Investment

Are wind farms sustainable? Family offices should read this before investing in the sector

The energy crisis gripping Europe illustrates the risks involved in relying too heavily on wind farms to generate power. Family offices would be forgiven for thinking twice before investing too heavily in them.

In August, Danish wind farm developer Ørsted conceded it had experienced “significantly lower wind speeds than normal” over the summer.  German power company RWE agreed. The UK has put a bigger bet on wind than most European economies and generated 24% of its energy from wind in 2020.  This summer it was lucky to generate half as much, dramatically increasing its reliance on natural gas, where shortages have pushed the October price up 250%.

There is also evidence that this year’s temporary fall in wind velocity could become more permanent, as the planet warms

Ørsted and RWE have reassured investors that the wind shortage is temporary.  Even if this is the case, however, the UK government has failed to invest in sufficient sources of baseload energy, such as storage batteries and nuclear energy, while phasing out fossil fuels like coal and oil. 

It is also emerging that groups of clusters of revolving offshore turbines severely reduces windspeed for turbines downwind.  According to research by Naveed Akhtar in Nature capacity in parts of the North Sea has fallen by 20% to 25%: We conclude that wind energy can be a limited resource in the North Sea. The limits and potentials for optimization need to be considered in climate mitigation strategies”

There is also evidence that this year’s temporary fall in wind velocity could become more permanent, as the planet warms. Research also published in Nature this year, by Jordan Abell, analysed dust deposits during the Pliocene epoch of between 5.4 and 2.4 million years ago, when temperatures were mainly 2 to 4 degrees higher than today.

The researchers found that westerlies were not only weak, but strongest near the poles, until glaciation developed in the epoch’s latter stages. “If the Pliocene is predictive of future warming, we posit that continued poleward movement and weakening of present day westerlies can be expected.”

Rapid warming at the poles follows a melting of polar ice, which reduces the amount of solar energy reflected back into the atmosphere. The warming is speeded up by the incursion of weather systems bringing further warmth.

Wind is formed when cool air gets pulled into warmer regions, where air is rising. This takes place at random and when day turns to night, seasons change or storms develop.

But the wind generated by polar temperature differentials, reflected in the jet stream, is the most consistent. It is now becoming widely accepted that the jet stream is bending, and meandering. And, if the Pliocene is any guide, it will track nearer to the pole in line with the shrinking differential between warm and cold air. 

The current behaviour of the jet stream is leading to “blocking patterns” where weather systems slow down and become stuck, due to a lack of strong winds to move them on. 

Warmer conditions, increasing the amount of water vapour in the atmosphere, can increase the number of intense storms But the average wind speed still falls.

According to research by Colorado University’s Kristopher Karnauskas, based on IPCC data, the northern hemisphere will experience a 10% drop in wind speed by 2050 leading to a significant cut in power generation. 

Wind energy could still have potential in certain locations. According to Karnauskas, for example, the local land mass will boost winds in the southern hemisphere.

But the questions surrounding wind farms can only increase, as investors become increasingly wary of promoters stressing the benefits of saving the planet, to the detriment of helping them to understand how that is best achieved

Family offices favour impact investing because they get a reasonable understanding of how their capital is being invested. A number of them, typified by billionaire members of Bill Gates’s Breakthrough Energy consortium, are investing in radical solutions like nuclear fusion, carbon capture and hydrogen, all of which offer a decent chance of achieving mass acceptance. Compared to these innovations, wind farms would be little better than an interim opportunity that pulls money away from more permanent solutions. 

Criticism of the ESG craze is also on the rise, as investors increasingly see deficiencies in the way data is being developed and deployed.

Former hedge fund manager Chris James, founder of an activist investor called Engine No. 1, is mistrustful of the data regularly churned out to support ESG strategies. 

He views the tag ESG as little better than an emoji stuck on the side of fund wrappers to market products to punters.  

He believes you can achieve more= sustainable value for money through an activist approach, already being put to use at ExxonMobil, where Engine has won board representation. Former heads of sustainability at DWS and BlackRock have also criticised the way the industry has overdone ESG investing.

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