some thoughts on the cost of wind energy andrew garrad garrad hassan and partners

Job number/BT/ serial number/ page number 008 BA003 1

Some thoughts on the cost of wind energy

Andrew GarradGarrad Hassan and Partners

Cost effectiveness of wind energy

EWEC Milan May 2007


Economics

• Cost• Price• Value ?


Cost drivers

• Politics• Engineering• Competition• Volume• Reliability • Grid integration• Financing

Wind speed!


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


Project model

Development Construction Operations

Turbine supply

BoP Installation

Operations & Maintenance

Power Purchase

Site Selection and Design

Equity Financing

Debt Financing



Project development

Development



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


Turbine and BoP supply

Development Construction

Turbine supply

BoP Installation


Construction


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?


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


The growth of commercial machines….

1980 1990 2000

Will it continue?

15m20m

40m50m

124m

History of wind

Bigger &

big

gerBetter & better

“Commodity machines”


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


GE 3.6 MW turbine – typical configuration

Enercon turbine – direct drive

Winwind – a hybrid

The jury is still out!

Permanent magnets?

Superconductors?


Turbine and BoP supply

Development Construction

Turbine supply

BoP Installation


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


Operations and maintenance

Operations



• Neglected area• No global supplier• Present costs optimistic?


Time scale?

X

- Years


Power purchase and incentives

Operations

Power Purchase



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!


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!


Power purchase and incentives

Operations

Power Purchase


• Not a cost• Area of substantial change• Manifestation of political will• Long term PPAs reduce price • Move to merchant?• Tradable credits


Time scale?

X

- Years


Project model

Equity Financing


• Plenty of equity• Is it the “right sort”?• Speculative or utility?


Time scale?

3 Years


Project model

Debt Financing


• Fast evolution• Area of substantial change• Individual project to portfolio• Capital markets• Re-finance to keep client• Plenty of competition


Time scale?

0 Years


Summary

Development Construction Operations

Turbine supply

BoP Installation


Power Purchase


Equity Financing

Bank Financing


But what about time scale?


Cost index

90

92

94

96

98

100

102

104

106

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

(or guess!)


The myth of intermittency is a cost!


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!


Explosion of a myth

• Wind is variable

• Wind is predictable

• Intermittency is binary – on or off

• Conventionals are intermittent

• Renewables are not


The grid is the key!


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!


Thank you!

some thoughts on the cost of wind energy andrew garrad garrad hassan and partners

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