According to the World Wind Energy Association’s (WWEA) latest forecast for the year 2009, “a double digit growth for the wind energy market is expected despite the general economic crisis”. In the depths of the recession, in the first quarter of 2009, newly installed wind capacity reached 5,374 MW, an increase of 23% compared with last year.
The first quarter growth resulted from projects initiated before the financial crisis; however the wind association projects that a new record will be set for the whole of this year, with over 30,000 MW of newly installed capacity, a 25% increase compared to 2008. This will push total worldwide installed capacity to 152,000 MW by the end of 2009, up from 14,500 MW in 2000. We give a country by country breakdown of the leading wind regions later in this article.*[Why not here?]
A Harvard University study estimated that wind energy could cover our current global electricity demands 40 times over, or five times the total global energy use (that is, electricity plus transportation and other energy uses).
Considering that the total amount of potentially viable wind power exceeds the current human power needs from all sources, you can start to see why existing power companies are eager to find sites on which to install wind turbines. For now, to give you an idea of how much growth the wind sector may see in the coming decades, the world generates globally only 0.2% of total energy needs from wind power.
Investing in Wind Power
There are several ways to invest in wind power: one path involves the wind turbine manufacturers while a second way is the companies developing wind farms. Another approach is to look at the companies that are working toward improved technologies.
Wind Turbine Manufacturers
When it comes to wind turbine manufacturers, the leading companies are all large, well established public and private companies, with multi-billion dollar annual revenues.
These companies include:
publicly listed Danish Vestas Wind Systems A/S (VWS) (No. 1 worldwide with a 23% market share);
American GE Wind with a 19% market share and a division of General Electric (GE) the world’s largest company;
Madrid-listed Spanish Gamesa Corporación Tecnológica S.A. (GAM) with a 12% market share;
Fourth-place private German company Enercon, with its 10% market share;
Asia’s largest wind manufacturer, the BSE (Bombay Stock Exchange)-listed Indian company Suzlon Energy Limited (SUZLON), is No. 5 worldwide and holds 9% of the global market.
After No. 6 Siemens Wind (like GE, a division of a huge industrial and consumer services company), you will find the first Chinese company, privately owned Sinovel with its 5% global market share. As the first Chinese company to produce multi megawatt size wind turbines, it continues to maintain its leading position by also being the manufacturer of the largest Chinese-built wind turbine, with a 3 MW machine.
Although the projected growth rates for worldwide wind energy are encouraging, that is unlikely to have much of an impact to those manufacturers that are divisions of much larger companies. The companies for which wind turbines are a major component may see substantial growth, but these are well-researched, mature companies.
GreenTech Opportunities will remain focused on relatively undiscovered companies that promise new approaches and technologies that provide the basis for rapid growth in value. Later in this newsletter, we will introduce a very promising company with a technology enhancement that can improve the annual electricity generation rates of large wind turbines by up to 10%.
Wind farm developers
Another path open to investors in the wind sector is the wind farm developers. These encompass single-turbine renewable energy co-ops, to privately owned developers that aim to build small multi-megawatt wind farms in the 10-30 MW range (many examples exist in Germany) to large, publicly listed developers aiming for wind farms in the plus 50 MW range. These are the companies that scope out their chosen regions around the world and find suitable sites for wind energy development, with projects ranging from 50 MW up to 800 MW per wind farm (and even larger in the future). In 2007, the average installed North American wind farm had a capacity of 120 MW.
At the most basic level, many investors would consider wind power to be a low risk investment as the costs are fixed to the extent of the lifetime of the wind turbine. In other words, once the wind turbines have been paid for and installed, fuel costs are nil, and operation and maintenance costs are marginal compared to the overall investment.
Wind Farm overview
Introduced briefly last month, wind farms are simply a grouping of wind turbines in one location used to generate electricity. The number of wind turbines can range from under ten to several hundred, and a single wind farm may cover up to 100,000 acres (roughly 7 times the land area of Manhattan). The land used for wind farms remains available for agricultural or other purposes.
Within the wind farm, the turbines are interconnected through a medium voltage (e.g. 34.5 Kv) network and a communications system, with a substation then connecting the wind farm to a high voltage (e.g. 138 or 210 Kv) transmission grid.
The US was the site of the world’s first large wind farms during the early 1980s, with Altamont Pass Wind Farm in Central California being well known. With nearly 5000 wind turbines and 620 MW of installed nominal wind power capacity, it remains, to this day, one of the world’s largest wind farms. To compare, the current largest wind farm, located in Roscoe, Texas, consists of 627 wind turbines (manufactured by Mitsubishi, GE and Siemens) and has an installed capacity of 781.5 MW.
Today, thanks to huge wind farm development gains in 2007 and 2008, the US has regained its lead as the country with the most installed wind power capacity. The US currently produces enough electricity from wind power to serve 5.5 million average households.
