The True Cost of Wind Power

Wind power is often sold to us as the ‘cheapest’ option. With the current fossil fuel prices that may be the case, but is the quoted strike price of £40 per kWh really valid?

 

The wind turbine manufacturers appear to be struggling:

https://www.bloomberg.com/news/articles/2022-11-07/wind-giant-rues-promise-that-renewable-power-could-be-free

Manufacturers such as Vestas Wind Systems A/S are seeing losses pile up as orders collapse at a time when they should be capitalizing on the turmoil in natural-gas markets. To blame -- at least in part -- is the industry’s insistence that clean electricity can only get cheaper, according to Henrik Andersen, chief executive officer of the Danish wind giant.

Vestas expects its profit margin to be around -5% in 2022.

“The output from the turbine has never been more valuable,” Andersen said. “But we are losing money in manufacturing a turbine.” Vestas has raised prices more than 30% in the past year to help stem losses.

 

New installations no longer seem to be viable at the agreed prices:

https://newbedfordlight.org/major-massachusetts-offshore-wind-project-no-longer-viable/

A major offshore wind project in the Massachusetts pipeline “is no longer viable and would not be able to move forward” under the terms of contracts filed in May. Both developers behind the state’s next two offshore wind projects are asking state regulators to pause review of the contracts for one month amid price increases, supply shortages and interest rate hikes.

Utility executives working with assistance from the Baker administration last year chose Avangrid’s roughly 1,200-megawatt Commonwealth Wind project and a 400 MW project from Mayflower Wind in the third round of offshore wind procurement to continue the state’s pursuit of establishing cleaner offshore wind power. Contracts, or power purchase agreements (PPAs), for the projects were filed with the Department of Public Utilities in May.

 

I have previously looked at the viability of the Dogger Bank Wind Farm. This is all taken from the official Dogger Bank website:

doggerbank.com/.../

The project is designed in three similar phases but I will just look at one phase:

 

Installed capacity 1.2 GW

Expected annual output 6 TWh

Cost £3 Billion

Strike price £40 per MWh.

Expected Service life not mentioned.

Nameplate output 1.2 x 8760 GWh per year =  10 512 GWh per year = 10.5 TWh per year.

An expected annual output of 6 TWh gives a capacity factor of 57%. Is this realistic?

What will they earn at the strike  price?

6 TWh at £40 per MWh  = £240 Million per year.

Straight payback of £3 Billion in 12.5 years.

 

So with no costs for maintenance, no interest or dividends paid and a very optimistic capacity factor there is a 12.5 year payback on an asset with a 20-25 year lifespan (no one really knows). That is simply not a valid business model. A more realistic strike price is £80-100 per MWh which takes you into the NPP range.

How much of the low strike price has simply been gambling on higher electricity prices and then taking the market rate?

Does anyone have any more encouraging figures?

  • 12.5 year payback on an asset with a 20-25 year lifespan (no one really knows)

    I doubt that the entire system will need replacing after such a short time - certainly some bits may well - but I suspect much of the structures and infrastructure (e.g. sea bed cables) will be perfectly serviceable for much longer periods. Apparently many north sea oil rigs are still going strong after 40 years.

       - Andy.

  • Is this an indication that offshore wind isn't viable in general, or that someone made some over-optimistic cost predictions when bidding?

    I get the impression that there was a widespread assumption that economies of scale would make offshore wind ever cheaper as more of it was built.  But in reality, setting up big windmills in the middle of the sea is never going to be cheap.

  • I’m really not sure which is why I raised the point.

     If £40 per kWh is a true cost then there is some headroom to pay for storage or backup systems and it is a viable source of electricity.

    If £40 per kWh is a non-viable ‘Political’ strike price to be competitive with fossil fuels then there are going to be a lot of bankruptcies that will have to be bailed out by the taxpayer. With the current high energy prices there are probably ok although they are not looking forward to a ‘windfall’ tax.

    ‘Energy firms warn against extending windfall tax to renewables’

    https://www.bbc.com/news/business-61566083

    The Dogger Bank information suggests that if maintenance costs and interest on £3 Billon are taken into account £40 per kWh is not viable, especially with rising interest rates.

  • The point Roger is that it is certainly not viable. £40 per MWh (you keep saying kWh, which is probably where we shall end up at this rate!) comes with a huge assumption, and that unfortunately is that they will always be paid a lot more than this. The pricing model is very flawed indeed, and the idea that wind has precedence over any other source is clearly ridiculous. Look at the plan from an accountants viewpoint (not mine):

    Wind is given the principal source of electricity, other available sources are shut down due to cost and legal constraints and political pressure.

    Overall failure of the system and blackouts will be seen as "good" because they reinforce the idea that energy use is "bad".

    The economy begins to suffer big time, so much more (taxpayers) money is provided to make wind more profitable and expand.

    The price of electricity goes through the roof, and profits roll in very fast (as is happening this year due to high gas prices).

