Here we provide a written summary of the panel discussion “Wind of Change or Change of Wind? The future of Baltic Sea offshore investments” held on 12th September 2022 in Brussels. It’s a full summary of the 90 minute discussion (including audience questions), but it begins conveniently with a summary of the highlights. The Baltic Sea has the potential to develop over 90 GW of offshore wind capacity. The Russian invasion of Ukraine has delivered a sense of urgency, across Europe, over the building of energy capacity to replace Russian imports of fossil fuels. On its own, 90+ GW would be equivalent to 40% of imports of Russian gas. Poland’s largest energy utility, PGE, has already started investing in offshore wind farms. PGE’s target is to deliver 2.5 GW by 2030, and over 6.5 GW by 2040. The panellists discuss the opportunities, the support needed, and the challenges facing the eight Baltic States: Poland, Denmark, Estonia, Finland, Germany, Latvia, Lithuania, and Sweden. The warnings are, amongst others, that rising electrification is now stagnating in Europe, the slow permitting process mainly due to the lengthy and complex administration involved, and severe supply chain constraints (Europe has five wind power manufacturers who are all operating at a loss). Investors need policy certainty for them to commit substantial financing for offshore wind, which is capital intensive, complex, and a long term commitment. [Promoted by PGE]
Introduction by Andrzej Sadoś, Permanent Representative of Poland to the EU
• Małgosia Bartosik, Deputy CEO, WindEurope
• Wanda Buk, Vice-President for Regulatory Affairs, PGE Polska Grupa Energetyczna
• Anca-Iulia Cimpeanu, Deputy Head of Unit, Infrastructure and Regional Cooperation (ENER.C.4)
• Bruce Douglas, Director Business & Communications, Eurelectric
• Jurga Kasputienė, Deputy Permanent Representative of Lithuania to the EU
Moderator: Matthew James, Publisher, Energy Post
- The Baltic Sea has the potential to develop 93 GW of offshore wind capacity.
- Russia’s invasion of Ukraine has highlighted Europe’s need for energy security.
- The crisis has led to wholesale electricity prices rising by over 500% since January 2021.
- On 30th August, in the Baltic Sea Energy Security Summit – also attended by Ursula von der Leyen, the EC president – the leaders of Poland, Denmark, Estonia, Finland, Germany, Latvia, Lithuania, and Sweden agreed to increase offshore generation capacity in the Baltic Sea.
- 93 GW potential in the Baltic Sea would be equivalent to 40% of imports of Russian gas.
- Poland’s PGE has already started investing in offshore wind farms. PGE’s target is to deliver 2.5 GW by 2030, and to deliver over 6.5 GW in the Baltic Sea by 2040.
- Poland’s targets of 5.9 GW by 2030 and up to 11 GW in 2040 were set before Russia’s invasion of Ukraine – these targets are being reassessed by the government and industry with the intention to deliver more by 2040.
- Lithuania estimates its offshore wind potential is 3.35 GW. The first tender is expected to be announced by September 2023. Electricity production should begin in 2028.
- The new TEN-E Regulation now foresees specific offshore wind provisions.
- Europe’s investments in grids are rising by 10% per year, but we need a 40% annual increase to effectively transition to an electrified and decarbonised Europe.
- Electrification across Europe is stagnating. We need to see a large increase in electrification, by up to 34% by 2030.
- Today, wind meets 15% of Europe’s energy demand, or 236 GW.
- Offshore wind today covers 3% of Europe’s electricity demand: 28 GW in 12 countries.
- The IEA expects wind will be leading generator of power in Europe by 2027.
- A main obstacle to wind deployment is the slow process of permitting, mainly due to the lengthy and complex administrative process. Opposition from local populations is not the main reason for slow permitting.
- The European offshore wind supply chain is struggling. Right now Europe has five manufacturers who are all operating at a loss.
- Investors need policy certainty for them to commit substantial financing for offshore wind, which is capital intensive, complex, and a long term commitment.
This is a summary, not a verbatim transcript, of the key points made during the panel event.
Permanent Representative of Poland to the EU
This is a very timely moment for a discussion on the development of wind energy. It will not only contribute to an increase in power generation, energy independence from Russia, but it will be very good for our environment and our economies.
Poland has never had any illusions about Russia, and that Russia would use energy as a weapon. The EU should separate itself from all forms of Russian supplies of energy, electricity, gas, oil and petroleum products.
