Based in 30 countries, with revenues of almost €3.6bn ($3.86bn), BayWa r.e. is a leading global renewable energy developer, service provider and distributor. The Munich-based company delivers end-to-end project solutions, ongoing operations management and is an independent power producer with an expanding energy trading business. It has so far brought online more than 5GW of renewable energy generating capacity, while managing more than 10.5GW of assets.
Energy Monitor caught up with BayWa r.e.’s senior management to find out what to expect from the renewable energy industry in 2023.
What do you expect to be the main trends and themes in the renewables market in 2023?
Matthias Taft, CEO, BayWa r.e.: We expect to see rising demand for corporate power purchase agreements (PPAs) in 2023 driven by sustainability commitments, customer and investor expectations, as well as the unprecedented and ongoing energy crisis. Corporates will also play a crucial role in the fight against the climate crisis by showcasing their sustainability practices to help close a growing skills gap, which threatens renewables growth. For today’s job seekers who are looking for purpose in their work, the fight against climate change offers exactly that.
Andrea Grotzke, global director of energy solutions, BayWa r.e.: We are seeing strong interest in PPAs across all company sizes and business sectors. We could also see more mid-size companies coming onto the stage, especially in Europe and Asia, as these are typically the supply chain companies of global brands, and as global brands increase their pressure on the supply chain to source green energy, these companies will have to react.
Frank Jessel, director of business entity solar trade, BayWa r.e.: We also see a rapid expansion in the adoption of solar photovoltaic (PV) systems for our distribution business. Despite challenges regarding supply chain disruptions and a shortage of workers, we expect this trend to continue this year. The reasons for this we see in the endorsement of renewables in the residential and commercial PV market being higher than ever, prices of PV systems in particular falling mid-term due to technological improvements, and decreasing freight prices and economies of scale. We are experiencing a steep increase of the attachment rate for storage products, with more interest than ever in adding storage to solar systems. We are also seeing PV plants being retrofitted with storage systems, including back-ups. All of which are trends that support the desire for independence from the grid.
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Felipe Cornago, offshore wind commercial director, BayWa r.e: Floating offshore wind is also a game-changer for the renewable energy industry and a key technology to fight climate change; especially because of its ability to open up markets previously incompatible with bottom-fixed technologies and to exploit areas with higher wind potential. In 2023, we should all focus our efforts on a number of areas, including the establishment of clear regulatory frameworks, and improving grid connection and grid planning. Without sufficient grid availability, which many regions currently lack, these projects cannot be launched.
Do you expect the energy security, inflationary and supply chain issues to persist in 2023 or start to tail off?
Taft: The rapidly progressing rate of climate change and pressing energy security concerns call for an even faster deployment of renewable energy. The strong momentum behind the energy transition presents us with unprecedented opportunities. However, supply chain challenges, cost and interest rate hikes, as well as strong competition for talents, all test our ability to navigate an increasingly uncertain environment.
The growing awareness of the risks of dependency in Europe, owing to the experience with the gas supply from Russia, have given rise to security concerns. Countries are starting to counteract with investment and financial support towards the localisation of supply chains. We therefore believe that supply chain uncertainties will probably continue to persist for the foreseeable future.
You recently launched four pilot agrivoltaics (agri-PV) projects across Europe, is this a business line you are expecting a lot from going forward?
Stephan Schindele, head of product management agri-PV, BayWa r.e.: We are convinced that agri-PV, in addition to the other PV applications, can make an important contribution to fighting climate change, because it creates synergies between food production and solar power generation.
As of the end of 2022, we have developed and installed 15 agrivoltaics projects in the EU, and signed the first agri-PV corporate PPA in Europe with Danish roof window manufacturer VELUX. This year, we will build one of the largest agri-PV projects in the EU and add new 'rangevoltaic' applications to our portfolio, in which livestock farming is combined with agrivoltaics.
My hope is that between 2023 and 2025 we will see more PV ground-mounted agri-PV hybrids, and shift from piloting to larger testing. From 2026 onwards, I expect to see large-scale, full dual-use agri-PV projects, and in the early 2030s, I expect agri-PV to reach a market level similar to PV rooftop and ground-mounted PV. Yet this must start somewhere. Just as science and industry did their job by generating new knowledge and technical solutions, it is now time for policymakers to adapt policy frameworks to create an enabling environment.
