Denmark’s US$4bil wind aid seeks industry reboot

COPENHAGEN: Denmark, a global leader in wind power, spent five months licking its wounds after a failed auction for offshore turbines delivered a blow to expand even further.

The government is so set on protecting the industry that it’s now offering developers huge subsidies for new wind farms.

The announcement on Monday that it’s willing to fork out 27.6 billion kroner (US$4.2bil) in state aid and provide twice as much in insurance is a sign that the Nordic nation intends to hold on to its reputation as the sector leader despite the huge cost.

The decision to subsidise offshore wind farms will come at the expense of cheaper forms of renewable energy (RE), particularly onshore wind and solar farms that don’t need subsidies, according to Anders Plejdrup Houmoller, an independent consultant in Denmark with three decades of experience in the market.

“For the Danish taxpayer this is crazy,” he said in an interview. “It’s an a awful lot of money.”

Denmark’s policy is meant to support homegrown companies like Vestas Wind Systems A/S, one of the sector’s global leaders, said Houmoller.

The nation has also pinned its image on getting more of its electricity from the technology than any other country in the world, with almost 60% last year.

The broad-based political agreement to ensure that the industry remains strong is motivated by more energy independence just as electric cars, data centres and the foreseen production of hydrogen is expected to drive power demand much higher.

Jobs are also part of the equation.

Even though solar power is cheaper to produce than offshore wind, no solar panels are made in Denmark.

But Vestas and the rest of the sector employ many thousands of Danes to make turbines and related equipment for use in the country and to export.

Monday’s agreement sets out conditions for an auction of 3GW, which would more than double its current installed capacity, by early next decade.

Vestas cemented its role as the world’s largest wind turbine manufacturer in the early 2000s after a takeover.

Utility Orsted A/S for a brief period in 2020 was one of Europe’s most valuable energy companies.

However, in recent years Denmark’s position faltered. A combination of high inflation, rising interest rates and supply chain bottlenecks upended business models that depended on cheap debt and continuously falling prices for equipment.

Orsted is in the middle of a turnaround under new leadership.

Earlier this month it cancelled a major UK offshore farm, Hornsea 4, having recently axed two major US projects at the cost of billions of dollars.

Vestas is still working to boost its profitability after finishing with bad contracts that hit its earnings in recent years and is also facing increasing competition from big Chinese rivals.

For investors and the wider public, the breaking point was revealed by the failure of last year’s auction.

The new support offers a reset.

“It alters the narrative from Denmark being the home of wind and failing so miserably,” said Thomas Hwan Jensen, head of Europe for Copenhagen-based consultancy Aegir Insights. “Introducing a new framework that provides attractive sites will put them back on the map.”

The three sites to be offered later this year will likely draw plenty of bidders due to attractive returns bolstered by the government support, Jensen said.

A crucial part of the new Danish agreement is introducing the “contract-for-difference” model, said Patrick G. Rosenquist, head of new energy origination at the Export and Investment Fund of Denmark.

He cited the United Kingdom as successfully employing the blueprint which effectively guarantees a minimum price developers will get for the electricity they generate.

“It’s known as the most bankable support mechanism available when it comes to subsidising green projects, primarily offshore wind,” he said. — Bloomberg