Two weeks ago, on 30th August, in the Baltic Sea Energy Security Summit, the prime minister of Poland and the leaders of Denmark, Estonia, Finland, Germany, Latvia, Lithuania, and Sweden – also attended by Ursula von der Leyen, the EC president – agreed to increase offshore generation capacity in the Baltic Sea.
Let me welcome all the speakers in this debate.
Deputy Head of Unit, Infrastructure and Regional Cooperation (ENER.C.4)
Three years ago Poland kick-started offshore wind cooperation in the Baltic Sea.
Two weeks ago we had the continuation of this with the Baltic Sea Energy Security Summit. In my unit we deal with energy infrastructure and regional cooperation.
BEMIP stands for “Baltic energy market interconnection plan” and was started back in 2008.
In 2015 BEMIP’s scope was extended. And in 2021 BEMIP addresses offshore wind.
The famous study which everyone quotes comes from 2019, which says the potential for wind energy in the Baltic Sea is at least 93 GW. Many say that is a conservative total, but 93 GW is still amazing if it is implemented by 2050.
Reinforced cooperation started in 2020 by the initiative of Poland. There is now a specific working group for offshore wind. The first work programme has four chapters: Coordinated offshore Grid; Maritime Spatial Planning focusing on offshore wind development (Poland is the co-chair); Cooperation on enabling appropriate financing (Estonia is the co-chair); Acceleration of specific Baltic offshore projects and permitting.
As ambassador Andrzej Sadoś mentioned, at the Baltic Sea Energy Security Summit we agreed to speed up the phase-out of Russian energy, to increase offshore wind energy capacity by seven times to 19.6 GW by 2030 of which Poland will have a major share of 5.9 GW, to replace Russian energy with increased imports of liquefied natural gas, and to explore joint cross-border renewable energy projects and identify infrastructure needs to enable the integration of renewable energy.
Linked to the infrastructure needs, the new TEN-E Regulation, which focuses on the development of crucial energy grid development in the EU, now foresees specific offshore provisions, operationalising the EU strategy for offshore renewables, published in 2020. That includes new infrastructure categories for hybrid offshore grid projects and offshore radial lines, to implement five offshore priority corridors across the EU. Where appropriate, hydrogen projects can also be included in these corridors to reflect sector integration opportunities.
It includes specific provisions for offshore grid planning, enhanced regulatory tools for offshore grids, and permitting provisions to accelerate implementation.
Director Business & Communications, Eurelectric
Unfortunately, from Eurelectric’s perspective, we don’t have good news about the power sector in Europe. The best case is bad and the worst case is catastrophic if we don’t get it right before the winter. The figures speak for themselves.
The headlines are about the harsh reality we face today and what we can do to solve that.
In the context of today’s meeting, offshore wind presents an enormous opportunity for Europe. Pointing to the 90 GW potential in the Baltic Sea we estimate that would be equivalent to 40% of imports of Russian gas.
Unfortunately, the current status of the power sector in Europe, given the huge increase in gas prices, means that power prices have also increased.
The figures from August of this year show wholesale electricity prices up by over 500% since January 2021.
If you look at today’s day-ahead price they are €200 to €400/MWh depending on which country you are in.
If you focus on the generation of electricity we are also seeing enormous disruption in the market, affecting the mix of generation technologies. On the good side you see large increases in wind and solar and coal (unfortunately!). On the bad side you see a huge reduction in hydro and nuclear – both impacted by the drought and nuclear’s ongoing maintenance problems mainly in France. So in total there is a slight decrease in generation capacity, and that change also adds a lot of uncertainty in the mix.
However, another future is possible. Our Power Barometer points at what can be done to decarbonise the power sector. A lot has been done already between the year 2000 and today. We’ve dramatically decreased the CO2 intensity of the grid, but a lot more can be done. We think the EU power sector can be CO2 neutral by 2035 or shortly afterwards.
More investment needs to be done. The trends look but we need much higher numbers. Here I’m focussing on distribution grids. Why? Because 70% of the increase of renewable capacity will be connected to the distribution grids. Not only that, electrification going forward – mobility, buildings, heat pumps – will also be at that decentralised distribution level.
These are the figures we estimate we need to effectively transition to an electrified and decarbonised Europe. We currently have a 10% increase per year, but we need to go to a 40% annual increase in investments.
Electrification across Europe is also stagnating. This does not help. We need to see a large increase in electrification, we estimate up to 34% by 2030. The EC, being highly progressive, has pushed their figure up to 33%.
