France's offshore wind brings investment opportunities

The French government has launched its second public tender for the construction of two circa-500MW capacity offshore wind farms, with an expected total investment of EUR3.35bn. The tender comes in the context of small but growing anti-nuclear sentiment, as well as the need to replace aging nuclear capacity and meet its 25GW wind power target by 2020.

France currently has 6GW of wind capacity. In 2011, wind generated 11.8TWh of power and contributed to 2.1% of the country's total electricity generation. Nuclear generation currently dominates France's electricity generation mix, making up 75% in 2012. However, under the leadership of the current socialist government, France aims to reduce the share of nuclear generation to 50% by 2025 and instead turn towards solar and wind energy.

France: first and second round public tender zones for offshore wind. 

Source: Ministry of Ecology, Sustainable Development and Energy. The second round tenders are in green, the first round in red.

In this context, the government has launched a fresh public tender for two 500MW-capacity offshore wind farms in northern France, near the islands of Noirmoutier and Yeu on the Atlantic coast. France awarded the first tender for offshore wind farms in April 2012, which had a capacity of 2,000MW at an investment of EUR7bn.

22 out of the current 58 reactors in France will complete their lifespan by 2022, leaving the government with the option to either decommission or extend their lifespans. The significant reduction in nuclear generation desired by the government, growing anti-nuclear public sentiment in the wake of the Fukushima disaster in Japan, and finally the high-capital costs of refurbishment are all factors driving the decision to shut down the aging reactors. Indeed, the Fessenheim 1 and 2 reactors located in northeastern France with a total capacity of 1,760MW, will be shut down by 2017.

France is a predominantly nuclear-led country; however, favorable policy and geographical conditions mean that it is becoming an increasingly attractive destination for renewable investment. Firstly, France has one of the strongest feed-in mechanisms in Europe promoting wind energy, especially for offshore projects: the feed-in tariff in France for offshore wind was EUR0.13/kWh in 2012, which has been constant since 2008. Secondly, France benefits from long coastlines including the English Channel, the Mediterranean, and the Atlantic, thereby allowing an average wind speed for offshore turbines of 13.5 knots.

These strategic advantages have motivated significant investments in wind, comprising of both domestic and foreign direct investment. For example Boralex, based in Canada, acquired the 32MW La Vallee wind power project located in the department of Indre, France, while German Enercon has also expanded its presence in the Picardy region in France. In 2013 France's EDF acquired 321MW of wind capacity in partnership with GE Energy and MEAG, which is the asset management arm of Munich Re and ERGO. Foreign investment has also extended to the domestic supply chain, with Japanese and Danish technology giants such as NTN and Vestas having set up extensive turbine assembly sites in France.

Datamonitor expects wind energy to be instrumental in helping France to achieve its aim of 23% electricity generation from renewable sources by 2020, which will be an unavoidable part of the generation landscape if France is determined to reduce its nuclear capacity. With a debt-constrained EDF and some 25GW of wind capacity to be met by 2020, France would appear to be an obvious candidate for foreign utilities and component manufacturers looking to expand.

Written by Yasmin Valji

Analyst in Datamonitor's Energy Team

Follow Yasmin on Twitter: @YasminV_DMEN

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