Wind gets cheaper

by Bryan Walker on October 3, 2012

Writing in the latest newsletter from the NZ Wind Energy Association CEO Eric Pyle rebuts the idea expressed by some market analysts that because there is significant excess of electricity generation capacity in NZ and demand is flat there is no need to build new generation. He tackles them on economic ground and it’s interesting that he claims new wind generation is justified in purely market terms, without invoking its environmental benefits.

Markets should encourage innovation and drive least-cost solutions. In the electricity sector this means lower cost generation is used instead of higher cost generation. This happens on an hourly basis in New Zealand’s electricity market. This does mean there will be excess capacity as more expensive generation is replaced over time by lower cost generation.

Here’s the market logic for wind generation:

If wind is genuinely the most cost-effective form of new generation and has a lower cost of energy than some existing generation, then wind generation will be built. The more expensive generation will be used less and less until it is retired. In this light, the excess capacity is a shift to the most cost-effective generation at the time and a product of a well-functioning market.

And some interesting figures on what is happening to the costs of wind generation, confirming the role of improvements in technology in driving down costs (as we can expect to be the case in all forms of renewable energy):

Analysis of 2010 data by Deloitte indicates that wind is being developed for as low as $78/MWh in NZ, which is competitive with the costs of other forms of generation. The general view in the wind industry is that costs have reduced since that analysis was completed, and will continue to do so as turbine technology continues to improve.

Some very interesting analysis from the US National Renewable Energy Laboratory and the International Renewable Energy Agency (IRENA) highlights that the cost of energy (expressed as dollars per megawatt-hours) from wind turbines is falling, and more notably so when the cost of raw materials, such as steel, is levelised. The key point from the analysis is that the amount of energy able to be produced is increasing for any given site as a result of improvements in technology.

The impact of improving technology is positive for the bottom line of wind farm developers – the cost of energy is reducing, all other factors being equal. For example, wind turbine manufacturer Gamesa has publicly stated that it expects the cost of energy from wind turbines to reduce 30% over the next three years as a consequence of improvements.

He concludes with the possibility that we may be seeing renewable energy winning out over fossil fuel-powered sources in purely market terms:

Rather than a problematic excess of capacity, perhaps we are seeing the electricity market working coupled with fundamental changes to the costs of generation. New wind farms are one sign of this, signals that the coal units at Huntly will be phased out are another sign.

We must move quickly and substantially to renewable energy if we are to have any hope of mitigating dangerous climate change. For anyone who understands what the science is telling us, that is the primary imperative. The imperative would be unchanged even if renewable energy was more expensive than energy from the burning of fossil fuels. But there are many signs that the trumpeted relative cheapness of fossil fuels is overstated and that once the technologies for renewable sources are developed and adequately employed they hold their own and more. The claimed cheapness of fossil fuels is in any case a mirage since the environmental costs of their use are externalised and left for others to meet. Increasingly it becomes apparent that a green economy can function quite as well as that which was based on fossil fuels and without the attendant dangers.

Here in New Zealand Ministers who can’t move beyond thinking for the foreseeable future of a transport system powered by oil and serviced by heavy expenditure on new roading, for example, need to be jolted out of their lethargy. In a time of transition yesterday’s orthodoxies mean today’s missed opportunities. The success of wind may prove a paradigm for many new avenues to an economy which functions without continually adding to atmospheric CO2 levels.

{ 31 comments… read them below or add one }

andyS October 3, 2012 at 2:07 pm

So let me get this straight. There is no demand for extra generation capacity in NZ.
You keep bleating on about reducing consumption, steady state economy, etc etc, but yet you want to litter the countryside with turbines that we don’t need, turbines that will use a substantial amount of fossil fuels to manufacture and install, and that always cost more overall than the spot price of electricity that they generate (i.e they make a loss for the owners)

Very compelling argument, yes.

samv October 3, 2012 at 5:30 pm

It was a compelling argument, you just had to not completely and utterly misread it.

And then argue a ridiculous strawman that a market which has a demand met by supply is somehow saturated, with no room remaining for disruptive innovators to compete.

The owners make a loss? Just who are these angel investors who throw millions of dollars at windfarms which are not profitable?

It’s a strange, strange alternate reality that your comments are written from.

andyS October 3, 2012 at 5:44 pm

If you actually bother to read the Deloittes report that the article cites, you will see that wind in NZ is a very marginal investment.

That was my main takeaway from this report, yet somehow the NZ Wind Assoc seems to put a gloss on it.

Why do investors invest in wind in NZ?

That is a very good question since all the big money is elsewhere like the UK with its generous ROC subsidies

Presumably, they are hedging on fossil fuel prices rising and wind prices reducing.

