German onshore wind investors may have to sacrifice returns

Few sector firms expected the price for power from onshore wind in Germany to fall below EUR 60 (USD 67) per MWh in the country’s first tender, law firm Norton Rose Fulbright says.

The Federal Network Agency (Bundesnetzagetur) announced today the winning projects, with a combined capacity of 807 MW. The average price achieved was EUR 57.1 per MWh, which compares to the last available feed-in tariff (FiT) of EUR 80.3/MWh.

According to Norton Rose Fulbright the total cost of a standard onshore wind farm will have to go down by roughly a third for investors to achieve the same equity internal rate of return (IRR).

“This price pressure will likely give further impetus to the takeover plans of manufacturers, large project developers and investors. We are already seeing signs of consolidation in the market with closer and more strategic cooperation between market players,” said Klaus Bader, head of energy, Europe at Norton Rose Fulbright.

This is one of the conclusions of a recent survey of about 60 wind project developers, investors and turbine manufacturers in Germany, carried out by Norton Rose Fulbright with Berenberg, BayernLB and Hypoport. It also shows that investors are eying opportunities in other key markets such as the US, Canada, Australia and Japan, as well as Europe. This is also true of project developers.

Wind turbine manufacturers, unsurprisingly, are investing in technological upgrades. About 50% of those polled are also mulling expansion of their project development teams or acquisitions in that area.

Sebastian Schenk, head of corporate customers, Norddeutschland at BayernLB, believes that the future profitability of wind farms will depend on reductions in investment and financing costs and on higher efficiency of the turbines. “However, investors will also have to expect a lower internal rate of return,” Schenk adds.

(EUR 1 = USD 1.12)

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