Location
Wind power has become the fastest growing energy source around the world, particularly in the US and China, with the US installing the most wind power capacity in 2008. The US bypassed Germany for the worldwide lead in total installed capacity (see graph below). More than 50% of the wind turbine sales were achieved through USA and China in 2008.
Total installed wind capacity 2008
Source: Global Wind Energy Council: Global Wind 2008 Report
In Europe, a total of 8,484 MW wind power capacity was installed in 2008, putting wind energy ahead of any other power technology for the first time in terms of annual power installations. Wind power accounted for 36% of all new electricity producing capacity installed in the EU in 2008, followed by natural gas (6,932 MW - 29%), oil (2,495 MW - 10%), coal (762 MW - 3%) and hydro (473 MW - 2%).
Internationally, 76 countries are now using wind energy commercially. This includes two newcomers from Asia, Pakistan and Mongolia, which have installed larger grid-connected wind turbines.
Total new wind capacity 2008
Source: Global Wind Energy Council: Global Wind 2008 Report
It is also expected that the future focus of the wind sector will move from the previously dominant Europe, to Asia and North America. Europe has decreased its share in total installed capacity from 65.5 % in 2006 to 61 % in the year 2007 and further decreased it to 54.6 % in 2008 as new wind development in other areas outpaces Europe.
US Wind Production and Future Potential
Worldwide, the US became the new number one last year in terms of added and total capacity, breaking two world records. The US political and legal framework has proven attractive to investors in manufacturing facilities and further work by the Obama administration is expected to bring in even more investors and increasing growth in wind farm projects.
The leading US states in terms of current total installed capacity are Texas (with 8,500 MW), Iowa (3,000 MW) and California (2,800 MW). In terms of potential wind power development, North Dakota leads, with nearly 140,000 MW of potential capacity, with Texas in second place at 136,000 MW.
Wind Power and its advantages for the US Economy
Developing and promoting the wind power industry in the US could provide several advantages for the country. On top of substantial job creation (the German wind industry today employs 100,000 people) and providing local economies with other sources of income, wind power is a clean source of producing new electricity production for a growing economy.
There are no hidden, or external, costs, such as with fossil fuel power plants. For example air pollution is estimated to be responsible for 50,000 premature deaths in the US alone, some of which can be attributed to coal powered electricity generation. Other external costs of fossil fuel plants include mountain-top removal mining of coal in the Appalachians (leading to the elimination of rivers and contamination of watersheds), and increased health care costs for workers in the industry. In addition, the fuel source, wind, is free and immune to inflation once a power facility is in operation. That is definitely not the case for fossil fuels, as seen in the rapid price increases in coal and oil over the last few years.
Wind power also holds the promise of revitalising rural communities and economies, as it can provide steady income to farmers and other landowners through lease or royalty payments. A single utility-scale turbine can bring in between $3000 and $5000 per year for a landowner, even as it allows him/her to continue growing crops or raise cattle on the land. In West Texas, farmers are welcoming wind turbines, as the lease payments replace declining payments from oil wells that have been depleted. Finally, wind power is a decentralised power source (rather than the heavily centralized Giga-watt power plants of the traditional energy industry), meaning that local wind farms can expand the local tax base, keeping income streams in the local community rather than on remote coal, gas and nuclear power plants.
Wind turbine manufacturing and wind farm construction costs
On average, wind turbine prices account for some 70 percent to 80 percent of total installation costs. In 2008, supply bottlenecks and increasing materials prices (for steel and concrete) led to a steady increase in turbine prices, which peaked at $1.66 million /MW for contracts signed in 2008 for delivery in 2009. This changed in 2009, when oversupply in the global wind market meant that prices for contracts signed in late 2008 and 2009 for delivery in the first half of 2010 fell by 18 percent, to $1.36 million /MW.
Construction costs, typically 20% of the total installation costs, can vary widely, depending on a location’s geography and proximity to the grid. The easiest and cheapest option is usually flat farmland with a basic road infrastructure and transmission lines within a few kilometres of the wind farm. Hilly, remote land can add substantially to the final project’s costs, such as the 135 MW Pine Tree Wind Farm recently built in the Sierra Nevada Mountains and owned by the Los Angeles Department of Water and Power. However, the site’s exceptional wind resources helped to cover the increased construction costs. That is a common trade-off: the higher construction costs of hilly terrain versus the improved generating capacity. (Yes, these sorts of situations frequently arise and form a large part of a wind farm project developer’s work)
The importance of average wind speeds
As seen with Pine Tree Wind Farm, a location’s average wind speed plays a huge role in a project’s final profitability. It is important to note that the power available from the wind is a function of the cube of the wind speed. Therefore, if the wind blows at twice the speed, its energy content will increase eight fold. In practice, turbines at a site where the wind speed averages eight metres per second will produce around 80% more electricity than those where the average wind speed is six metres per second.