Unfortunately for these guys, the shale gas revolution has knocked this for six (it is also hurting traditional Oil and Gas investment too)

Ask T Boone Pickens. He got stung on his wind portfolio and has now moved into shale gas instead

Beaker October 3, 2012 at 10:34 pm

“Why do investors invest in wind in NZ?”
Perhaps because they are not the sort of twits who regurgitate again pointless claptrap like “…turbines that will use a substantial amount of fossil fuels to manufacture and install…” and who have a better grasp of economics than this little gem, “Presumably, they are hedging on fossil fuel prices rising and wind prices reducing.” I may be missing something so please explain andyS how an existing wind farm benefits from the subsequent further reduction in wind power installation?
As for the big money going after the UK ROC, offshore yes, and that is what the incentive is designed to do. For onshore, lots of the overseas investors are giving up on the UK having realised how long it takes and how craven the planning decisions can be to lies from NIMBYs (house prices, health, dont work, inefficient, desecrating the countryside, tax payers money, foreigners etc) not least when such nonsense appears to be looked upon favorably by the Chancellor (Billy no mates desperate to curry favour with the intellectually challenged block on the back bench).

samv October 4, 2012 at 4:07 am

Astounding work, andyS; you contradict yourself in but two comments. First you say that they “always … make a loss” and then in the very next reply you say wind is a very marginal investment. Did you change your mind, or is your mind simply capable of a cognitive dissonance normally only reserved for radio talkshow hosts?

What is your purpose in writing comments here? To make it look like the articles on hot topic have serious opposition? To try to draw out the worst kind of insults in response in a kind of reverse psychology, to the detriment of the site and the community?

Note: rhetorical questions—I refuse to be trolled.

andyS October 4, 2012 at 10:25 am

I was basing my statement on loss on the comparison on the long run marginal cost figure quoted in the article and comparing that with the spot price that I observe on em6live.com. Unfortunately, raw and aggregated data is not available to the general public on this site

By eyeballing this, I find it difficult to see how wind can make money on current prices.

The “marginal investment” statement I made by my reading of the Deloittes report which basically says that it will take about 15 years or more to break even on a wind investment in NZ, which is getting close to the lifetime of the plant (20 years?).

Presumably, as I have said before, people are hedging on wind price coming down and fossil fuels going up, which would make wind a more attractive proposition
However, the price of natural gas is plummeting world wide, which puts these assumptions into question.

I hope this clarifies my apparently contradictory statements.

samv October 4, 2012 at 12:37 pm

It does. Thanks for engaging constructively!

If a wind farm is being developed at $78/MWh, at peak times this can be less than the spot rate visible on EM6; just looking at the data it’s showing for today. Which makes it “competitive”.

However, I think it’s mostly an apples with oranges comparison. On page 24 of the Deloitte’s report there is a graph which directly compares the figures with equivalent figures for other means of generation. Wind still wins on that graph.

Let’s look at the other figures in there: wind costs $2.0m-$3.2m per MW in capital costs (table on page 20). That means to break even you have to clear the operating costs of ~$10-22/MWh by about $11-18/MWh on average assuming that the wind farm operates for 20 years. Also figures which look “competitive” versus that market price.

But probably not “upsetting”; as the report notes on page 19:

[hedging with retail sales] is a key reason why wind
plant has almost exclusively been developed as part of a
larger portfolio of plant.

So basically, when the spot rate is very low the energy companies don’t actually lose money; they still sell the power to their retail customers, just for a lower margin.

Mr February October 3, 2012 at 2:56 pm

Andy,
Thats just not up to the high standard set by your two-word troll comment…I think you have “peaked”.

tom October 3, 2012 at 4:06 pm

“Cheaper” is fair news for renewabble wind power generation.

Storage, however, and foreseeably futurish, is better.

Pete Dearman in the UK has come up with a utility-seeking solution. Currently 70% efficient in conversions to-and-from changed states of air.

The promise sprung a company Highview Power Storage, the Institute of Mechanical Enfineers falling in behind.

Take a search if you can, else our new weekly feature – belt of bullets – offers a little follow-up. hope my moniker is still clickable.

John ONeill October 3, 2012 at 6:07 pm

- The Highview website claims about 50% efficiency for their storage process, but that this can be increased further with the addition of waste heat, presumable from fossil fuels.
Greenpeace Energy is now marketing gas in Germany. Hydrogen is produced using surplus wind power, and added to the natural gas pipelines up to 5, or possibly 10%. Not sure what round trip efficiency they’re claiming, I’d heard about 60% elsewhere.
With 50% of our power from hydro, and no feed-in tarrifs or renewables obligations or mandatory purchase requirements to encourage more wind capacity than hydro can balance, New Zealand shouldn’t need either technology. Nearly halving the amount of power that went into storage, plus the capital and running costs of the storage, you’d hope the power going in was really cheap.

