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NUMMER 11 I 21 JUNI


BUREAU’S ADVICE: RENEWAL INFRASTRUCTURE AND STRENGTHENING POSITION AND CONSUMER SPENDING


Offshore wind industry in Belgium creates 16,000 new jobs and amounts to a billion euros a year in added value


BRUSSELS ‘The electricity supply in Europe and Belgium is at a turning point. The current infrastructure is in urgent need of renewal and supplies should be a given. In order for companies to compete and to be able to supply to families these should be protected, while the economy sheds their fossil fuels.’ These are some of the findings in a study on the socio-economic impact of Belgium’s offshore wind energy, published by the Belgian Offshore Platform (BOP). It was conducted by ‘Climact’, an education- and research bureau based in the Univer- sity town of Louvain-la-Neuve in Wallonia. The BOP unites the main players that invest in renewable (wind) energy production on the Belgian North Sea.


JAN SCHILS


Some of the main conclusions of the study are that offshore wind energy is crucial in ensuring the Belgian renewable energy goals are attained and that they result in 16,000 jobs and over 1 billion euros in added value a year. Investments in this kind of energy improve the Belgian trade balance and the net impact on government finances is slightly positive as well. The offshore wind energy has had a negative impact on the market price for electricity and a positive one on the climate, public health and air quality. The offshore wind industry is relatively new; in Belgium the first windmills were installed in 2009. At present 712 MW offshore wind energy is being produced, by 2020 another 1400 MW (double the amount there is now) will be added to that. 2292 MW of offshore wind energy will amount to 8.5 TWh in electricity, which is 10 percent of the overall demand for electricity. That equals half of the renewable energy goal by 2020. The offshore wind capacity by 2030 should amount to 1.5 to 2 GW, to make the European climate goals for that year. According to the study Belgium is sixth with its current operational wind parks in terms of installed capacity. In 2016 it was surpassed by Great Britain, Germany, Denmark, the Netherlands and China, because there were very few installations that were actually finished (Nobelwind was still being constructed). By the end of 2016 Belgium was in fourth place in terms of the installed capacity per inhabitant. In this light the study says it is important for Belgium to strengthen their leading position, because this will create more jobs in all parts of the offshore wind energy development, such as research, design, project development, construction, installation and maintenance, both in Belgium and abroad. “These skills and the competence involved already lead to an added value today, many new jobs and a positive impact on our trade balance. The development of a home based market for offshore wind energy creates an essential breeding ground for the industry to spread its wings overseas”, according to the creators of the study. Government policy is crucial in this context according to them: “Offshore wind is and essential building block in energy transition. Its costs are known. They result in concerns with the government and regulators, which are shared by the sector itself.” Its socio- economic effects were unknown so far. That is why BOP asked Climact to shed light on the socio-economic return of offshore wind. Taking political action requires knowledge of the pros and cons of the choices that are made regarding this energy policy. Some typical questions about offshore wind energy are: are parts of windmills made or designed in Belgium? How many jobs are created for us because of this? How many technicians are needed to run and keep the wind mill parks


operational and functioning by 2030? The study analyses the socio-economic impact of the development of the offshore wind industry on the Belgian economy today and in the near future (2030). ‘In order to do this we need to identify the industries which benefit from the investments in offshore wind energy’, according to the study. It has a broad range of several players, from project development and finance, to fabrication and building it, to exploitation and upkeep. This study employs a model of the Belgian Federal Planning Agency in order to comprise a socio-economic model for offshore wind energy. Additional analyses were carried out to estimate the impact of offshore wind energy development on the trade balance and government finances. Moreover, the impact of offshore wind energy development on wholesale trade prices for electricity were researched. Lastly the economic impact of avoiding emissions of CO2 were estimated. All of this led to more definite findings such as (to start off): offshore wind energy is essential to make sure Belgium’s renewable climate goals are achieved.


Nine offshore wind parks by 2020 The goal for 2020 is thus based on the realization of 9 offshore wind projects, which will result in 2292 MW in newly installed capacity. These parks will be producing 8.5 TWh. In light of the European 2020 goals, Belgium should produce 13 percent on renewable energy, divided over all sectors, which equals 21 percent for the electricity sector. Taking into account a stable usage in electricity of 80 TWh by 2020, offshore wind can account for 50 percent of the Belgian renewable energy goal. The sum total of 4000 MW in offshore wind capacity by 2030 is based on the green transition scenario of the network development plan by Elia NV, the proprietor of the Belgian electricity grid. ‘Given the expected reduction of costs for offshore wind energy, there is enough opportunity to expand its capacity. And although this study will only encompass the period up to 2030, offshore wind energy shall continue to evolve beyond that point. Alongside the exploitation of the parks, the older ones will need to be renovated. Possibly developing new ones, together with countries with bigger sea areas- which is something that could be researched. We are expecting a continuation of the economic impact, even aſter 2030’, according to the study. The development of the Belgian offshore wind industry, with the accompanying export activities involved, will result in 16,000 jobs in development, construction, exploitation and upkeep of the parks, the study predicts. More specifically, offshore wind energy will contribute (directly or indirectly) to the Belgian energy sector, with its 50,000 jobs in the country itself, and through export activities in Europe and anywhere else in the world. These jobs are mainly found in the professional technical service industry (such as engineering) with 40 percent of the jobs that were created, but also in construction, transport and financial services (each with 10 to 15 percent of the jobs created). This idea of direct and indirect jobs refers to recruitment in firms which directly cater to the end of the chain (through export, consumers or investments) or to indirect recruitment through their suppliers.