Support is needed from political leaders to achieve a breakthrough for this solar application. We have seen some movement in this respect in Germany, for example. German law changed this year to categorise agri-PV in tenders alongside ground-mounted projects, with a few special privileges for overhead systems. Elevated agri-PV installations are eligible for a bonus on top of the standard tariff revenue, yet these perks only apply to projects planned and constructed in accordance with the DIN SPEC standard.
It is still highly doubtful whether the changes will be sufficient to help this solar application achieve a breakthrough in the tenders compared to ground-mounted systems. Due to their special requirements and more complex technology, overhead agri-PV systems in particular are more capital-intensive than normal ground-mounted solar systems. The bonus for agri-PV within the tender framework is therefore set far too low to trigger commercial projects on a broad scale.
However, on the positive side for its wider development, agri-PV can now be installed on arable land, special crops and on grassland.
Are there any other innovative new clean technologies or approaches you will be exploring in the near future?
Manfred Groh, head of hydrogen, BayWa r.e.: One of the key areas we’ll be exploring over the coming years is green hydrogen, which is becoming widely accepted as the way to propel the energy transition forward. BayWa r.e. is involved in multiple projects in this area, including SinneWetterstof in the Netherlands, Haute-Saintonge in France and our cooperation with hydrogen developer Octopus in the UK.
We continue to advance these projects, but there remains considerable work to be done in the wider market if we are to boost the deployment of green hydrogen and make it a real game-changer for a decarbonised economy and industry. For example, more must be done to collaborate on the transportation of hydrogen across the globe. Natural gas pipelines could be used here, but this remains subject to international political relationships.
Despite green hydrogen being across many governmental agendas worldwide, we currently lack the regulatory framework and subsidies for it in Europe to meet high expectations. For example, production in Europe has been almost stalled, with the European industry waiting two years for a clear definition on green hydrogen. With the right structures in place, BayWa r.e. believes that the future implementation of hydrogen solutions across multiple sectors is more than possible.
Have the windfall taxes introduced last year affected your operations or changed any of your investment plans?
Gordon MacDougall, managing director, BayWa r.e. UK: From a UK perspective, the proposed mechanism for skimming unexpected profits due to the high power prices is better than the proposals that directly intervene in the market and the price formation. We strongly support the European Commission’s and Council's efforts to introduce a European solution. However, we do not believe that the proposed mechanism works in the futures market, since there are a lot of contracts (PPAs, for instance) at much lower prices, particularly for renewables. In these cases, there is nothing to skim off.
However, we feel that UK’s energy profits levy structure represents a disincentive on investment in developing new projects. From our point of view, there is a fundamental difference in the situations faced by legacy subsidised projects, which theoretically could be making windfall profits according to the Treasury’s rationale, and projects coming to market in the near future. This is especially critical for new projects as they face additional challenges such as higher expenses for materials, inflation, as well as financing costs, but are not able to pass these through their power prices.
A well-designed levy needs to reflect this distinction to not lose sight of the critical investment in affordable, clean and secure energy generation infrastructure that is urgently required. Future investment signals must remain strong for the UK’s renewable energy sector.
How can policymakers encourage further growth of the renewables market?
Taft: The pace of investment in renewables has accelerated significantly in recent years, with spending underpinned by fiscal support from governments and aided by the rise of sustainable finance. Furthermore, the latest market report from the International Energy Agency highlights that globally there will be as much renewable power added in the next five years as there were in the whole of the past 20 years. So it is encouraging to see some positive news about pace and progress.
However, the growth in investment is still far from enough to tackle the multiple dimensions of today’s energy crisis and to ensure a cleaner, more secure energy future. Acceleration is crucial if we want to keep temperature rises within the 1.5°C threshold.
We’ve increasingly seen the pace of renewable innovation and development moving faster than regulatory frameworks or regional policy allow. We support most of the REPowerEU proposals announced last year – with the European solar strategy and the initiative to speed up permissions, in particular, going in the right direction. It was also a positive step to see EU energy ministers adopt a Council regulation laying down a temporary framework to accelerate the permit-granting process and the deployment of renewable energy projects.
Nevertheless, more needs to be done to accelerate the deployment of renewable energy, and this will be resolved only when all stakeholders work closely together to standardise and align on solutions. BayWa r.e. is calling for the acceleration of permitting across European regions if countries are to meet net-zero targets. We are hopeful to see developments in this area in 2023, in what is a crucial year for averting the climate crisis.