My last slide shows you the six enablers. Offshore wind is part of all of them: decarbonise faster; electrify now; strengthen grids; secure investment; protect customers. The last one, save energy, we’ve added on because currently we need to save both gas and electricity if we want to get through the winter without the huge constraints of gas rationing and rolling blackouts.
So now is the time to act and we look to the EC to hear about what they will do to deal with the crisis.
Deputy CEO, WindEurope
With major transformational change we must take bold, sometimes, difficult decisions which involve trade-offs and risks.
A crisis can be turned into an opportunity, like back in the 1970. In Denmark, the oil crisis pushed scientists to look for locally produced clean energy from wind. Today it is a mature and reliable technology that works.
Today, wind meets 15% of Europe’s energy demand, or 236 GW. It makes up 9% of electricity demand in countries like Poland, 45% in Denmark, 31% in Ireland and much higher numbers in Portugal and Spain. The IEA expects wind will be number one for power in Europe by 2027.
Most wind farms are on land, but offshore has developed rapidly.
Offshore wind today covers 3% of Europe’s electricity demand. We have 28 GW connected in 12 countries in 122 wind farms. Right now those offshore wind farms are in northern Europe. It’s located close to the demand, with efficient and effective supply chains.
With the advances in technology, like floating platforms, we are going to see farms located in deep waters like the Mediterranean. For the Baltics, the Marienborg Declaration sees much higher targets, as previous speakers have explained.
Everyone has high ambitions, but the targets are not going to deliver themselves on their own! We need concrete action to make it happen.
We need to speed up permitting, and we’re talking about the lengthy and complex administrative process – it’s not just about opposition from local populations.
The European supply chain is struggling. Right now we have five manufacturers who are all operating at a loss. It’s also about ports, infrastructure, logistics: we have huge volumes that we need to deploy in a very short time. Are we ready?
Cross-border cooperation is also very important. Germany and Denmark have shown that it is possible.
Hybrid-projects can ensure more energy security by improving the electricity flows. It will help bring down prices.
We must also make sure that we cooperate and work with all users of the sea. Offshore wind is a huge project and we must make sure that all the different interests are taken into consideration, so that we make it a success for all of us.
Deputy Permanent Representative of Lithuania to the EU
I’d like to explain how Lithuania is planning to use this opportunity.
Lithuania used to be an energy exporting country, but after closing nuclear power stations we are a net importer and import around 30% of our electricity. Our ambition is to become an exporter again by 2030.
Right now, 56% of our generation is from renewable sources. We are targeting 100% renewable electricity by 2045. Wind generation is an important part of the puzzle in this plan.
The government is putting together a regulatory framework. A package of amendments was adopted to accelerate renewable power generation and simplify administrative procedures for permits and environmental impact assessments, improving the investment environment, and establish clear conditions and requirements for connection to the grid.
We estimate our offshore wind potential is 3.35 GW. Already in 2020 we took the decision to develop our first offshore wind project. This year we approved a support scheme and connection model. Preparatory works are in progress, to enable potential tender participants to offer competitive prices. The first tender is expected to be announced by September 2023 at the latest. We expect electricity production to begin in 2028.
Preliminary assessments show that this project will attract over €1bn in private investment, raise over €8m in taxes, have a positive impact on the transport and buildings sectors, help develop the Klaipeda sea port, and reduce electricity imports by up to 30%.
Vice-President for Regulatory Affairs, PGE Polska Grupa Energetyczna
This discussion is very timely, especially after the Russian invasion of Ukraine – everyone knows this has changed everything.
The Baltic Sea potential is very significant and we have to set the right pace as we speed up our investment.
PGE is Poland’s biggest energy entity, and the first to announce a green strategy and climate neutrality by 2050 and that resulted in our 10% share of Poland’s renewables market.
We have already started our investments into offshore wind farms. We will deliver 2.5 GW by 2030 and our ambition is to have over 6.5 GW in the Baltic Sea by 2040. All these targets are very ambitious and we are doing our best to finish our offshore projects.
To put this in a wider national context, Poland’s targets of 5.9 GW by 2030 and up to 11 GW in 2040 were set before Russia’s invasion of Ukraine – these targets are being reassessed by the government and industry so that we can deliver more by 2040.
