What are the risks to investors in a post-subsidy world?
Invenergy's legal action against the Polish government demonstrates that the wind industry can successfully push back against governments. Richard Heap investigates
Over 550GW of wind turbines are spinning globally. Corporates are signing deals for wind power at an unprecedented rate. The economics of wind are getting stronger.
However, investors in the wind sector would be wrong to think that continued strong growth is guaranteed. In the last few years, we have repeatedly seen how politicians at national and regional levels can destabilise investors. Firms in Australia, Canada, Poland, South Africa and Spain will have cautionary tales, while even the established markets in Germany, the UK and US are in the grip of major political upheaval.
Investment risks in Europe and beyond
In fact, it is often areas that were once most positive about wind that end up making the most high-profile cuts. The most recent example is Ontario, which started ripping up renewable energy deals last month after the election of a new government led by the Progressive Conservative Party. The province has the most wind capacity of all the Canadian provinces – but the strength of this past support has been matched by the viciousness of the backlash. We wrote about ongoing upheaval in Ontario here.
We have now built on the theme in our Legal Power List report, which we published on Tuesday 14th August, and will look more at the topic of investment risk in the wind industry in Europe at our Financing Wind Europe event in London on 1st November.
The main focus of the Legal Power List is our list of the 100 most influential lawyers in the global wind industry, with a focus on their activities in the last two years. But we have also looked at seven of the biggest political risks we see for wind investors in countries around the world. The wind industry may be growing, but it is wrong to assume that wind’s favourable economics make it immune from hostile politicians.
These political risks put pressure on investors to make sure they have the best team in place to help them avoid or mitigate these risks – or to fight them when the worst happens. This includes consultants, insurers, local experts and, of course, lawyers. Our 100 focuses most on the transactional and development sides of the market, but lawyers are also vital when the industry needs to fight against controversial changes.
Invenergy pushes back against the Polish government
Let’s take the example of Poland. The election of the coal-loving Law & Justice Party in October 2015 was never going to auger well for the wind industry, and so it turned out with punitive changes for wind investors in 2016. These turned Poland from one of the most promising emerging wind markets in Europe to one of its worst.
However, it is the $700m legal action by US developer Invenergy against the Polish government that has helped put the plight of wind investors in Poland in focus. It took its fight to the United Nations in April after claiming the government and state utilities had been “blatantly disregarding” decisions in the Polish courts. This also highlighted the risks for other overseas investors when looking to invest in the countries.
In recent months, we’ve seen the Polish government soften its approach to the wind industry by reversing punitive tax changes introduced in 2016. We wouldn’t claim the decision is solely because of the Invenergy challenge, but it helped to build pressure.
This highlights two of the seven key political risks we cover in the Legal Power List: the impact of new governments reversing policies favourable to wind – which is also the case in Ontario – and countries with unreliable legal systems. We have also seen examples of countries making retroactive changes to cut subsidy bills and revoking project permits; and battles for investors with both land owners and state utilities.
And there are the even more headline-grabbing political risks for investors, including corruption, expropriation, terrorism and war.
Investors may not be able to eliminate risk, but continuing to make the case for wind with politicians and the public can help to mitigate some of them. In addition, lawyers can play an important role when a fightback is needed. The figures look good now – but growth in the wind sector depends in part on its willingness to stand up to critics.