Sunday, 10 December 2017

Why wind power costs are crashing and soon could plunge well below wholesale electricity prices

Wind power costs are plunging and it might not take too long before they get down to £40 per MWh, well below recent UK wholesale power prices which have been at £45 per MWh in recent times.

Offshore wind power costs have seen the sharpest decline, although falling prices for onshore wind should also be evident in the UK if only the UK Government were offering long term power purchase agreements (PPAs) for them as well as offshore windfarms. Anti-renewable commentators are still quoting costs for onshore wind power (£70-£80 per MWh) that are grossly out of date, relying on nothing more than than the fact that the Government have not offered any PPAs for them recently.

Recent offshore wind farm auctions in the UK, Germany, Denmark and The Netherlands have seen prices plunge to below £60 per MWh and predictions are being made that prices will carry on falling.  But why is this happening? This is a question that befuddles some anti-renewable energy think tanks and spokesperson who seem to think that some of the world's leading corporations are spoofing us all. But there's no spoof - it's happening.

But how can this be, given that until recently offshore windfarms have sometimes been costing £100 per MWh or more?

There are six reasons for this that I can see.

First, advancements in computer modelling techniques have led to better designs of wind turbine blades that can capture more energy whilst weighing much less than previously. This has allowed wind turbines to be built that are much bigger and thus whose blades can take in a much larger swept area without substantially increasing the cost of the materials involved.

Second, digital control over wind turbines also increases the amount of energy converted into electricity.

Together this means that, for example, a turbine can be built that produces twice as much as designs of machines previously installed whilst only modestly increasing the weight of materials involved. This on its own cuts the total costs by almost a half.

Third, the benefits of installing a much smaller number of turbines can be utilised because, for example,  there needs to be only half as much expense per output needed to install a machine that produces 2x MWh a year as opposed to installing 2 machines which each generate x MWh a year.

Fourth, fabrication and construction techniques for building the windfarms have been dramatically improved. For example, whereas it would previously have taken several weeks to install and commission a wind turbine in the sea (once the monopile or jacket has been emplaced), now it can be done in a single day. This saves very large sums of money in terms of hiring vessels alone.

Fifth, considerable reduction in 'supply chain' costs have been achieved. For example. wind turbine manufacturing companies in the past have out-sourced manufacturing of gearboxes, but now they are done 'in house'. The large production lines and very large sizes of offshore windfarms has made this more practical.

Sixth, the fact that some big multinational corporations are now seeing renewable energy as the central, rather than peripheral, aspect of their power generation business has meant that they will use their cheapest in-house financing means to support them. When it comes to the cost of servicing debts, guarantees made by the biggest companies will slash financial costs.

The most recent UK auctions saw PPAs issued at £57.50 per MWh for the Hornsea 2 and Moray Firth windfarms. But it has been suggested from inside the industry that the costs of such developments have already fallen to around £50 per MWh and that a further reduction of around 20 per cent is already on the cards.

Much concern has been expressed over the fact that it was said in the recent Budget statement that there would be no new money for renewable energy until 2025. Whilst this is very bad news for developing technologies such as tidal stream, this will not matter at all if wind power can be delivered for no more than the wholesale power price.

Of course this shouldn't be a signal for people to say the Government doesn't need to do anything to promote wind power anymore. That is because without long term guarantees of minimum levels of income industry will not build the projects. They are capital intensive meaning that investors need to know that they will get their money back, and for that they need income stability. In addition the UK is now running short of new windfarm sites simply because The Crown Estates have not issued any new licenses since 2009. Now The Crown Estates are poised to start as new round of licensing.

A further problem is a political one in that the Government has on its books a large capacity of almost undeliverable nuclear power projects on its hands which makes it look like (on paper) that the Government is meeting is non-fossil fuel construction targets, but in fact is not. Even if Hinkley C is built for example, it will soak up very large sums of money for a very long period of time that could be much more usefully deployed to support developing renewable energy technologies that do ha ve a chance of seeing their costs reduced.



https://www.bloomberg.com/news/articles/2017-09-11/u-k-offshore-wind-costs-fall-to-record-in-latest-auction
http://ieefa.org/ieefa-europe-offshore-wind-costs-maintain-falling-trend/

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