Monday, November 26, 2012

Some Cool Things About Wind Energy in November 2012



NY State just had its latest and (technically) largest wind farm commence operations (Nov 4). The 210 MW Marble River wind farm (pictured), located near the Canadian border in the northeastern part of the state in Clinton County has been years in the making, and most of this time was occupied with compiling the Environmental Impact Statement (EIS). The project features 112 meter rotor diameters and 94 meter tall towers. Along with a couple other northeast US projects (Vermont and New Hampshire), this is one of the few places in the US to use these bigger, taller and new model units.


Location of the latest NY wind farm

Since the project was initiated, the selected turbine changed from a 2.1 MW Suzlon unit to the Vestas V112 x 3 MW, which are now among the largest wind turbines in North America (still pretty small by European Standards). The project size has stayed pretty constant at ~ 200 MW, and this is likely due to the capacity of the electric transmission lines out of that area. There are already four wind farms operating in this area (Franklin and Clinton Counties) - Altona (97.5 MW), Chateaugay (106.5 MW), Clinton (100.5 MW) and Ellensburg (81 MW). The combined 384.5 MW are all owned by Nobel Environmental Power (a "derivative" of JP Morgan Chase - see http://www.masshightech.com/stories/2009/06/01/daily52-Wind-developer-Noble-Environmental-Power-withdraws-IPO.html) and these all use GE 1.5 MW sle turbines (80 meter tall towers, 77 meter rotor diameters) - these have been operating since 2008 or 2009. With the completion of the Marble River project, almost 600 MW of wind sourced electricity could be produced and exported towards NY City from this sparsely populated part of NY State.

By going with the larger turbines, the project owner (Horizon Wind, a subsidiary of EDPr Renewables, one of Portugal's biggest companies) could drop the number of installation sites from 100 to 70. This was very helpful because of the swampy terrain of this area, and as a result 30 fewer foundations/roads/sections of underground power lines were needed. At the top of the blade circle, the tip of the turbine would be 150 meters (492 feet) above the ground. With the higher hub height, these new V112 units should be able to produce about 11% more electricity from winds present at 94 meters versus the winds present at 80 meters above the ground. The estimated output is predicted to average 64.7 MW, or almost 31% of the capacity of the array (from NYSERDA: "2012-rps-report.pdf"). each turbine would average 925 kw, though the output at any specific time would vary with the wind speed...

Because of the strange way that wind turbines get financed in the USA, the owners of these projects need to have considerable "tax appetite". In return for investing in environmentally and economically sensible activities, the project owners are allowed to avoid paying Federal Income taxes within defined limits. In NY State, the Renewable Portfolio Standard will pay out $22.01/MW-hr for 10 years, or close to $125 million over a 10 year period. The Investment Tax Credit (ITC) and the MACRS rapid depreciation allowance would be worth around $320 million in avoided taxes (5.6 c/kw-hr for 10 years) for this project, and there is always the interest deduction on any borrowed money which adds to avoidable taxes …..

In some of its financial summaries (for example, http://bo.edprenovaveis.pt/upload/Site_1/Files/EDPR9M2012HandoutEN.pdf), EDPr listed the "merchant rates" for electricity in the US as between 2 to 3 c/kw-hr (it would be near 3 c/kwhr for NY State based on the initial 10 months of 2012). This project probably cost around $500 million, and a return of around $50 million/yr to pay this off would be considered pretty pathetic by most US corporate standards (15% is "normal", and 20% is considered "OK" by pharmaceutical standards). By this 10% level and an estimated wind farm output of 567,326 MW-hr/yr, the required price needed to bring in $50 million/yr in revenue would be around $88.13/MW-yr . Obviously, if the grid (NYISO Zone D, or North) is only paying $30/MW-hr, this is a financial hoser par excellence unless some means of making up the $58/MW-hr is arranged).

A modern wind turbines (and the V112 is one of those) would be expected to have "O&M" costs of around 1 c/kw-hr ($10/MW-hr), and this would also be added on to the $88/MW-hr, resulting in a need for a "real price" needed of close to $98/MW-hr. For the initial 10 years, here is the breakdown on things:

Merchant Price            $30/MW-hr
NYSERDA RPS          $22/MW-hr
MACRS (10 yr basis) $34/MW-hr
PTC/ITC                     $22/MW-hr

This adds up to $108/MW-hr, which is a simple profit of $10/MW-hr, but only for 10 years. After 10 years, there is only the merchant price for revenue ($30/MW-hr), which, after the O&M cost, only leaves $20/MW-hr to the owners. Potentially, this is a profit of $11million/year on an asset of $500 million, or a 2.2% simple Return on Assets ……  The entire debt on this project needs to be repaid in the initial 10 years, as the revenue after the subsidies go away are not going to be able to make much of a dent in any project debt…..

Because of the expiration of the PTC/ITC incentives, there is unlikely to be any new wind farms for NY State until the end of the RPS (2016). This means that NY's wind turbine capacity will stay at around 1617 MW, with an average output of 400 MW, not the intended 1138 MW of the initial RPS goal ("25% x 2015") or the ~2100 MW for the "30% x 2015" enhanced RPS goal. In fact, the RPS incentives, while better than nothing, won't even get to 20% of the "enhanced" goal, or 35% of the initial RPS goal.

To date, a bit more than 1000 of the V112 units have been sold. These represent a new class of commercial scale wind turbines - ones with a rotor diameter greater than 100 meters and tower heights greater than 80 meters - at least for the US. In Europe, the next generation of low, moderate and high speed (= offshore) turbines is already being deployed. For the Low Wind Speed Turbines, tower heights of 120 to 150 meters  and rotor diameters greater than 120 meters are being sold and deployed. Perhaps when the PTC incentive reappears and the next wave of turbines gets installed, there will be more of the likes of 100 plus diameter rotors on taller towers tapping faster winds than those present at 80 meters. Larger sized generators and higher net yields, all in an attempt to keep energy generation costs as low as possible. There is still no way that wind turbines can generate electricity for 3 c/kw-hr, but those using natural gas to make electricity can no longer do that, either, since prices for that fossil fuel have almost doubled in the last 6 months. And until natural gas prices have reached the marginal price needed to make tracking a generally profitable venture (around $10/MBtu), looks like that trend will continue for a while. And at that price for gas, wind turbines are lower cost than gas, even if no subsidies bare present at all. But that's not now, and it may take a year or two before that happens, and even if it does, given the roller-coaster pricing history of gas in the recent past, prices could rapidly drop (if only for just a bit), once again trashing the viability of wind turbines without either a long term power purchase agreement, or better yet, a Feed-In Tariff pricing system. Of course, stable prices for electricity means that the money cost for wind turbine projects can drop, and who but those with a mean spirit would object to that….

Picture Credits:
Top:
http://www.northcountrypublicradio.org/news/story/20913/20121120/expiring-tax-credits-blow-ill-wind
Map: http://en.wikipedia.org/wiki/Clinton,_Clinton_County,_New_York

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