Memorandum 2
Submission from David Milborrow, Independent
Consultant
BACKGROUND AND
SYNOPSIS
1. The author has been studying renewable
energy issues for 30 years and has been an independent consultant
for the past 15 years, working on technical and economic issues
for clients in both public and private sector, at home and abroad.
Particular specialities are wind energy and the integration of
variable sources, such as wind, into electricity networks. I have
no permanent affiliations, but act as technical adviser to the
British Wind Energy Association and to the Journal Windpower
Monthly. The submission is, however, my own.
2. This submission is mainly concerned with
addressing the Committee's request for information on "feasibility,
costs, timescales and progress in commercialising renewable technologies
as well as their reliability and associated carbon footprints".
As there is a very wide range of views on wind costs (onshore
and offshore) at present, it examines these and compares UK costs
with those recorded in Europe and America. It also comments on
reliability and availability statistics and looks at projections
for future costs. A summary of work on "carbon footprints"—for
wind, PV, hydro and nuclear—is also included.
WIND ENERGY:
HISTORY AND
KEY ISSUES
3. World wind energy capacity has doubled
every three years since 1990 and there is now (mid-2007) about
80 GW installed, worldwide. Until around 2001, each doubling was
accompanied by a 10-15% reduction in the price of wind turbines.
The price of wind-generated electricity fell more rapidly, as
there were also improvements in energy productivity. The continuous
decline in prices halted around 2001, partly due to substantial
increases in commodity prices, partly to a shortage of wind turbines.
4. To estimate wind-generated electricity
prices, it is necessary to examine the prices of wind turbines
and of wind farms, the energy productivity, operation and maintenance
costs and financing assumptions. Energy production depends on
the site wind speed and has a crucial effect on energy prices.
Each of these factors is examined in turn.
ONSHORE: WIND
TURBINE AND
WIND FARM
PRICES
5. The most reliable current figures for
wind turbines come from two of the major European wind turbine
manufacturers, who quote almost identical average sales prices
of £614/kW for 2006. This is close to the figure (£594/kW)
quoted in a recent American analysis (Wiser and Bolinger, 2007).
6. The total installed cost of a wind farm
includes "Balance of plant" costs, such as the cost
of foundations, transport and internal electrical connections.
These add between 15 and 30% to the cost of the wind turbines,
and there are wide variations that depend on the difficulties
of construction and the size of the project. In addition, the
cost of the grid connection can often add a substantial sum to
the project cost. A Carbon Trust (2006) report suggests these
additional costs add up to about £260/kW. Adding 10% to this
figure (to account for recent price increases) and then adding
it to the 2006 wind turbine price quoted in the previous paragraph
suggests wind farm costs may be around £900/kW. This is consistent
with one of the supporting documents to the 2007 Energy White
Paper. (Redpoint, 2007)
7. The author maintains a database of wind
turbine projects, worldwide, thatforms the basis of an analysis
of electricity generation costs, published each year in the Journal
"Windpower Monthly". In 2004 the average onshore project
cost was £667/kW, in 2005 it was £816/kW, and in 2006
it was very similar. The average price for 1650 MW of plant completed
so far in 2007 is £880/kW, close to the figure suggested
in the previous paragraph, although the average price of 700 MW
of UK projects is a fraction under £1,000/kW (Power UK, 2007).
As with wind turbine prices, there is some uncertainty, as completed
contract prices often include the cost of the first three to five
years of operation and maintenance.
8. American wind farm costs appear to be
lower than European costs. The average installed cost in 2006
was around £760/kW, although the American report notes that
proposed projects now average around £850/kW.
OPERATIONAL COSTS
10. Operational costs have also fallen steadily
over the years, partly due to increases of turbine size, partly
due to experience. A detailed breakdown of UK costs comes from
the Scottish Energy Environment Foundation (SEEF) (2005). The
data are summarised in table 1 and add up to £50/kW/yr. Transmission
charges, however, vary across the country and are often not included
in generation costs for other technologies, although they are,
of course, a real charge to the operator. If they are taken out
of the SEEF total and the land rent is converted to a £/kW
figure, the total is around £30/kW/yr. That agrees reasonably
well with data from Ofgem (2005)—£28/kW/yr. It should
be noted that projects in the South of England incur significantly
lower transmission charges.
