Abstract
Overview
Introduction
Proliferation of climate policies are instigating long-term wind strategies
split between domestically-focused wind generators and firms applying global
strategies to tap major growth opportunities. In the current context of
soaring turbine prices, supply bottlenecks and record wind farm valuations,
carefully crafted entry strategies are key to growing profitable and
competitive wind portfolios
Scope
- Data concerning power generation costs for the five major renewable
technologies and an awareness of associated subsidy systems across key markets
- Knowledge of the key factors governing wind power economics applied to
generation costs and based on realistic onshore/offshore development costs
- Detailed insight into the cost, profitability and economic competitiveness
of the three main onshore/offshore wind power market entry strategies
- A case study assessing the likely relative profitability of different
onshore/offshore wind power market entry strategies in the UK and Germany
Report Highlights
Today, wind is more competitive against fossil fuel than ever, despite higher
turbine prices. The biggest price reduction of renewable technologies and
learning curves are found in markets operating feed-in tariffs. This support
system has delivered the most wind capacity, whereas quota and certificate
mechanisms have largely underperformed
Wind power projects are front-loaded and capital intensive, therefore hardware
prices and financing standards and structures have a high degree of influence
on the economics of wind farming. Wind power generation costs are also highly
dependent on wind conditions, turbine load factor characteristics as well as
operation and maintenance costs
Onshore wind is profitable, provided that the four key parameters are
optimized, with appropriate support mechanisms in place. Offshore wind, on the
other hand, is a more high-risk high-reward business. Under the current market
conditions, the most competitive portfolio is generally one that builds
offshore but buys existing onshore wind capacity
Reasons to Purchase
- Understand how technical, financial, regulatory and legislative factors
will impact the economics of your existing and/or future wind projects
- Evaluate the upsides and drawbacks, profitability profiles, and economic
competitiveness of the main onshore/offshore wind market entry models
- Formulate and apply successful strategies to solidify existing portfolios
and expand into new global markets to unlock further competitive advantages
Table of Contents
- DATAMONITOR VIEW
- ANALYSIS
- The biggest price reduction of renewable technologies and learning curves
are generated in markets operating feed-in tariffs
- Wind is more competitive with fossil fuel than ever despite higher
turbine prices pushing up the cost of wind generation
- Feed-in tariffs have delivered the most wind capacity whereas
quota and certificate mechanisms have under performed
- The pioneering work of successful feed-in systems has shaped the recent
record growth in European installed wind capacity
- Wind power generation costs depend on key financial
and technology-specific factors
- Wind power economics depend largely on four key sets of parameters
- Wind farm projects, both new build and M&A, are front-loaded and
capital intensive
- Wind power generation economics are highly dependent on wind conditions
and turbine load factor characteristics
- The cost of capital, reflected in the discount or interest rate, has a
high degree of influence on wind turbine development costs
- Project lifetimes coupled with discount rate have a significant
influence over the annual costs of wind power generation
- O&M costs vary widely and can be uncertain, yet they represent a
significant part of a turbine' s annual levelized generation cost
- The most competitive portfolio is one that builds offshore but buys
existing onshore wind capacity
- In a market characterized by price increases and turbine scarcity,
growing portfolios successfully calls for diligent entry strategies
- Developing wind farms is gradually becoming a high risk high reward
business
- Onshore wind is profitable provided the four key parameters are
optimized, with appropriate support mechanisms in place
- On paper, offshore wind is high margin, however present concerns have
injected high risk into offshore wind prospects
- Acquiring onshore wind can deliver more value for money than new build
development, but not at any cost
- The high premium paid for the acquisition of offshore wind farms often
makes the overall investment less attractive than new build
- Despite recent escalating wind power generation prices,wind power has
never been more competitive against thermal power
- A case study of UK and German wind power markets reveals that the subsidy
price alone is not sufficient to drive market entry strategies
- The UK quota and certificate mechanism does not optimize wind
investment structures, nor does planning permission limitations
- Planning permission difficulties and a generous support scheme makes
buying existing UK onshore wind more appealing than ever
- UK offshore wind development costs have soared over the past few years,
making the economics of such projects marginal at best
- In Germany, proposed amendments to the Renewable Energy Sources Act
(EEG) will drive further innovation and investment
- APPENDIX
- Definitions
- Ask the analyst
- Datamonitor consulting
- Disclaimer
- List of Tables
- Table 1: The three main entry strategies differ in many ways
- List of Figures
- Figure 1: Large scale wind is the most commercially mature renewable
technology
- Figure 2: Feed-in tariffs have delivered rapid growth in installed wind
capacity in Germany and Spain
- Figure 3: The vast majority of EU Member States operate feed-in mechanisms
- Figure 4: Average realized wind power prices vary widely across the EU27
Member States
- Figure 5: A recent study of 13 wind turbines shows that capital costs of
wind energy projects are dominated by the cost of the actual wind turbines
- Figure 6: Of the four main factors governing wind power economics, the
most influential parameters are load factors and investment costs
- Figure 7: A doubling of the discount factor from 5% to 10% increases the
annual levelized capex costs (i.e. costs before O&M)by roughly 50%
- Figure 8: The project lifetime that is most attractive varies with the
underlying financing terms and the required annual rate of return
- Figure 9: Typical offshore O&M costs represent 25%-40% of the total
generation costs, whereas onshore typically accounts for 10%-30%
- Figure 10: Utilities can access three main types of entry strategies to
scale their wind portfolios globally
- Figure 11: At $1m/MW, onshore wind power generation can be a high margin
business
- Figure 12: The additional cost of building offshore is rarely offset by
the higher wind speeds and power generation potentials
- Figure 13: Acquisition delivers more value than new build for prices paid
up to $2.35m/MW compared to the most expensive development scenario
- Figure 14: The hefty investment premiums paid for offshore wind typically
fail to offset the time it would take offshore wind turbines to come online
- Figure 15: As primary energy costs soar, the attraction of wind power as
an generation technology with no fuel price risk has never been greater
- Figure 16: Revenues from UK wind energy combine wholesale market price,
ROC purchase price and tax incentives
- Figure 17: At £1m/MW, buying existing onshore wind in the UK is very
profitable and more appealing than new build development.
- Figure 18: Offshore wind can however be profitable provided costs are
kept low and difficulties in obtaining planning permission are overcome
- Figure 19: The German government has proposed a reform of the EEG which
provides for increased feed-in tariffs
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