Doug October 4, 2012 at 8:57 am

Not sure what is the status of this project is at present but Ralph Sims at Massey PN oversees a DG scheme on some farms in the Wairarapa. It combines micro hydro, PV, and wind. The Proven wind turbine is located some distance from the farm houses and they concluded that running a line was too expensive, but running a small diameter pipe with H2, even with the leakage was more cost effective. Last I heard they were setting up an electrolyser at the turbine and a small generator near the farm houses.

The project is both practical and experimental. The farmers get cheap power that supplements their very temperamental local network and the grad students in Ralph’s course hands on experience and a chance to try things.

Kiwiiano October 4, 2012 at 10:15 pm

I would have thought the Wairarapa would have been ripe for pumped hydro storage. It would have needed some biggish tanks/reservoirs higher up the hills but it’s proven technology. I guess it depends on the efficiency and EROEI of pumps and turbines v’s batteries or such.

Another possibility under investigation is liquifying air and storing it in giant Dewar flasks for generation during windless* periods. Again, efficiencies are the rub.

(* do they get windless periods in the Wairarapa?)

andyS October 5, 2012 at 8:21 am

Why do we need pumped storage in NZ? Is there any economic case for this at all?
If you want to flood valleys, why not just make a normal hydro scheme?

Kiwiiano October 5, 2012 at 9:18 am

Farm-scale (or groups of farms) don’t need to flood valleys, which is what you do to store energy for months rather than hours or days. They’re only having to cover windless periods.
Solar PV is coming up fast too. I saw a comment this week that an (albeit frugal) family of 4 can manage on US4500 of panels. Unfortunately, it’s going to take a while before Jo Average acknowledges the word ‘frugal’. “Jeez! You mean I can’t have an SUV to drive the kids to school? And you expect me to put a jersey on in the middle of winter? Waddaya mean, I shouldn’t have that holiday in Europe?”

andyS October 5, 2012 at 10:02 am

OK, sorry I was misreading your comment as PS for larger scale wind operations

That notwithstanding, I think the economics of a small scale wind plus PS system would be prohibitive.

I have seen hydro micro generation, for example at Mt Aspiring there is a small shed over a creek that provided electricity to the grid.

The lake just down the road to me also supplies hydro power to Contact Energy.

My first port of call would be exploiting the water before the wind.

If a farm doesn’t have access to water then you have bigger issues

Kiwiiano October 5, 2012 at 11:33 am

AndyS: “My first port of call would be exploiting the water before the wind.”
Undoubtedly, water has much more mass than wind and if supplies are reliable, even quite small streams can keep a household well supplied. So long as you don’t let the local council or iwi know you are diverting water from a natural stream, even if you are returning it 100m downstream.

“If a farm doesn’t have access to water then you have bigger issues.”
The amount needed for backup pumped storage isn’t all that great. It can be pumped from the lower tank to the upper tank and recycled indefinitely. It’s all a matter of management. We’ve got too lazy over the last 100 years, expect to be able to just flick a switch or turn an ignition key and have seemingly infinite amounts of power. It’s not a natural state and it is certainly not going to last forever.

Doug October 5, 2012 at 8:59 am

Everywhere even NZ has windless periods that is the reason for the multiple power sources. The problem in the Wairarapa and many other parts of NZ is a long stringy distribution system that costs over $25,000 km to install and lots to maintain. At the moment the urban areas are cross subsidising the remote areas (less than in the past but it is still happening). The networks would love to either full cost recovery or let it go. Both options are political dynamite. That is why DG is most likely to first be developed for end of line applications.

Energy storage is expensive but I suspect for DG projects this will over the next decade or so become less of concern. Not because of any breakthroughs in tech but due to changing economics. The came changer is the EV battery. Batteries in EVs are no longer useful once the charge capacity drops to below 80% of original. So if you have a 24 kWh battery end of vehicular life it still has around 19 kWh of storage capacity remaining. I see this second use market as an emerging area for development and a game changer for DG. Also DG utilisation is a lots less onerous on the battery than vehicular use so there should last.

Everyone still tends to think of big projects because of the economies of scale but this is 20th century thinking the future is dispersed small projects locally owned and operated.

