A wind farm in Sweden. Developer Arise has noted a shift in policy and investor appetite in recent months, which could support long-term bullish market fundamentals for green power in Europe. Source: Arise AB

Battered electricity demand, plummeting power prices, construction delays and administrative hold-ups: The fallout from the coronavirus pandemic provided a challenging backdrop for independent renewable energy developers and operators across Europe during the second quarter — but there are plenty of green shoots, too.

"It wasn't a great quarter when looking at the power prices," Daniel Johansson, CEO of Swedish wind farm developer Arise AB (publ), said on the company's July 17 earnings call. In the Nordics, a decline in the underlying commodity complex coincided with high hydro volumes, squeezing forward prices even further.

"At the same time, we see a very interesting development in the society as a whole," he noted, with a rising share of new car sales being electric vehicles, more investments in batteries and hydrogen projects, and EU policy support in the form of the Green Deal funneling investments into the sector. "This is something that we expect will drive demand for electricity going forward," Johansson said.

European economic recovery plans have indeed been aligned with the bloc's overarching climate goal of net-zero carbon emissions by 2050. A 40-GW hydrogen electrolyzer target by 2030 was added in July, which could unleash up to €470 billion in public and private investments by 2050 — with much that set to be invested in green power generation capacity, which will have to grow rapidly if the plan is to succeed.

"We've never seen this much interest into investing into renewable energy. And how that is affecting the pricing is a bit uncertain. But it's definitely an underlying positive trend in the market that more and more capital is being employed into these kinds of mandates," Johansson said.

A look at the share price developments among mid-cap renewables developers in Europe this year confirms bullish investor sentiment. The stock prices of Arise and its peers across Europe, including Neoen SA, ABO Wind AG and Scatec Solar ASA, all outperformed the wider market, both before the pandemic and after.

Flexibility pays

The sharp decline in power demand opened up opportunities for developers who were able to take capacity off the grid quickly. In the U.K., grid operator National Grid PLC introduced a curtailment scheme rewarding renewables asset owners who shut down production or provided storage capacity when needed.

Italian developer Falck Renewables SpA was able to capitalize on those incentives during the demand trough, said CEO Toni Volpe on the company's second-quarter earnings call. "This is a demonstration in our view that renewables can evolve to generate more than just energy and can provide more services to the system," he said.

"We had to adjust to an extraordinary situation," said Markus Lesser, CEO of German wind developer PNE AG, on the company's Aug. 12 call. "While we have also not been able to escape this development, we have reacted quickly and consistently to it."

In Germany, already slow permitting processes for some new wind projects were delayed further due to pandemic-related restrictions, Lesser said, although an infrastructure permitting law recently proposed by the energy ministry may help speed things up.

At the same time, supply chain turmoil and delays in the turbine manufacturing sector have spilled over into project developers' schedules during the quarter. "Wind turbine manufacturers are extending their delivery times. So we talk ... nowadays about three months more than before [coronavirus]," Lesser said.

Big competition

Aside from macroeconomic market challenges, the competitive environment for specialized renewables developers is also changing, not least given the mammoth decarbonization task ahead of large utilities, as well as the ambitious renewables plans being made in the oil and gas space.

Investment appetite for development pipelines or even entire companies is set to rise, with many expecting investment capital to outpace available projects in the coming years. Oil giant BP PLC recently announced an aim to build a 50-GW renewables fleet in the next 10 years, for example.

Canadian power producer Boralex Inc., which has a large presence in the French onshore wind and solar markets, will see RWE AG enter the arena after the German utility committed to buying a 2.7-GW onshore wind and solar development pipeline from Nordex SE, most of which is in France.

Years of boots-on-the-ground experience in project development may still preserve an edge for independent developers, though. "Big companies are arriving," Boralex COO Patrick Decostre said on the company's Aug. 7 second-quarter call. "But they are not managing their team better than us in terms of greenfield developments. And so on this side, there is not a real change of the landscape for the moment."