Developers like Vattenfall should be 'heavily punished' for quitting offshore wind contracts

Developers like Vattenfall that pull out of offshore wind contracts when the going gets tough should be “punished at a very heavy price,” heard delegates at a WindEurope summit, shortly after an executive from the Swedish utility said the decision to exit a UK project was forced by a downward “spiral.”

The remarks came during a panel discussion at WindEurope’s annual summit, taking place this year in Copenhagen, on how to de-risk offshore wind projects amid current market volatility.

Catrin Jung, the CEO of offshore wind at Vattenfall, said that the last few years in the sector have been a “roller coaster” and that it has been often remarked at the utility that “maybe it's too exciting right now, it could be a little bit more boring.”

The utility realised it was caught in a “spiral” of increasing Capex and Opex for the project, said Jung. “We realised we couldn't continue on the basis of the CfD we had locked in.”

'One-sided bets'

Jérôme Guillet, managing director at renewables financial advisory Snow, was less sympathetic to Vattenfall’s plight, telling delegates that “the business model of banks and utilities, and I've been in both, is whining.”

“You make bets, one-sided bets. And if you win, you take it. If you lose, you go and cry to governments. So this should not happen.”

“The regulations should apply to all. If you make a bet on the price, you should be forced to deliver the project,” he said. “People like Vattenfall” who have “abandoned a project should be punished at a very heavy price.”

The counterpart to that, he said, is that if you’re asking developers to bid at a certain price, “let them build a project right away. Don’t wait for five years to get the permits to do it. Otherwise, it makes no sense.”

“Wind is a low-cost of capital, or should be low-cost of capital industry, and the oil and gas companies simply have expensive capital, so they're not fit.”

“So to all the ESG investors, please don't push the oil and gas companies to do renewables. They come in, they overpay, and then they complain it's too expensive, and then they leave, and they destroy the assets in the meantime.”

“So now they're out. It's been fun.”

A lot of negative “noise” regarding the offshore wind sector comes “from the utilities as well as the oil and gas companies,” he said. “So please, shut up.”

“It's very simple. It's the best way to get cheap capital. That's the way to get the lowest cost of capital because you bring in investment like pension funds and others that are happy to take fairly low returns in exchange for low risk and volatility on the revenue side.”

Power Purchase Agreements (PPAs) are a “poor substitute” for CfDs and, more generally, a “regulatory failure,” he said.

“You're getting the price stability that you need, but you're getting it from a weaker counterparty and typically with contracts that will have different features. It shouldn't be prevented, and it should be a free choice by companies to do that, but fundamentally, it's going to lead to slightly more expensive electricity.”

Guillet also called for the industry and regulators to make sure that “smaller players can invest, even in offshore wind.”

“Don't squeeze the level playing field by saying, we need so many gigawatts or so many billions on your balance sheet.” In the recent failed Danish offshore wind auction, he said that even US investment behemoth BlackRock “could not participate because they didn’t fit the criteria. It’s absurd.”