28 Jan 2020, 12:00

German onshore wind power – output, business and perspectives

Onshore wind power is a central pillar of Germany’s transition to low-carbon electricity generation and projected to become the country's number one power source. This factsheet takes a look at German wind power industry’s most important actors, financial support for the technology, and its future in a world that increasingly embraces renewables but poses unprecedented challenges at home. [UPDATES 2019 expansion & output figures.]

Output

Germany has led the field in installing onshore wind power capacity in Europe for many years, is by far the biggest market in the region and a global technology leader. But the national industry has struggled over the past years, bringing domestic expansion down to the lowest level in 20 years in 2019.

By the end of that year, about 29.450  onshore turbines with a total capacity of nearly 54 gigawatt (GW) were in operation across the country. With a gross expansion of about 5.3 GW, the year 2017 saw the strongest capacity growth ever. But expansion slowed down by more than half in 2018 to 2.4 GW and dropped to merely 1 GW in 2019.

The expansion collapse is due to several factors but regulatory problemsw are widely seen as the main issue. An analysis by energy industry lobby group BDEW found that the falling number of permits issued for onshore wind turbines was the main factor behind the decline, with issued licenses dropping by 70 percent over three years. About 11 GW, roughly 2,000 turbines, were stuck in bureaucratic procedures as of mid-2019.

Challenges arise from mandatory minimum distances from residential areas and aviation infrastructure, or as a result of lawsuits brought by citizen movements and environmental groups, even though recent surveys suggest Germans remain overwhelmingly in favour of further epxansion. Economy minister Peter Altmaier promised to remedy the situation but his ministry's proposal for a minimum distances of 1,000 metres from the next residential area in Germany's Climate Action Package has been widely criticised by industry actors for substantially cutting the available land area for turbine construction. According to the German Wind Power Association (BWE), the rule would diminish potential construction space by 40 percent.

Meanwhile, power production with onshore wind still continued to grow steadily in the country, as net expansion remained positive and older turbines are replaced with newer ones in so-called repowering procedures. Over the whole year of 2018, onshore wind power over 100 terwatt hours (TWh) of electricity into the grid and generated almost 17 percent of Germany's power mix, making it the single most important renewable energy source. Together with offshore turbines, which produced some 25 TWh (4% of total) wind power in total became Germany's dominant power source for the first time in 2019.

Technologic progress & limitations

Turbines added in 2019 on average had a capacity of over 3.3 MW, a hub height of over 130 meters and a rotor diameter of about 120 meters. Average turbine heights have more than doubled over the past two decades, meaning new installations can produce more energy. A single modern onshore turbine could supply up to 6,000 households.

Due to a steadier feed-in and better grid compatibility of new installations, electricity generation became significantly cheaper. Depending on the turbine’s location and size, prices for one kilowatt hour (kWh) of electricity stood slightly over 6 cents by mid-2019, according to wind power association BWE.

Most wind turbines so far have been built in Germany's northern half, where favourable wind conditions also helped to spur the industry’s early development in the 1990s. However, wind power expansion in central and southern German states has caught up in recent years, as growing turbine efficiency has allowed to unlock regions with weaker average wind conditions further inland.

Due to the high concentration of wind power in northern states, Germany’s Federal Network Agency (BNetzA) rated the country’s coastal regions and hinterland as a “grid expansion area,” where new wind power installations are capped at about 60 percent of previous levels to account for lagging grid expansion. Greater power yields and more operating hours per turbine meanwhile have compensated declining financial support rates and made harnessing previously unattractive locations possible.

Germany covered over one third of its entire net electricity production in March 2019 with wind power alone, setting a new record for the renewable energy source’s share in the country’s power mix. Onshore and offshore turbines together brought wind’s share to 35 percent of total power production, while renewables together accounted for 55 percent. The turbines produced 3.6 times more electricity in that month than lignite plants or nuclear plants.

Wind power generation in Germany generally peaks during winter months, partly balancing out lower power input by solar installations during that time of the year. But the problem of wind power’s volatility also becomes evident during the colder and darker months of the year, when the vast majority of Germany’s power demand still has to be covered by conventional power plants. A period of dark days with no wind - “Dunkelflaute” in German - means that besides the few hours of sunshine typical for the winter months, doldrums can bring the turbines' entire output below 1,000 GW for a whole day.

Projections of turbine sizes by producer Enercon. Source: jahobr/wiki
Projections of turbine sizes by producer Enercon. Source: jahobr/wiki

Business & Jobs

Revenues in Germany’s wind power sector including exports amounted to 17.7 billion euros in 2016, which equals about one quarter of all revenues made with environmentally friendly products, according to Germany's Statistical Office (Destatis). With 14.6 billion euros, over 80 percent were made with onshore wind power and the remainder with offshore turbines. Engineering association VDMA Power Systems said the annual value added to the German economy by domestic wind turbine sales alone amounted to 6.7 billion euros in 2017 and generated 1.5 billion euros in tax revenues.

According to figures by the economy ministry on economic stimuli by renewable energy plants, wind power also attracted the highest level of investments in recent years. They amounted to over 10 billion euros in 2016, the BWE said. High expansion volumes have also bolstered employment: with about 60,000 people directly employed in the industry and a total of around 120,000 people if linked economic activity is included, wind power is by far the most important job creator in the renewable energy sector, 2019 Destatis figures say

Timeline of employment in renewable energy sector. Source - BMWi.

Most jobs have been created in the major manufacturers’ home regions in northern Germany, where many final assembly processes for on- and offshore turbines take place and most operating turbines can be found. Due to a high degree of vertical integration in production, many production steps take place in-house.