Table 1
ONSHORE WIND OPERATION AND MAINTENANCE COSTS
All figures are in £/kW/yr, except where noted.
|
| Item | Cost, £/kW/yr
|
|
| Routine maintenance | 7.5
|
| Unscheduled maintenance | 2
|
| Electricity charges | 0.6
|
| Management fees | 5
|
| Transmission charges | 25
|
| Insurance | 4
|
| Non turbine expenses | 0.5
|
| Rates | 5.6
|
| Total | 50.2
|
| Land rent, % revenue | 5
|
|
11. The American analysis cited earlier suggests operation
and maintenance costs are in a range up to about £10/MWh.
That also corresponds to about £28/kW/yr, but the average
American figure is lower.
Electricity generation potential
12. The usual measure of electricity generation is the
"capacity factor". This is simply the ratio of the average
power during a year and the rated, or nameplate, capacity of the
wind farm. Capacity factors of UK wind farms vary between 0.15
and 0.50. The average is about 0.30, and most wind farms have
capacity factors between 0.24 and 0.36 (Milborrow, 2005), although
these will vary from year to year, as the energy content of the
wind varies.
GENERATION COSTS
13. Two further parameters need to be established before
generation costs can be derived: the project test discount rate
and the capital recovery period. Although the analysis in the
2007 Energy White Paper uses a discount rate of 10%, that, in
the context of renewable energy, reflects policy risks associated
with the Renewables Obligation. As onshore wind is now an established
technology the "technology risk" is low and the Carbon
Trust (2006) suggested 7.75% as an appropriate discount rate.
The UK Energy Research Centre (2007) recently discussed the important
distinction between policy risks and technology risks. 20 years
is an appropriate project lifetime for "generic" generation
cost calculations, but costs have also been calculated for a 15-year
life, as this length of contract is quite common in the UK and
elsewhere.
14. Broadly speaking, wind farms with the highest capital
costs are likely to be in remote areas—but with high wind
speeds. This is logical. If the lowest-cost plant is linked with
low output, and vice versa, the range of generation costs for
UK conditions ranges from £45.5/MWh to £58.3/MWh, as
shown in table 2. Generation
Table 2
ESTIMATES OF CURRENT ONSHORE GENERATION COSTS FOR THE
UK, EXCLUDING TRANSMISSION
|
| Installed cost, £/kW | Capacity factor
| Generation cost,
£/MWh, 20-year life
| Generation cost,
£/MWh, 15-year life
|
|
| 900 | 24 |
58.3 | £65.0
|
| 1,000 | 30
| 50.4 | £56.4
|
| 1,100 | 36
| 45.5 | £51.0
|
|
15. Transmission costs can add up to around £6/MWh
to these figures, but vary across the country, and also depend
on whether plant is connected to the transmission or distribution
network.
16. The central estimate of £56/MWh for a 15-year
contract is consistent with a "value analysis" quoted
by the Carbon Trust (2006). They suggest that suppliers pass 70%
of the value of Renewables Obligation Certificates (currently
about £45/MWh), plus 80% of electricity prices (currently
about £30/MWh) to developers.
17. The prices derived in table 2 can be compared with
the prices paid for wind energy around the world. Wiser and Bolinger
(2007) suggest that, in the absence of the American "Production
Tax Credit", wind power prices for 2006 projects would range
from approximately £25/MWh to £43/MWh. Other tariffs
pay high prices for a few years, and then the price drops (Milborrow,
2007); making allowances for this, average tariffs vary between
about £40/MWh (Ireland) to £56/MWh (Spain), although
it must be emphasised that tariffs are adjusted frequently.
18. Other costs: when an electricity network is operated
with wind, extra balancing costs are incurred, to deal with the
additional uncertainty in forecasting the supply/demand balance.
Numerous studies have shown that these additional costs are small—around
£2/MWh of wind, when it contributes 10% of the electricity
supply. As the wind energy proportion increases, additional costs
are incurred for additional backup and for extra transmission
costs. To deal with these issues, an estimate of the "total
extra costs" for the GB network in 2020 with 20% wind, was
derived, compared with an all-gas system (Dale et al, 2004).
