* Industry fights back as governments rethink subsidies
* Companies says subsidies essential for investment
* Opponents cite inflated energy prices
* European Commission working on new policy
By Barbara Lewis and Vera Eckert
BRUSSELS/FRANKFURT, July 12 Bremerhaven, the
bleak, windswept home to high unemployment and the remnants of a
once-mighty shipping industry, is striving to reinvent itself as
an offshore wind hub.
It seems logical for the north German port to redeploy
skills common to building ships and giant turbines, but success
depends on guarantees of the green subsidies that are stoking
fierce debate across Europe.
Those who oppose subsidies say they inflate energy prices
and undermine Europe's competitiveness at a time when the United
States is benefiting from cheap shale gas.
Such concerns have prompted some European governments to
rethink their subsidies policy. Germany has already said it
plans to scale back support, and all bets are off in Spain as
the recession-hit country conducts an extensive overhaul of its
entire energy sector.
Offshore wind offers the prospect of eventually providing
large-scale power generation with zero fuel costs.
But the industry says subsidies are essential in the early
stages to ensure the enormous upfront investment required for
the infrastructure because of its sheer size and distance from
"In the short term, it's absolutely necessary (to
subsidise)," Areva Wind CEO Jean Huby told Reuters.
Without subsidies, he warns, there will not be any new projects
or new customers for Areva turbines.
So far, output at the Areva Wind plant in Bremerhaven, which
has been producing turbines since 2011, has reached a plateau at
about 50 percent of capacity. Beyond half a dozen German
offshore parks under construction, investment decisions are
frozen, the industry says.
TOO MUCH AT STAKE
Areva's aim is to operate without subsidies, starting some
time between 2020 and 2030, which is when Huby estimates that
offshore wind will be able to compete with fossil fuel energy.
German Chancellor Angela Merkel has said that subsidies will
shrink, though she will avoid the kind of retroactive changes
that have triggered threats of legal action from bruised
investors in Spain.
Industry and analysts say there is too much at stake to
remove all support for offshore wind.
"There is still a lot of commitment to low-carbon outcomes
and to not using nuclear. That does not leave too many degrees
of freedom," said Stephen Woodhouse, of the Poyry consultancy.
The advantages of offshore projects include their scale and
the greater certainty that wind will blow at sea. On average,
one offshore turbine produces 3.5 times as much power as an
The blades of offshore turbines can be bigger than the
wingspan of a jumbo jet. Although that increases productivity,
it also boosts the initial cost. The miles of undersea cable to
the mainland grid is another huge expense.
Yet costs will begin to decline if higher demand encourages
factories to increase production, with accompanying economies of
scale, streamlined supply chains and technological advances.
Depending on the project, offshore wind power is two to
three times as costly as its onshore counterpart, which is
partly reflected in current subsidy levels.
For Germany, the price guaranteed by the government, known
as the feed-in tariff, is an average of about 10 euro cents per
kilowatt hour (kWh) over the 20-year life of an offshore
turbine, compared with 6 cents onshore, according to German wind
energy agency WAB.
Additional costs turn up in consumer bills, hence the
political arguments as the European Union continues to grapple
with the financial crisis and Germany gears up for elections in
Cost comparison with other energy forms is extremely
complex, analysts say, because there are so many variables, such
as shifting prices for fossil fuels.
Depending on gas purchase prices, generation from natural
gas can be the cheapest power at 50-70 pounds sterling ($76-110)
per megawatt hour, analysts say.
As a rule of thumb, offshore wind power costs about 120-150
pounds per megawatt hour (MWh), though the British Treasury is
working on the basis of 155 pounds/MWh for 2014/15.
For nuclear power, analysts say that France's EDF
is in talks with the British government over a long-term fixed
power price of about 95 pounds for it to proceed with Britain's
first new nuclear station in 20 years. There has been no
Dong Energy, the world leader in offshore wind
power, says that all new energy sources need support initially.
"We are working on continued industrialisation of offshore
wind and reduction of cost," said Karsten Anker Petersen, head
of group communication at Dong Energy.
The Danish company, which operates in Britain and Germany as
well as in its home market, has a target to bring down the cost
of offshore wind by 40 percent in 2020.
As part of Germany's shift from nuclear to renewables, its
government has set extremely ambitious goals. They include a
target of 10 gigawatts of offshore wind capacity by 2020, enough
to power 10 million homes.
So far, it has managed about 0.3 gigawatts and analysts are
increasingly sceptical about it hitting the 2020 target.
Utilities such as RWE were the first in Germany to
make the leap of faith to invest in offshore wind. More
recently, pension funds have bought stakes in projects.
The Institutional Investors Group on Climate Change (IIGCC),
which represents pensions, insurers and other funds responsible
for 7.5 trillion euros ($9.75 trillion) in assets, says its
members have poured millions into renewable energy.
It did not give specific details on wind investment, but
said that regulatory certainty is crucial.
"Experience has shown that when the policy framework is in
place, investment follows," said Stephanie Pfeifer, the IIGCC's
The European Commission, the EU executive, says it aims
before the end of the year to publish draft policy up to 2030 to
succeed EU energy and climate goals that expire in
Bremerhaven needs all the certainty it can get.
($1 = 0.6615 British pounds)
(Additional reporting by Steve Jewkes in Milan and Geert de
Clercq in Paris; Editing by David Goodman)