wind energy markets as there are Member States. Interestingly, five of the 12 newer Member States (Bulgaria, Czech Republic, Hungary, Poland and Romania) have 88% of the total installed wind energy capacity in the newer Member States.

• The share of the EU’s annual wind energy installa- tions in the newer Member States has grown from just over 2% in 2005 to 12.5% in 2011.

• According to the National Renewable Energy Action Plans (NREAPs) of the newer Member States, some 16 GW of wind energy capacity should be grid con- nected by 2020 — an increase of 10 GW or 165% compared to 2012.

• The newer Member States are, with a few key and important exceptions, currently failing to meet their NREAP targets.

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Non-EU European markets

• Beyond the EU’s borders a number of European countries are also showing encouraging growth in wind energy. EU accession requirements in Croatia, and Ukraine’s alignment with EU energy policy, are driving factors behind this.

• Alignment with EU accession requirements in Serbia are expected to launch the wind energy sector, once the authorities have sorted out legislative issues.

• Turkey has one of the fastest growing electricity gen- erating sectors in the world, which is driving large investments in wind energy. A government target of 20 GW of installed wind energy capacity by 2023 has been set. Meeting this target will require adding 18 GW of new wind capacity.

• While Russia would benefit economically and envi- ronmentally from harnessing its abundant wind re- sources, the government currently shows little inter- est in developing this potential.

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Financing wind energy in Europe’s emerging markets

• A number of commercial banks are willing to invest in wind energy projects in central and eastern Eu- rope. However, these countries’ regulatory instabil- ity is a key issue in obtaining finance.

• Banks offer many financing schemes, but the most common are non-recourse and limited recourse sen- ior loans. Deals are preferred in euros rather than local currency.

• Three international financing institutions are active in wind energy project financing in the region: Euro- pean Investment Bank (EIB), European Bank for Re- construction and Development (EBRD) and Interna- tional Finance Corporation (IFC). The latter provide mid to long term financing or syndicated loans with local commercial banks.

• EU cohesion funds are available for financing wind energy in the EU. Between 2007 and 2010 €786m was allocated to wind energy across the EU of which €420m was in the newer Member States. However, due to complicated EU and national procedures only 3% of this amount was actually spent.

• EU funds for wind energy could increase from 2014- 2020 if the funds’ priorities are aligned with EU cli- mate and energy policy.

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Support mechanisms

• All the countries analysed have set up support mechanisms for wind energy. They are diverse in de- sign and effectiveness.

• The stability of support mechanisms is key to sus- tained wind energy growth. Where rules are unclear, unpredictable, or frequently changing (sometimes retroactively) wind energy deployment follows boom and bust cycles or does not pick up at all.

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Recommendations

• In an economic climate where credit is tight in many countries, the legal framework is critical to obtaining finance. Long-term stability, predictability and work- ability are thus essential.

• National governments should ensure that support mechanisms are in line with EU internal market rules. Failure by the European Commission and na- tional governments to pro-actively engage on sup- port mechanism compatibility may lead to long approval processes that significantly slow down market development.

• The approach to no-go areas (Natura 2000, nature protected areas, heritage protected areas, vicinity to radar) should be objective and the criteria made clear to developers. National governments should develop appropriate planning instruments to ensure that wind energy is deployed in harmony with the natural environment.

• Rules on environmental impact assessment should be clear and robust. Failing to meet the standards of international financial institutions can seriously hamper the financing of projects.

• Grid connection costs should be transparent and procedures to access the grid should be designed to favour legitimate project developers.

• Administrative procedures should be streamlined. Deadlines should be clear and governments should work towards automatic approval of requests in case these deadlines are not met.

• A one stop shop approach for administrative and grid connection procedures, and an appropriate number of trained civil servants would significantly cut lead time on projects.

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Introduction

Wind energy in Europe began in a handful of “pioneering” countries over 20 years ago. Since the late 1990s and early 2000s it spread across the EU. The Union’s energy and climate policies have been a motor for the deployment of renewable energy sources, and especially wind energy, in an ever increasing number of countries.

The ¬nancial crisis in 2008 and the sovereign debt crisis that followed have created numerous new challenges for the wind energy sector in countries that were previously its strongest markets. The energy sector in the emerging markets has turned its attention to the opportunities offered by the move away from conventional generation technologies towards a renewable energy future.

In this report, the European Wind Energy Association (EWEA) analyses the situation for wind energy in the countries of central, eastern and south eastern Europe. The report gives an overview of the energy sector, the wind energy supply chain, the legal framework, support mechanisms and the ¬nancing situation for each country. It also highlights some of the main obstacles, as well as the signi¬cant opportunities.

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The countries analysed have been split into fi¬ve fi¬rst wave markets, three second wave markets and four future markets. In the latter, existing legislation and political impetus are currently insuffi¬cient to attract investment in wind energy.

This should not, however, distract attention from developments in the other markets in this report. Some of the leading markets are changing legislation to the detriment of wind energy deployment and setting their own renewable energy targets. Others may have only momentarily struck a fragile balance in their energy policy.

Consultants PwC were brought in to supplement EWEA’s research on the countries in this report. PwC conducted both primary research (phone and face-toface interviews, online questionnaires, statistical data, legislation and so on) and secondary research (synthesis and analysis of market reports, publications, surveys conducted by third parties). PwC interviewed more than 20 experts including investors, banking representatives, NGOs, associations, regulatory representatives and other public and private stakeholders.

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