The estimate of additional costs—£3/MWh across all
consumers—applied to a particular set of assumptions about
gas price and the installed costs of onshore and offshore wind
in 2020. Since that time the estimate of gas prices has virtually
doubled and wind plant costs have also increased. These changes
tend to cancel each other out. If the analysis is re-worked with
a gas price of 40p/therm, a carbon price of £15/tCO2 and
an onshore wind installed cost of £750/kW; the final answer
is very similar.
OFFSHORE GENERATION
COSTS
19. Although there is some over uncertainty over offshore
costs, responses to a recent consultation (DTI, 2006) suggested
that the current range of installed costs is around £1,300-1,500/kW.
The upper end of this range is used to derive current generation
costs in Table 3, below, which also includes estimates for 2020,
discussed in paragraph 25.
Table 3
ESTIMATES OF OFFSHORE GENERATION COSTS
|
| Item | Value, 2007
| Source | Value, 2020
| Source |
|
| Installed cost | £1,500/kW
| DTI (2006) | £1,200/kW
| ODE (2007)—75% of £1,600
|
| O&M | £15/MWh
| DTI (2006) | £10/MWh
| Danish Energy Authority |
| Capacity factor | 0.35
| DTI (2006) | 0.35
| |
| Discount rate | 12%
| DTI (2006) | 8%
| Assumes no technology risk
|
| Generation cost | £84.5
| Derived | £51.5/MWh
| Derived |
|
20. European tariffs: Germany and Greece both
pay around £60/MWh for offshore wind and France pays around
£88/MWh—but only for the first 10 years. After that,
the payment depends on the capacity factor of the installation.
RELIABILITY
21. Onshore: Analysis of data from German wind
farms and wind turbines shows that the availability of many types
of machine is in the range 96-99%. Data from Germany and from
Denmark reveals that numerous machines that are at least 15 years
old are still achieving satisfactory levels of electricity production.
22. Offshore: Despite early problems, reports
submitted to DTI showed that North Hoyle wind farm achieved a
capacity factor of 36% (budget 37%) between July 2004 and June
2005. Scroby Sands achieved a capacity factor of 29% in 2005,
a year when its availability was 84% against a target of 95%.
If the latter figure had been achieved, it may be inferred that
the capacity factor might have been around 33%. The wind farm
at Nysted in Denmark, completed in 2003, has realised a capacity
factor close to 40% over the last two years, which suggests that
target electricity production estimates can be realised.
FUTURE COST
TRENDS
23. As noted earlier, the steady downward trend in wind
energy costs halted around 2001-02. There were two contributory
factors: increases in steel, copper and other commodity prices
and a worldwide shortage of wind turbines. Although wind turbine
prices may be starting to level out, steel prices are still rising.
There is a reasonable consensus, however, that improved production
techniques, the use of larger machines and other factors will
continue to exert a downward pressure on prices. The extent of
this downward pressure depends on perceptions of market growth
and the "learning curve" effect (usually expressed as
the price reduction per doubling of capacity)
24. There are numerous projections of market growth.
A review by Molly (2006) suggested the "mid range" growth
was two doublings of capacity by 2014. Historically, installed
costs have fallen by 10-15% per doubling of capacity (Uyterlinde
et al, 2007), which suggests they may fall by 20%, at least,
by 2014. If an onshore installed cost of £800/kW is realised
in the UK by 2014 (roughly equal to the 2006 American average)
that would suggest generation costs might be about £42/MWh,
even if operation and maintenance costs barely changed.
25. There is a wide range of cost estimates for offshore
wind in 2020 in the literature. Installed cost estimates range
from around £1000/kW (Uyterlinde et al, 2007) to £1,500/kW
(Ernst and Young, 2007). However, there is more potential for
cost reduction, particularly with the moves toward much larger
wind farms. A recent analysis of costs by ODE (2007) suggested
that installed costs offshore in 2020 may be about 75-80% of the
2006 level, which is put at £1,600/kW. That may be a cautious
estimate, as the study did not look at very large wind farms,
and is used in Table 3. If the offshore market is thriving by
2020, with 2000 MW per year being installed in Germany alone (Molly,
2006), it is likely that the "technology risk" premium
will disappear, so generation costs could fall to around £52/MWh,
as shown in Table 3. If offshore wind does not "take off"
prices will be higher.