We have already launched investment into three projects. Two of them we are doing with our Danish partner Ørsted. We want Baltica 3 to be operating by 2026 and Baltica 2 by 2027. Baltica 1 will deliver 1 GW by 2030.
You can see how advanced we are with these projects. The support scheme for Baltica 2 and 3 will be approved soon by the Commission, they are covered by the “contracts for difference” (covering 40% of the total investment).
We have permission for over 3 GW, but we are applying for more. Right now in Poland there is an ongoing procedure to get another permit. We want deliver 6.5 GW by 2040. We have delivered our application and are waiting for the results from the Ministry of Infrastructure.
It is crucial to exercise the potential of the Baltic Sea to ensure a successful transformation.
Publisher, Energy Post
What is the significance of the capacities in the Baltic Sea, compared to other offshore regions in Europe? And how quickly will we see that 90 GW potential realised?
Following the North Sea Declaration in May and the Marienborg Declaration, and counting everything, we are already at 61 GW of commitments by 2030, which exceeds what wrote in the offshore strategy of the EU. So already the member states are more ambitious than what we said in 2020 in our Commission strategy. So that is massive. In terms of potential, I think the Baltic Sea basin is second to the North Sea basin. I think things will happen faster because the EU doesn’t have the issue with the UK.
All the Marienborg states agreed to a figure for 2030. According to the TEN-E regulations we will soon have figures for 2040 and 2050, so we will have goals that will allow integrated planning. The integrated planning of the grid will allow us to take up all the energy that comes from our sea basin. Environmental protection also has to be taken into account.
Let’s zoom out to see the bigger picture. The EC has huge ambitions and targets for offshore wind, and all the relevant nations keep increasing their targets in the last couple of months. We expect that 85 GW of offshore capacity by 2050 will be in Europe’s north seas – Atlantic, North Sea, Irish Sea – where we have high wind speeds, it’s close to demand, with good supply chains. This is equivalent to 380 GW out of the 450 GW that the Commission wants. The remaining 70 GW will be in the southern European seas. The floating turbine technology enables this. We’re looking at the rest, 93 GW, being delivered by the Baltic Sea by 2050. That’s huge potential.
Now, the only two countries that have large wind projects in the Baltics are Denmark and Germany. Poland has huge ambition, Lithuania, we see that Finland and Sweden are coming to the game. We need to ensure we overcome the huge challenges – we need to learn from each other – and we really don’t have that much time to act upon it.
As you saw from my graphs, the importance of fast rollout of renewables is critical to Europe’s energy security. It is the top priority. The Russian invasion of Ukraine and the energy price crisis is not going away. We forecast 12 to 24 months of crisis. Let’s be clear that offshore wind will not solve that crisis in the short term, but it has potential in the medium to long term. But we must make commitments now in order to solve that for the future – for energy security and for climate change.
Offshore wind provides secure, clean and affordable local power generation for Europe. America and China think the same. Europe needs to take that stance and invest today, not just financially but also in terms of the permitting processes and the intellect we have. Learning from the past and learning lessons from the regions that have done it already.
90 GW or more is equivalent to 40% of Russian gas imports.
The benefits are clear. Why isn’t PGE planning to do more? What are the obstacles?
PGE has 18 GW of installed capacity. I would say an additional 6.5 GW is a huge investment.
Demand will continue to grow due to electrification and the regulations that put renewables and offshore wind farms in an advantageous position. From our perspective this is a very good business. . But my concern is the ability of the market to deliver those investments in time. There are many projects ongoing at the same time, so managing and budgeting them is very important from the perspective of the schedule and deadlines.
There are limiting factors, like making sure all the wind energy is used, the ability to integrate it into our systems. There are issues around storage, integration, balancing. Does this slow down investment? Would things move faster if the system was ready?
Yes. Everything needs to be in place for wind investments to take place. Everything takes a lot of time to develop. We need a holistic approach. To develop a renewable project, with the new rules, hopefully takes 2 to 5 years, even less, with the new permitting rules with the REPowerEU package. But to develop grids the lead time takes much much longer. We need to start now. That will help with investor confidence. We need to be clear on what we want by 2050 and take the political decision now.
43% in Denmark and 32% in Portugal shows it is possible. When we look at the technology of today it is much easier to manage the integration of large scale offshore wind. The wind turbines are more flexible now, you have very long blades that capture wind at very low wind speeds. Storage technology is developing.
