Costs of wind projects are not very transparent, but the industry insists that prices and investments are increasing along with the size of the global market.
The average price of a turbine is calculated by kilowatt of electricity produced. A turbine costs about $1,000 per kilowatt, according to the Danish Wind Industry Association.
Big investors are looking to smaller projects or groups of small projects bundled together. Previously, it was only projects that had already been approved or were under construction that received funding from large investors, but over the last two years projects in earlier stages have been getting more attention. When a small developer is trying to get a project going, siting can cost $500,000 to $600,000, and investment at an earlier stage is important.
Costs of offshore wind are much higher than onshore. The added costs come from the more difficult installation and still new status of the market.
Even more expensive than offshore wind installations would be a transmission grid for offshore. Officials couldn’t even offer estimates of what the costs would be, but they were optimistic that whatever the cost, funds would be found.
“Did we ask how much it cost when we build the roads?” Arthouros Zervos, president of the European Wind Energy Association, asked at the recent 2007 European Wind Energy Conference in Milan, Italy.
Grid connection costs for wind power are high because often the farms aren’t close to the grid, and connecting the intermittent supply can get expensive. The grid infrastructure must oftentimes be updated to be able to handle it, and there still needs to be a backup power supply.
Political will and growing attention to climate change have allowed politicians to create a new market in wind.
“Risky wind is now a business opportunity,” said Per Holmgaard, senior vice president of Dong Energy in Denmark.
Utilities are also buying into the market, creating large projects with more than 100 turbines. Utilities are, or will be soon, forced to provide a percentage of renewable power to their customers due to government-set mandates.
Mergers are also increasing the growth in the market. When turbine manufacturers merge with gearbox producers and investors merge with developers, the market sustains its strong growth, said David Jones, chief executive of Allianz Specialized Investments Renewable Energy Group in the United Kingdom.
“There’s too much capital and too few good projects,” Jones said.
The economically driven boom in the U.S. wind market has producers following their customers, the developers, to the United States, Jones said. With the financial reliability of regulations, having local producers makes sense. Profitability is skewed toward manufacturers, Jones said.
The price of individual components has increased over the past several years. Blades, turbines and gearboxes all cost more due to increased demand and the increased cost of steel. It’s also expensive to transport the parts because they are so large and the price of fuel for transport is increasingly costly and volatile.
The income of a wind project depends on the annual kilowatt-hour output, which is determined by annual wind speeds. A lot of time and money goes into pre-construction siting for areas that will have consistently high wind speeds.
There’s been an “asset grab” for attractive wind farms, said John Dunlop of HSH Nordbank AG in the United Kingdom. More than $15 billion was spent in the European Union and the United States in 2006 on wind power purchases with a 21 percent annual growth rate from 2005, Dunlop said, and there are billions of dollars worth of wind power for sale right now.
“Given the risk profile, wind should produce a benchmark return of about 12 percent,” Dunlop said.
The problem, Dunlop said, is that developers want the highest price for their project, but purchasers want to pay as little as possible. Financing and investment needs vary by project, depending on location and size. Dong Energy Renewables is established with a pipeline of more than 2,000 MW of offshore wind projects, requiring more than $5 billion in capital.
While the costs of the projects increase, the cost of electricity from utility-scale wind systems has dropped by more than 80 percent over the past 20 years, according to the American Wind Energy Association. In the 1980s wind-generated electricity cost as much as 30 cents per kilowatt-hour. It has since dropped to less than 5 cents per kilowatt-hour, and costs are continuing to decline.
By Kristyn Ecochard
UPI Energy Correspondent
18 May 2007
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