CARBON DIOXIDE
EMISSIONS IN
G/KWH
26. The working definition of Carbon footprints, or life-cycle
emissions, used here is: "Emissions of carbon dioxide and
other pollutants resulting from the construction, operation and
decommissioning of wind plant (or solar, or hydro), per unit of
electricity generated by the facility during its lifetime".
27. Construction phase energy requirements for wind turbines
lie between 611 and 1,800 kWh/kW (references are in Table 4, below),
whilst a much more limited dataset for lifetime energy requirements
suggest these lie between 2,400 kWh/kW (for sub-megawatt machines)
and 1,437 kWh/kW for a 3 MW machine (Vestas, 2005)
28. The emissions corresponding to lifetime energy usage
depend on the type of energy used in the manufacturing, installation,
operation and decommissioning phases. A wind turbine manufacturer
in France, where the majority of the electricity production is
from nuclear sources, can reasonably claim that the emissions
associated with the electricity used are quite low, whereas a
manufacturer in America—where much of the electricity comes
from fossil fuels—may use higher estimates.
29. There is a measure of agreement between most of the
estimates listed in table 4. Almost all suggest that wind plant
emit between 7 and 20 gCO2 unit of electricity generated. Data
from the Vestas (2005) study has not been included, because Vestas
source a high proportion of their electricity from renewable sources
and so bring their figure down to 4.6 gCO2/kWh. This figure is
perfectly valid, but probably not comparable with most of the
other data. If Vestas wind turbines were manufactured using electricity
from a typical mix of European sources (coal, gas and nuclear)
the emissions would be about 15 gCO2/kWh. Offshore emissions are
similar to onshore wind emissions—more carbon dioxide is
generated during manufacture and installation, but this is offset
by higher energy productivity.
30. Table 4 shows that wind, hydro and nuclear have low
carbon footprints, while PV figures are higher. Gas and coal generate
significantly more emissions due, of course, to the combustion
of fossil fuels. Gas typically generates about 350-400gCO2 /kWh
and coal around 850-1,000g CO2 /kWh
Table 2
CARBON DIOXIDE EMISSIONS FROM RENEWABLE AND THERMAL SOURCES
OF ELECTRICITY GENERATION
|
| Reference | Wind
| PV | Hydro
| Nuclear |
|
| Wiese, A, Kaltschmitt, M, 1996. Comparison of wind energy technology with other electricity generation systems: a life cycle analysis. EU Wind Energy Conference, Goteborg
| 10-17 | |
| |
| White, S and Kulcinski, G, 1998. Net energy payback and CO2 emissions from wind-generated electricity in the Mid-West. University of Wisconsin
| 9-20 | |
| 17 |
| International Energy Agency, 1998. Benign Energy? The environmental implications of renewables. OECD, Paris
| 7-9 | 98-167
| 9 | |
| The environmental implications of renewables in the UK, AEAT-2945, 1998
| 9 | 154-178
| 5 | |
| Serchuck, A, 2000. The environmental imperative for renewable energy. Renewable Energy Policy Project
| 7-74 | 60-410
| | 39 |
| International Energy Agency, 2003. Integrating energy and Environmental goals: Investment needs and Technology options
| 7 | 5
| 10 | 8
|
| Danish Energy Agency, 2004. Technology data for electricity and heat generating plants
| 16 | 146
| | |
|
REFERENCES
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cost estimates for large-scale wind scenarios in UK. Energy
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DTI, 2006. Regulation of offshore electricity transmission.
Government response to the joint consultation by DTI/Ofgem.
Ernst and Young, 2007. Impact of banding the Renewables
Obligation—costs of electricity production.
Milborrow, D, 2005. UK capacity factor analysis corrects
controversial figures. Windstats, 18, 4, 1-3.
Miborrow, D., 2007. "Back to being a model of stability".
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Molly, J, 2006. Wind energy market prognosis, 2010, 2014
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Economic Policy Associates Ltd and Climate Change Capital.
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sited wind power plants based on Vestas V90-3.0 MW turbines.
Wiser, R and Bolinger, M, 2007. Report on US wind power
installation, cost, and performance trends: 2006. Lawrence
Berkeley National Laboratory.
June 2007
|
