Wind Power's a Breeze in Europe

The EU's renewable power sector, led by wind, is growing, and those who build wind farms are having trouble keeping up with demand

by Mark Scott

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After years of playing second fiddle to mainstream power sources, Europe's renewable energy sector is now going from strength to strength. Lucrative government subsidies, an EU-wide goal to reduce CO2 emissions 20% by 2020, and growing public support for the fight against climate change have turned this new industry into a force to be reckoned with.

Wind power is leading the push into renewables, helping to place Europe ahead of other regions (BusinessWeek, 8/3/07) in the race to capitalize on the green power revolution. According to Barcelona-based consultancy Emerging Energy Research (EER), the European wind turbine market—including construction—will surge by two-thirds between 2006 and 2015 to an annual total of $15 billion.

Germany and Spain, the EU's largest producers of wind power, each are expected to add up to 2,000 megawatts of wind power capacity—almost the same amount produced by three coal-fired power stations—annually from now until 2012. Growth in Eastern Europe, an emerging wind market, is expected to be in the double digits annually during the same period.

A Spate of Acquisitions

It's no wonder then the EU will install over 40% of the world's wind farms over the next eight years. as 13 of the 20 largest wind power markets are located in Europe. "Wind is becoming a tried and tested technology for many EU countries," says Catalina Robledo, European wind energy analyst at EER.

The wholesale acceptance of wind power in the European energy mix has led to a spate of acquisitions by large utilities keen on cashing in on renewable technology. In August, German power company E.ON (EONGY) scooped up a wind farm operator in Spain and Portugal for $1 billion from Danish company DONG Energy. And late last year, Spanish utility Iberdrola (IDRO.BE)—the world's largest wind power provider (BusinessWeek, 6/6/07)—forked over $23.2 billion for Britain's Scottish Power, in part for the company's extensive wind portfolio in Britain and the U.S.

Now many energy companies are turning their eyes to Eastern Europe, where limited domestic competition, above-average wind supplies, and government subsidies offer high rates of return for players eager to increase their wind portfolios. Production capacity in Eastern Europe is pegged to grow by 33% annually to 7.5 gigawatts by 2015, according to industry predictions.

Poland, the New Frontier

Poland is of particular interest. The country's wind power production is expected to increase more than seventeenfold, to 2.6 gigawatts, between 2006 and 2015, according to figures from EER. Investment in the country's wind sector will reach $3.3 billion by the end of the decade, and utilities ranging from Spain's Endesa (ELE) and Iberdrola to Germany's RWE (RWEG.DE) and E.ON all have facilities under construction.

According to Cord Landsmann, the chief financial officer of E.ON's newly-formed renewables division, Central and Eastern Europe offer widespread potential for on- and offshore wind farms. The German giant is currently building a 60-megawatt wind farm in the North Sea and is looking at several onshore sites in Poland.

While investment in wind farms helps cut the carbon footprint of European energy companies, there are also significant financial incentives for going green. Under EU and domestic rules, utilities can charge higher rates for renewable electricity, either through government-mandated prices for end customers or so-called renewables obligations, which reward companies for building carbon-friendly power plants.