Cost of wind power in the US
The cost of electricity from utility scale wind systems has dropped by over 80% in the last 20 years. In 1980 it cost 30 cents per kilowatt-hour but state of the art power plants in good wind locations are able to generate electricity for less than 5 cents ($) per kWh with the help of the production tax credit (PTC) in the U.S. This PTC was first introduced in 1992, at a rate of 1.5 cents ($) per kWh. This inflation-adjusted rate has expired five times since then, only to be renewed after a certain delay each time. It equalled 1.8 cents ($) per kWh in 2004. As you can see below, this minimal tax credit only became interesting to wind farm developers in the US around the year 2000, as wind turbine costs came within reach of profitability.
As the figure below shows, a simple comparison of the recent wind prices to recent wholesale power prices throughout the United States demonstrates that wind power prices have been competitive with wholesale power market prices over the past few years. The red dots show the cumulative capacity-weighted-average price received by wind projects in each year with commercial operation dates of 1998 through 2007. At least on a cumulative basis, average wind power prices have consistently been at or below the low end of the wholesale power price range.
US DOE: Annual Report on US Wind Power Installation, Cost and Performance Trends 2007
Cost of wind power in Germany
In Germany, onshore wind farms are paid a minimum of 5.02 cents (€) per kWh (roughly 8 cents US) over a period of 20 years, with exceptional wind farms (150% performance over the reference yield) being rewarded with an extra 4.2 cents (€) per kWh (ca. 6.5 cents US) for the first 5 years of the project in order to incentivize the development of better wind locations. On the flip-side, wind farms that achieve less than 60% of the reference yield lose the guaranteed minimum tariff. With the knowledge that these tariffs are guaranteed over a 20 year period, wind farm planners in Germany can provide banks and investors with more certainty in regards to future returns.
Wind farm differences between Europe and the USA
There is one key difference between wind farm developers in the USA and those working in Europe: turbine size. While Europe has been happy to use larger, more powerful turbines (3 MW and above), the USA have remained loyal to smaller wind turbines, with the average being 1.8 MW, and developers only now considering the 2.5 MW class. GE’s 1.5 MW turbine was responsible for 45% of the 11,147 MW of wind power installed in the USA in 2008. The main reasons for this have to do with different economic models, varying approaches to development and geography.
US-based wind farm developers prise turbines that have been proven and tested, and investors favour turbines with long track records and those that they are familiar with. GE has also been able to profit from the weak dollar, since foreign-produced turbines have been made more expensive.
In terms of geography, the US also has the advantage of wide-open spaces, something Europe does not possess. A 700 MW wind farm with 400 turbines doesn’t pose the same issues in the US that it would in Europe (where a 700 MW wind farm would probably mean about 200 turbines). Reducing the amount of wind turbines also lessens any potential problems with the environmental planning process.
Despite these differences, analysts are forecasting that larger, more powerful wind turbines will begin to make inroads into the US market by early 2011.
The future costs of wind power
The future cost of electricity from wind turbines is expected by Stanford University researchers Mark Z. Jacobson and Mark A. Delucchi to reach a base of 4 cents ($) per kWh by 2020 (in 2007 dollars). This is a total annualized cost, which includes cost of capital, land, operations, maintenance, energy storage to help offset intermittent supply, and transmission. Comparing this number with the DOE’s graph on the previous page, one can conclude that this number is within easy reach.
While the latest figures regarding the cost of power generation in the US show that coal power still holds a slim advantage over wind (see below), it is important to keep in mind that the cost of fossil fuel power will change if cap and trade legislation comes into force in the US next year. With a functioning cap and trade market taking into account the carbon emissions of various power sources, coal’s position as the cheapest energy source will face severe tests in the coming decade.
Coal mining costs will also escalate in the future as coal deposits become deeper, more remote, lower grade and generally lower quality as the better deposits are depleted.
Natural gas costs are low at the moment, but that will not last, as gas fields close to power plants are depleted and supplies must be piped in from more remote fields (such as Alaska’s North Slope) and an increasing amount of gas comes from deep, tight formations.
Even without these legislative changes, the US Department of Energy is forecasting that by 2015 the cost of new coal-based generating power will equal $5.31 cents per kWh, new natural gas generating power will equal $ 5.25 cents per kWh, nuclear will stand at $ 5.93 cents per kWh and wind will be at $ 5.58 cents per kWh. Wind power is clearly very close to reaching full competitive parity with fossil fuel based power. As we come ever closer to this point, more jurisdictions around the world are considering the addition of wind power to their electricity grids. One of these, the western Canadian province of British Columbia, is the focus of the next portion of our overview.