The huge problem now is the supply chain. We want to have European industry, local content, European factories, increase the number of jobs, in the most sustainable way. And it must be cheap. The huge pressure on the price is driving this industry out of Europe. Combine this with the bottlenecks in permitting and the volumes are just not there. Our factories are operating at 70% capacity. All of them are making a loss: five European manufacturers and none of them are making a profit.
Offshore projects take a long time to develop. Some contracts take ten years to go online. Rising prices are also making things more difficult. Developers must pay a high price for permission to build a wind farm. They must pay a huge amount up front. Permitting problems do not help, so you don’t have the constant supply of projects.
The 450 GW from offshore, how does that compare with onshore?
Onshore will deliver the main portion of wind energy. But onshore faces similar problems. Popular opposition is not the main problem, because the percentage of people in favour of wind farms is highest among people who live near wind farms. So it’s the very complex procedures, very lengthy administration that really slows down development.
Governments should do everything to speed up the process. And grid operators will improve through learning by doing. It can be very complex. And there is the development of sea ports that need to manage the huge volumes that need to be assembled and deployed. The main bottleneck is on the supply side, like underwater cables and other technologies that are needed.
Is the structuring of the deals – contracts for difference, the auction system – working fro you at PGE?
I can talk about contracts for difference, approved by the Commission. When we submitted the proposal it was justified. Today the situation has changed because of inflation, the situation of the market. PGE would expect an adjustment to the contracts for difference to take into account the current situation, otherwise it wouldn’t make the investment possible.
The offshore wind farms have huge CAPEX requirements. We are generating 40% of Poland’s electricity, but mostly we are doing this with coal, hard coal and lignite. Every day it gets more difficult to get financing because they are not willing to finance fossil fuels. At the same time we have to pay for EU ETS allowances This affects our liquidity now, and it therefore affects the pace at which we can decarbonise. This is a complex issue.
All the efforts that Poland is taking to decarbonise are extraordinary. I would like to invite you on the 29th September to our stakeholder forum to discuss the offshore wind working programme and you can present this financing issue there.
Q: In the current crisis, is there a danger of falling back and using more coal?
Poland decided to stop the import of Russian coal from March. PGE has never imported Russian coal, but other companies does it, so the government obliged them to purchase coal from other countries. PGE will import the required amount of coal on time. This is clearly a short term solution – for the long term the coming winter will show us about how Europe and the world will do with Russian imports. Only after this winter will we be able to responsibly create the strategy for the coming years
Q: What is the budget for offshore wind for the next six years?
There’s no easy answer. 15% of the current budget of €5.85bn can be allocated to cross border renewable energy projects. Soon we will have a list of cross border projects that can apply for financing. Many member states have renewables in their national recovery plans and they can be financed through this facility.
Energy reduction and flexibility are very important. High prices should lead to demand reduction, but it’s not happening fast enough. Industrial and residential consumers must take this seriously. Policy makers must come up with proposals to assist and support that demand moderation.
Q: What are the biggest challenges to raising the capital for grid and wind projects?
We’re not far off. We’re seeing a 10% annual increase in grid investments. That’s for hardware, infrastructure, software, digitalisation. We need to get to a 40% annual increase, and it’s somewhere around €400bn by 2030 in the distribution grid network. That sounds huge, but when you compare it to investments in oil and gas, road infrastructure, we need to decide what we need to prioritise as a region. We advocate for stronger grids which would facilitate large amounts of renewables, to protect ourselves from the current crisis. The biggest barrier is permitting for interconnectors.
There is no public fund for wind. There are public funds for research, for interconnections, for innovation. But offshore wind will be funded by auctions, PPAs, or smaller projects that can be funded by communities.
There is huge investor appetite, but there is no visibility on volumes and no stability.
Q: Will PGE use green hydrogen to integrate offshore wind power?
Not yet. We are observing the market but we do not exclude anything in the future.
Q: If you had to choose one barrier as the worst, which would it be?
Supply chains. Without them the manufacturers and OEM are making a loss. That is unsustainable.
The complexity of projects like producing hydrogen from offshore wind. All elements have to work together: government, operator, investors, financing, etc.
Permitting, and the immediate challenge is the supply chain. We have to act now. We need to look at public funding to support the European companies that are struggling right now.
The immediate obstacle is the supply chain. All the grids in the EU are significantly delayed right now, with increased costs reaching 150%. For the long term, we need long term planning to enable investor certainty.
I’m in two minds. Whether it’s the supply chain, or the financing needed to get through this energy transformation.