Kiwiiano October 5, 2012 at 12:51 pm

Just did some checking with a mate who had a bach up in the Marlborough Sounds. He had a 1kW Pelton wheel alternator that ran off a stream that he could step over. About 30m of head delivering around about 20L/min to the wheel, give or take a fortnight. 1kW doesn’t sound much but he ran frig-freezer, washing machine, TV, lighting and some hot water off that. The Pelton wheel ran at 80% maximum output 24/7 with some simple electronic smarts that diverted power from the hot water cylinder to the rest of the house as the load rose and fell. It did take some management but no rocket science. Space heating and cooking was provided by a wood-burning stove.
Some back of a fag packet calculations suggests that you would need about 30cum of pumped storage for each windless day on that minimal setup, a tank 4m diameter x 3m deep would be ample.
You’re right, Andy, in that a good supply of water is much better than having to store pumped water against a big lazy anticyclone drifting slowly across the country, but that may not be much of a problem for areas like the Wairarapa where they are more likely to lose generation days to high winds than to windless days. Like tomorrow.

Macro October 5, 2012 at 8:41 pm

I recall my dad installing a pelton wheel to drive a generator in the Marlborough Sounds in the early 1950’s. Especially the dynamiting of the rock above the waterfall :). There was no reticulated power in those days. It worked wonderfully.

John ONeill October 5, 2012 at 8:04 pm

Most people don’t live in holiday baches or on farms, they live in cities; wandering out the back for a bit of firewood to cook dinner or heat the house is not an option. And electricity supply in future will not be dominated by backyard supply. In Germany, photovoltaics have got the lion’s share of renewable subsidies, but wind has produced more power, and the bigger the turbine, the better. According to ‘ Windpower Monthly’, total world installed wind power in 2012 has had an average capacity factor of only 20%. In New Zealand it’s more like 40%, which implies some other installations have returns almost as bad as German PV. To increase power output, older turbines are being pulled down long before their planned lifetime and replaced by units with greater diameter, and new windfarms are moving out into the North Sea. The largest designs will have turbine tips over 160 metres above sea level – high enough to base jump off – and produce at maximum ten megawatts. These are hoped to have capacity factors approaching fifty percent. A hundred and fifty of them could power a city the size of Auckland – half the time. Since most cities Auckland’s size don’t have much hydro power available, backup would most likely be gas. A gas turbine is rather smaller, about the size of the one you see out your plane window, since it’s based on the same technology, but one can put out ten or twenty times as much power as the wind colossus, and on demand. There are nuclear technologies that could do the same without spraying fumes out the tail end ; one was the integral fast reactor, which Clinton cancelled while in the White House, and China should have another, their 200MW pebble bed reactor, in production in about a year.
As for solar, some German companies are working on plans to build huge plants in Morocco and pipe the power north. This is about equivalent to New Zealand building a cable to Australia. Concentrated Solar Thermal with molten salt heat storage is proposed, although this has so far been much more costly to install than photovoltaic.
Bill Clinton recently opined (in Time magazine ) that European countries pushing ahead with their renewables commitments – he cited Germany, Denmark and Sweden – have not faced the economic turmoil experienced elsewhere. In fact, Spain has 75% more wind capacity installed, for the size of its economy, than Germany has. Portugal has forty percent more than Denmark. And Sweden, which has lower CO2 emissions than any of them, gets nearly all of its power from nuclear and hydro.

Kiwiiano October 5, 2012 at 8:54 pm

“Most people don’t live in holiday baches or on farms, they live in cities; wandering out the back for a bit of firewood to cook dinner or heat the house is not an option. And electricity supply in future will not be dominated by backyard supply.”
Undoubtedly true, John, but I still feel we have to do a LOT more cutting back on expectations before we are overtaken by collapsing systems, depleted resources, etc. Look around your city house at all the things that we don’t really need. Ovens that waste huge amounts of power (you still can’t buy a benchtop oven that is fully insulated. They prefer to put a warning HOT label on it instead.) Lights on everywhere with lighting levels unheard of until the late 20th century, appliances on standby everywhere, very poorly designed & insulated houses, motor vehicles 10x more powerful than needed, products that are a waste of resources, cities sprawling all over the place demanding much larger quantities of tarmac, copper, water pipe, concrete, than needed, dumpsters of wasted food, the list goes on and on.
What’s so sad is sometime in the not too distant future the wheels are going to come off all of this. Hopefully we’ve anticipated it and rejigged society to cope.

Kiwiiano October 5, 2012 at 9:08 pm

Whoa, heads up guys, an interesting posting over at Climate Crocks just came up. Seems like Germany’s renewables are doing very well. Coal fired down 10% since 1990 while total output up 10%. Mostly due to renewables.
PV is OK too, not bad for a country at about the same latitude as the Auckland Islands.

