The Wind Industry is Hitting Rough Seas – What are the Solutions?

The headwinds facing the industry

The last few years have seen record growth in the European wind sector. Only in the last decade, the annual production of wind power has increased by 51.5%. Although this development calls for optimism, it has ironically opened up more problems for the sector. In Sweden, 13 offshore projects that would have added over 30 GW of installed capacity to the grid were recently shut down by the government, pointing to a conflict of interest with the military defense. The hours of negative prices in the country have already more than doubled since last year, following a pattern of too much underutilized wind capacity. To top things off, the industry is experiencing price cannibalization, a phenomenon where the growth in the sector has led to lower prices and reduced revenue. The wind power producers are essentially eating away at their own profits, leaving investors questioning the sector’s financial viability.

The solutions today and tomorrow

Many of the issues facing the wind sector today are caused by its own accelerating growth. Volatility, negative prices and price cannibalization are all results of adding too much unpredictable renewable energy capacity to the grid. While Pay-as-Produced PPAs (Power Purchase Agreements) have been a way to stabilize these risks, they have not been scaled up enough to remove many of the important obstacles. Governments have been looking at other solutions like costly grid expansion to enable the renewable energy transition, yet it is already known that the issues mentioned can be effectively avoided by adding energy storage and more flexibility to the grid.

Flower’s 42,5 MW energy storage facility in Bredhälla, Sweden.

Battery Energy Storage Systems (BESS) are smart storage solutions that are growing at a rapid speed in Europe today. These battery systems can work as a backup solution when the wind turbines are overproducing, thereby stabilizing the volatility caused by wind and minimizing the risks for negative prices. These facilities thrive on the variability of renewable energy generation, leveraging fluctuations in electricity prices to also create arbitrage opportunities that boost the return on investment.

To complement these battery systems, flexibility services that optimize wind power capacity can improve operation efficiency, curtailing the wind power when there is overproduction in the system and carefully predicting weather changes in order to maximize revenue opportunities. Using these optimizing solutions, wind farm owners can also access more markets that open up additional revenue streams to their regular operation. Being in partnership with a BRP (Balance Responsible Party) that has wide access to these energy markets is therefore key to improve profitability. With access to more revenue streams through smart flexibility services, the wind industry can mitigate the challenges with price cannibalization.

Other complementary solutions for wind farm owners include co-locating, where wind producers integrate battery systems to the wind farms, which can improve grid availability and planning ease. This is a development that is now taking off across Europe, set to make wind energy more profitable in the long run.

What is next for the wind sector?

Since wind is a very much weather-dependent power source, volatility will continue to be a constant factor that investors will take into account. Long-term fixed contracts are not well established in the wind power industry, yet they will be vital to build bankability around the projects in the future. Going forward, the PPA market will need to make way for these longer contracts while unlocking more value for wind farm owners with more lucrative PPAs.

To get there, removing risks are crucial. PPAs can be structured around large portfolios consisting not only of batteries but of several flexible energy assets coupled together. This will mitigate both financial and volume risks at an unprecedented level, and ensure for instance better conditions on loans while speeding up procurement processes for wind projects. Making sure these more lucrative PPAs also come with long-term conditions, wind farm owners will have the ultimate prerequisites to earn stable future revenues. In its entirety, this will help make investments in wind power far more attractive and ultimately make way for a continued accelerated growth in the sector.

Flower is at the forefront of transforming wind power into a dependable and financially competitive energy source, taking on the role as a PPA offtaker and having an all-in-one approach to optimization, asset management and trading. Learn more about our wind power offering or get in touch.