However, job creation in the wind power industry covers a large spectrum of activities: Supplier companies for turbine manufacturing are located all over Germany and provide chemical and metallurgic intermediary goods, construction work expertise or other services to the engine builders, the German Institute for Economic Research (DIW) explains. While most jobs per state were located in the coastal state of Lower Saxony (32,300) in 2017, sizeable job clusters could also be found in the landlocked states North Rhine-Westphalia (18,500), Bavaria (11,820) or Saxony-Anhalt (13,120), according to the BWE.

But the slump in expansion beginning in 2018 and worsening 2019 has started to take its toll on manufacturers. Turbine maker Senvion filed for insolvency in early 2019 and the country's leading producer Enercon in November of the same year announced it will axe up to 3,000 jobs, mainly in northern Germany. Also global wind power leader Vestas from Denmark cut jobs in Germany, saying the slump in the country's market partly forced it to make the decision. Engineering association VDMA Power Systems warned that almost one third of all jobs directly linked to onshore wind power are at risk if the current trend of low expansion levels persists. It added that total installed capacity could shrink due to older turbines being taken out of operation, making Germany's 2030 emissions reduction targets almost impossible to reach.

In a survey among wind power companies on their business expectations published in September 2019, labour union IG Metall Küste, 74 percent of respondents expected a worsening of conditions in the onshore wind power market, up from 17 percent in 2015. One out of four companies surveyed said they expect further job losses in the near future and about half said they consider relocating parts of their business abroad.

Wind power industry lobby group BWE said the decrease in production could be blamed mostly on political decisions rather than on market conditions and warned that the German government puts the survival of one of the most important branches of the future economy at risk. Since wind power is set to become the country's most important power source, a collapse of the domestic industry meant that Germany's competitiveness as a whole comes under threat, BWE said.

Support

A steep ascent in turbine commissioning in 2016 was partly due to national ambitions to fulfil Germany’s national CO2 emissions reduction targets but also owed to drastic changes in Germany’s renewables support regime, which became effective for new projects on New Year’s Day 2017. The switch from predetermined feed-in tariffs to price finding in auctions, aimed at strengthening market principles and competition in the wind power sector, led project developers to bustle about for a last-minute wave of construction applications to secure a slot among the last projects eligible for guaranteed remuneration.

Development of Germany's 20-year guaranteed support rates for onshore wind power. Source - CLEW.

Apart from the switch to tenders, the federal government also capped support to an annual onshore expansion capacity of 2,800 MW until 2019 and decided to slowly widen this “expansion corridor” over the following years. 2019 is the first year in which only installations that have won an auction receive support.  But onshore wind power auctions in 2019 repeatedly ended with fewer applications than expected, with VDMA Power Systems arguing that investors shunned the sector due to ongoing regulatory challenges.

Moreover, the end of the 20-year guaranteed support period is approaching for the first turbines and will take effect by 2021. Observers warn that this could lead to a decrease in installed capacity if low expansion levels persist. The BWE says it is difficult to gauge how many windmills will be mothballed after 2020 and hopes that business models like power purchase agreements (PPAs) will cushion the effects of expiring guaranteed support.

Other investors, such as the public utility of Munich, pursue a different model and plan to buy old wind farms no longer eligible for support, retrofit them and continue to generate a profit by operating them at market prices. Similarly, carmaker Daimler has announced it wants to use older wind turbines to fulfill its goal to decarbonise production.

 Timeline of renewables surcharge on power price by technology. Source - BMWi

New perspectives abroad

Source: GWEC 2019

VDMA Power Systems said turbine makers could compensate part of the dwindling business at home by focussing more on international markets. Between 2010 and 2018, about 60 percent of the manufacturers' total revenue was generated abroad. Service providers in other segments of the industry (project development, installation, maintenance, etc.), however, have a greater dependence on domestic sales. But also manufacturers cannot fully compensate a weak home market by going abroad, VDMA warned. Production chains built up over many years could be disrupted and technical expertise lost if companies relocate, the association said.

The Global Wind Energy Council's (GWEC) 2018 report estimates that the international expansion volume for onshore wind will reach more than 50 GW per year until 2023, with growth taking place especially in developing markets in Africa, the Middle East and Latin America and "mature markets" in East Asia, Europe and North America continuing with "stable volumes."

Bloomberg New Energy Finance found that three German or partly German manufacturers (Siemens-Gamesa, Enercon and Nordex) figured in the list of the world's 10 leading onshore wind turbine producers in 2018 but cautioned that small profit margins and stiff competition in the market mean that companies will have a hard time defending their positions.

Despite the challenging conditions at home, Germany remained one of the biggest wind power markets in the world. With five percent of new installations and just under ten percent of total installations, it came third behind China and the US in 2018, according to the GWEC. With 20 percent of worldwide installations coming from German producers, their market share was twice as high as Germany's share in total installations, German wind power lobby group BWE said - and that figure would climb to 40 percent if China’s relatively insulated market is excluded, it added.

Po Wen Cheng, holder of Germany’s first chair in wind energy at Stuttgart University, told Clean Energy Wire German there was a good chance turbine manufacturers would remain internationally competitive. “Wind power turbines require a lot of know-how,” Cheng explained. Unlike with PV systems, differences in manufacturing quality matter greatly: “A rotor blade still requires a lot of manual labour. The quality depends on the workers’ skills.” Companies in emerging markets had yet to catch up with this level of skill, making a rapid relocation of production capacities as seen with PV technology unlikely for wind power, Cheng said.

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