See http://climatecrocks.com/2012/10/05/a-success-unimagined/

On the subject of PV, did you see the comment that Utilities in the US, panicked by the increase of PV are trying to ram legislation through that will require householders to sell ALL of their generated power to them at the wholesale rate so they can sell it back at the premium rates? Only in Amerika.

John ONeill October 5, 2012 at 10:27 pm

Actually, according to this table
http://www.guardian.co.uk/news/datablog/2011/jan/31/world-carbon-dioxide-emissions-country-data-co2#data
Portugal does have very low CO2 per capita emissions, though I think they’ve gone up a lot this year – drought, and cheap coal. The country with lowest equal emissions is Afghanistan, which could help explain why Afghans are prepared to shoot at the world’s best equipped army, or try crossing oceans on ramshackle boats.

Bob Bingham October 6, 2012 at 1:44 pm

We should be generating as much renewable electricity as we possibly can and converting our transport to use it. We can then export all our oil and earn money from it. The price is climbing steadily and we can do better buy exporting it.
Oil prices in particular are very vol.atile and go up suddenly, cripeling economies overnight. It takes years to put in Hydro, wind and geothermal and we should be ahead of the game.

jh October 8, 2012 at 10:08 pm

interesting program on Prime tonight (English history and archeology) referring to changes in the weather at the end of the 13thcentury and later the black death. Is similar to the weather we are having now (cold winters and wet summers) but as a matter of natural variation. Not saying though that climate scientists are taken in by that.
http://geochemistry.usask.ca/bill/Courses/Climate/The%20Great%20Famine_prt.pdf

andyS October 8, 2012 at 10:18 pm

Fascinating.
And the relevance of this to wind power economics is?

jh October 8, 2012 at 10:51 pm

Yes sorry I should have posted it somewhere else. I couldn’t see where to put it but i thought people might find it interesting.

John ONeill October 10, 2012 at 10:35 pm

This is an interesting study (Gareth Kear 2011 ) on using pumped hydro or other types of large scale storage, in association with wind power and excess hydro spillage, to avoid the need for more gas or coal powered peaking and reserve generation in New Zealand.
http://researcharchive.vuw.ac.nz/bitstream/handle/10063/1716/thesis.pdf?sequence=1
He includes a look at various types of battery storage, plus the proposed pumped hydro plant between the Clutha and Lake Onslow ( 12,000 GW/hrs storage but 3 billion dollars cost, and would take ten years to fill it! ) There is also an anonymised survey of a number of experts on the subject, from within and outside the industry. Most thought that increased storage was not likely to prevent the need for new thermal generation to be built, however he covers a number of different scenarios- no new gas developments, higher carbon prices, etc.

Kiwiiano October 11, 2012 at 3:18 pm

Surely there’s no need to fill the upper lake, just to have enough storage to tide you over the worst-case windless periods.

Pumped storage is the big attraction for tidal flow generation. For e.g. there’s reputedly the equivalent of 30-40 Waitaki power schemes sloshing thru Cook Strait 4 times a day with slack water between each pulse. But with that sort of capacity, a lot of power could be devoted to pumping water into dams that are too high up the hill for grapevines in either Marlborough or Wairarapa.

John ONeill October 11, 2012 at 9:52 pm

The Lake Onslow scheme was intended to be big enough to get the country through a dry hydro year. 12,000 GW/hr would give Auckland baseload for a year and a half with no input. It would be topped up from the Clutha in spring, when snowmelt was overflowing all the hydro lakes and making more power than could be used. There would probably be two or three dry years during the filling process to slow it down. The cost, evaporation, Forest and Bird and the local farmers all were against it. For smaller schemes, you’d need a top and a bottom lake, close together but with good vertical separation. If you use the sea for the bottom reservoir, all your gear has to be salt resistant and you get salt leaching round the top one. Some of the schemes proposed have been on volcanic islands,as they’re steep and you can sometimes use an empty crater at the top. Easier to just build ordinary hydro; you don’t need to buy power for it, you can still balance wind, and the requirements are much simpler. But project Aqua and the four potential projects on the Clutha have all been canceled.

Kiwiiano October 11, 2012 at 10:21 pm

” Easier to just build ordinary hydro; you don’t need to buy power for it, you can still balance wind, and the requirements are much simpler. But project Aqua and the four potential projects on the Clutha have all been canceled”

You’re right, John. KISS. Ah, well, we’ll just have to wait until fossil fuel gets REALLY expensive and they’re screaming for more electricity to maintain their profligate lifestyles. Hopefully we won’t have screwed the planet by then. Hopefully we haven’t screwed the planet already.

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