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Some thoughts on the cost of wind energy
Andrew GarradGarrad Hassan and Partners
Cost effectiveness of wind energy
EWEC Milan May 2007
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Economics
• Cost• Price• Value ?
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Cost drivers
• Politics• Engineering• Competition• Volume• Reliability • Grid integration• Financing
Wind speed!
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Cash flow in 2006 € billions per annum
4.5
BoP
O and M
1.6
Finance1.6
PowerPurchaser
8.6
Turbines
10.5
Component
7
70,000 MW installed15,000 MW new
New
capita
l12.75
Owner
Others
1.6
Developers
1.6
Services
Who’s who in the wind industry
€21 billion
Without M and A
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Project model
Development Construction Operations
Turbine supply
BoP Installation
Operations & Maintenance
Power Purchase
Site Selection and Design
Equity Financing
Debt Financing
Who’s who in the wind industry
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Project development
Development
Site Selection and Design
Who’s who in the wind industry
Construction Operations
• High demand• High profit• High cost• Project pipelines exchanging hands at high margins• Increased supply will reduce costs• Country dependent• Long lead items
•PPA•Wind resource assessment•Permitting•Grid connectionScope for cost reduction?
Time scale?
5 Years
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Turbine and BoP supply
Development Construction
Turbine supply
BoP Installation
Who’s who in the wind industry
Construction
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0
2000
4000
6000
8000
10000
12000
14000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Annual world capacity (MW)
Maxim
um
exis
tin
g c
ap
acit
y?
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Commercial price development (from price list)
0
500
1000
1500
2000
2500
3000
3500
1975 1980 1985 1990 1995 2000 2005
year
pric
e [E
uro/
kW]
History of wind
Reduction through
technology and
volume
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The growth of commercial machines….
1980 1990 2000
Will it continue?
15m20m
40m50m
124m
History of wind
Bigger &
big
gerBetter & better
“Commodity machines”
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0%
20%
40%
60%
80%
100%
120%
0 20 40 60 80 100 120 140
Rotor Diameter [m]
No
rmal
ised
wei
gh
t (V
52=1
00%
)
… or hidden disparity? Normalised tower head mass
Similar technology
Concensus not achieved
Tower head mass
normalised to 52m
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GE 3.6 MW turbine – typical configuration
Enercon turbine – direct drive
Winwind – a hybrid
The jury is still out!
Permanent magnets?
Superconductors?
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Turbine and BoP supply
Development Construction
Turbine supply
BoP Installation
Who’s who in the wind industry
Construction
• High demand• Both turbine and BoP• High cost• Increased supply will reduce costs
•Key components•New large suppliers•Volume•Technology
Scope for cost reduction?
Time scale?
3 Years
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Operations and maintenance
Operations
Operations & Maintenance
Who’s who in the wind industry
• Neglected area• No global supplier• Present costs optimistic?
Scope for cost reduction?
Time scale?
X
- Years
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Power purchase and incentives
Operations
Power Purchase
Who’s who in the wind industry
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Characterisation of incentives – Annual MW
0
500
1000
1500
2000
2500
3000
3500
19801982198419861988199019921994199619982000200220042006
Spain
USA
Germany
UK
Mad!
Highly political
Political cum
commercial
Renewable obligation effective!
Competitive market -
Hopeless!
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Characterisation of incentives – Annual MW
0
500
1000
1500
2000
2500
3000
3500
19801982198419861988199019921994199619982000200220042006
Spain
USA
Germany
UK
The philosophy of the incentive does not m
atter
If it is consistent and produces adequate returns
It will w
ork!
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Power purchase and incentives
Operations
Power Purchase
Who’s who in the wind industry
• Not a cost• Area of substantial change• Manifestation of political will• Long term PPAs reduce price • Move to merchant?• Tradable credits
Scope for cost reduction?
Time scale?
X
- Years
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Project model
Equity Financing
Who’s who in the wind industry
• Plenty of equity• Is it the “right sort”?• Speculative or utility?
Scope for cost reduction?
Time scale?
3 Years
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Project model
Debt Financing
Who’s who in the wind industry
• Fast evolution• Area of substantial change• Individual project to portfolio• Capital markets• Re-finance to keep client• Plenty of competition
Scope for cost reduction?
Time scale?
0 Years
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Summary
Development Construction Operations
Turbine supply
BoP Installation
Operations & Maintenance
Power Purchase
Site Selection and Design
Equity Financing
Bank Financing
Who’s who in the wind industry
But what about time scale?
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Cost index
90
92
94
96
98
100
102
104
106
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(or guess!)
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The myth of intermittency is a cost!
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Example of portfolio forecasting…
• Results for a portfolio of 7 wind farms.• Portfolio capacity 250 MW• Max wind farm separation ~ 800 km
24 hoursahead
Aggregation through the grid!
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Explosion of a myth
• Wind is variable
• Wind is predictable
• Intermittency is binary – on or off
• Conventionals are intermittent
• Renewables are not
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The grid is the key!
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Ridicule
+ Security of supply+ Least cost
Environmental
Animosity
Co-operation
3 st
ages
of
win
d e
ne
rgy’
s r
ela
tio
ns
hip
wit
h t
he
TS
O’s
3 main arguments for wind energy
Wind energy’s path to respectability
1980
2003
2005
2012?Transmission system operator
Respectability trajectory!
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Thank you!