Trade balance The study points to the fact that the Belgian offshore wind industry participates in other countries, through exporting knowledge, products and services. The trade balance is the sum of reduced import of electricity, due to higher national offshore electricity production, plus the additional exported


goods and services from Belgian companies which are active in the industry, minus the imported goods and services needed to build the Belgian offshore wind parks. Avoiding import of electricity is based on the capacity (mentioned above) and leads to 8.5 TWh by 2020 and 14.7 TWh by 2030. That is how import of electricity of nearly 0.5 billion euros (2016) a year can be avoided by 2030 (based on the wholesale price for electricity of 40 euros per MWh). Export of the Belgian offshore wind industry adds another 1 billion euros (2016) a year up to 2030. Import of the Belgian offshore wind industry adds to a negative of 0.5 billion euros (2016) a year until 2030. The current net worth of the trade balance effect accumulates to 13 billion euros (2016) over the period of 2010-2030, and in 2030 the effect is comprised of 1.4 billion euros. This impact holds the key to come to a broader macro-economic impact, because it means that at present more money is going abroad than is being pumped back into the Belgian economy, according to the study.


Government finances In order to look into the effect on government finances we need to look at the complete impact of the offshore wind industry. This combines three effects: reduced government spending through job creation (less social security needed), additional government income through income taxes and of course the necessary government spending to support offshore exploitation. This is in direct proportion to the expected exploitation in three geographical zones: Belgium, Europe and the rest of the world. The creation of jobs leads to reduction in social security of 0.4 billion (2016) euros a year and additional income tax amounting to 0.3 billion euros (2016). Both increase with additional exploitation and job creation. Costs of subsidies may be increasing (0.5 billion euros in 2016) but only up to 2020. Because the future costs of offshore wind energy are unknown, they weren’t factored in when looking at the impact aſter 2020. If we combine the three effects, the net impact on Belgian government finances accumulated over the 2010-2020 period is a positive one of one billion euros (2016). This means according to the study that the discussion about subsidies for offshore wind energy is one-sided, because it doesn’t take into account the macro-economic importance of the further exploitation of the Belgian offshore wind industry, both in the country itself and abroad.


Lower market price and subsidies The increase in electricity through technologies with lower operational costs such as offshore wind and other renewable sources of energy has a lowering effect on the market price of electricity, according to calculations in the study. This effect includes 100 percent of the electricity purchased on the market. The subsidies which are being allocated for offshore wind production, currently comprise 3 percent of the total amount of electricity production in Belgium. This effect is being written about in several studies as the so-called Merit Order Effect. The increase in renewable energy sources has contributed to the curbing and reduction of the wholesale prices in many markets by movement in the merit order curve and through replacing conventional thermic centers, which have higher marginal production costs. Depending on their viewpoint, the studies estimate the merit order impact to be between 3-23 euros/MWh. The merit order impact is comparable in size with the impact of the average subsidies for


offshore wind energy per sold MWh. The CREG, the federal commission ‘guard dog’ on Energy in Belgium acknowledges this merit order effect in its report of 2013. The CREG states that the reduction of electricity prices on the ENDEX because of its large share in renewable energy in electricity is much larger than the impact of the costs of offshore wind energy on the electricity bill (at that point it was 2.2 euros per MWh). At present offshore wind energy costs are 3.8 euros per MWh, which is still at the bottom of the scale as identified for the Merit Order Effect. The subsidies cost less over time, because they are unrelated to inflation, as opposed to the rest of the economy. Taking into account an inflation of 2 percent, this entails a 40 percent reduction on the subsidies received in the final year of the period in which they are being allocated.


Impact on climate and public health The figures mentioned above do not take into account the positive impact of offshore wind energy exploitation on other matters such as public health, air quality and lower emission of fossil fuels which help stabilize the climate, the so-called external effects. Estimating the economic costs of climate change is no easy feat, because its impact involves a huge range such as unrest outside Europe due to trade influence, infrastructure, geopolitical- and safety risks, as well as migration. Historically speaking climate related extreme occurrences have already cost the European countries over 400 billion euros since 1980. Improving air quality has a direct effect on government finances due to reduction in health care expenditure. The OESO estimates the costs of air pollution to amount to 1 percent of the GDP. The offshore wind energy exploita- tion in Belgium results in an essential reduction of its CO2-emissions. Compared to a regular gas plant offshore wind electricity would amount to a reduction of nearly 6 percent MtCO2 a year by 2030. This impact is twice as large for the import of electricity from coal. Which is 5 percent of the Belgian emission in 2015 (118 MtCO2) and 50 percent of the emission from electricity (12 MtCO2). Depending on the price of carbon needed for the transition to lower carbon energy, this reduction would lead to a theoretical reduction in costs of 200 million euros by 2030 with a carbon price of 40 euros per tCO. The study concludes by stating that Belgium is a pioneer and one of the frontrunners in offshore wind energy. Not just because of the necessary contribution for the Belgium climate- and renewable energy goals, but also because of its numerous socio-economic advantages it deserves to be a recommendation to invest in this carbon neutral exploitation of electricity.


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