    The question is therefore "how can we prevent fossil fuels from filling the gap?". Simple. Government and opposition policy is both no fracking and no coal mining. The accountants have succeeded already due to, in my and many others with a scientific background, political lies, misinformation, censorship, and a completely compliant MSM. The UK future is indeed very bleak unless we can show the problem, which Engineers have predicted for many years, much more widely. Blackouts may do that to some extent, but will be blamed on something else entirely, perhaps Covid or Russian wars, but certainly not on useless energy policy.

  • The point Roger is that it is certainly not viable. £40 per MWh (you keep saying kWh, which is probably where we shall end up at this rate!) comes with a huge assumption, and that unfortunately is that they will always be paid a lot more than this.

    I don't  quite follow your thinking - under the 'Contract for Difference' scheme, as I understand it, the renewable producer receives the agreed fixed price per MWh regardless of what the open market price is at the time -  so if the market price is low, they effectively receive a subsidy - but when the market price is high (as it is at the moment) they still only get the agreed fixed price and the difference is returned to the LCCC and thence to the suppliers - effectively subsidising the end user in general.

       - Andy.

  • The important point Andy is that the "wind or solar" supplier has no contract to supply, and anyone else has no contract to take any power they wish to supply. The "game" of the market and pricing is largely political, the game rules being different for each type of supply. Would you play cards for money with rules like that, which electricity suppliers are forced to do? My wind contact is part of a Company which is currently making vast profits on windy days because there is a very limited other source of power. On calm days the power price rockets up because of shortage of fuel, and they make even more money for less electricity!

    We have been endlessly told that "renewables based power is cheap" but this has never been true. It is time that the wind and solar suppliers had to contract a power 24/7, and therefore pay for the backup equipment, batteries or whatever. This would immediately make the cost of renewables very clear, and probably stop investment dead.

  • The problem as I see it is in two parts

    First a technical one, revolving about how can we store energy for non windy days - and at the moment this is a hard problem, probably soluble, but only with a mix of over generation, demand management and things like pumped storage and electrolysis to hydrogen to mop up the surplus to store, but at the moment that is about as near a practical solution as the Wallace and Grommit lunar panels, a pipe dream. And no-one is investing big money in that,

    The second problem is political, 

    Most of the decision makers are not scientifically educated and are easily distracted by the fad of the day. This really needs cool heads, and of course publication of the current figures in a way that makes the actual efficiency and costs of various schemes that are running able to be sensibly compared. The cynic in me assumes it is no accident they are not. I cannot believe that it is really the best solution to bring wood to Drax from the US for example.

    to my mind actually for baseload, nuclear power can be made to work fine and could be a lot cheaper, but it would need a collectively  far more grown up approach to long term risk than insisting that radiation everywhere is always at a level below background, and long term, just  playing  pass the parcel with the fuel waste rather than re-processing it is just silly.

    Mike.

  • The problem is that there are two different discussions going on here.

    If you're a climate change denier then it's purely a matter of cost.

    If you're not then it's an ALARP discussion - given the hazardous option of using fossil fuels the less hazardous alternatives should (in fact in UK law must) be used unless it is grossly disproportionate to do so. There's then the ongoing legal debate of what "grossly disproportionate" means, with figures of 10x cost to 100x cost being discussed (so if the higher end is taken, then if wind power cost 100x more but significantly reduced the CO2 emissions then it should be considered for implementation). Of course it's actually FAR more complicated than that, because if energy becomes more expensive there are other hazards introduced by that itself (energy poverty). But whether renewables are cheaper than fossil fuels is not the issue given an unnacceptable alternative. (But of course how to make them cheaper than they are is a useful discussion.)

  • The important point Andy is that the "wind or solar" supplier has no contract to supply, and anyone else has no contract to take any power they wish to supply.

    If by that you mean the contracts have no fixed  'thou shalt supply a constant n MWh/day or whatever' then that's nothing peculiar to renewables - as far as I know that's just the same for traditional generators (and means they're not backed into a corner if they need to shutdown for routine maintenance, or breakdown, or industrial action by workers).  Given that demand isn't constant, nor (over contract timescales) predictable, it wouldn't be sensible to adopt such an approach. Instead balancing the grid has been done centrally, always choosing the "cheapest" supplier first (cheapest currently meaning considering environmental costs as well as financial). What is perhaps odd is that every supplier then gets paid the same price - that offered by the last one to switch on (i.e. the most "expensive") - so in general the customer doesn't directly benefit from the availability of the cheaper power.  The big gainers of late have been the fossil fuel companies (who costs to extract haven't risen anything like as fast as fuel prices) and (as I understand it) a minority of renewable generators who weren't on a fixed-price contract for differences and/or have been able to renegotiate their terms recently. I was under the impression that all the recent big off-shore windfarms have fixed strike price and a contract for difference.

       - Andy.