TOP CONTRIBUTORS

Matt H

Isaac Middendorf

Avinash Gandhi

Evolution of Wind Technology over the past 30 years (NREL)

Wind is the ultimate renewable resource. Wind is caused by differences in temperature and air pressure (due to the sun's heating of the Earth's surface). Air tends to flow from areas of higher pressure to areas of lower pressure... hence, generating wind. Wind started off, however, as a pipe dream, a solution for remote communities (i.e., off-the-grid), with expensive electricity costs. However, wind technology has evolved over the past thirty years, most notably increasing in scale (and rotor blade size) and enabling the construction of large-scale wind farms capable of truly competing with commercial power plants; because of this, the global wind market has grown at such a rate that it was worth $51.4 billion in 2008.^[1]

As of 2007 installed wind capacity amounted to less than 0.1% of total potential wind capacity around the world, however there has been steady growth in 2008 and the first quarter of 2009 in countries such as the U.S..^[3] In 2008 the U.S. market for small wind turbines (turbines with capacity of 100 kilowatts or less) grew by 78%. Installed capacity grew by 17.3 MW, while worldwide 38.7 MW was installed. U.S. market for small wind turbines was $77 million of the $156 million global market and U.S. manufacturers sold about half of all small turbines installed worldwide in 2008.^[4] Growth in the U.S. was attributed to a 30% tax credit passed by Congress in the beginning of 2008.^[5]

Also, in 2008 over 8,500 MW of wind capacity was installed in the U.S., which increased the country's capacity by 50% to 25,300 MW. This was enough to pass Germany for the country with the most installed wind capacity. Estimates of the benefits of this capacity are that it will avoid 44 million tons of carbon emissions and generate enough electricity to power over 7 million homes. Wind projects installed by the end of the year generated over 1.25% of the nations energy in 2008.^[5]

In 2009 U.S. installed wind capacity grew by 2,800 MW, which brought the total to 28,200 MW overall and another 3,400 MW are under construction and will be completed in the next year.^[6] In 2008 global wind capacity was 94.2GW.^[2]

Companies who stand to benefit

Turbines are the generators that turn wind energy into electricity. Just five manufacturers hold 80% of the market for turbines, and recent demand for new windmills has led to price spikes and shortages on the market,^[7] benefiting Vestas, GE, Enercon (unlisted), Gamesa, and Suzlon Energy Limited. The story of Suzlon is particularly interesting, as the India-based company has risen from out of nowhere to become one of the world's largest turbine manufacturers, competing effectively against the likes of General Electric.

FPL Group (FPL) and Xcel Energy (XEL) are two of the largest operators of wind power plants in the U.S., and should see increased demand for services as the wind industry grows.

Siemens AG (SI), owner of one of the largest gearbox manufacturing concerns, Winergy, represents another interesting play. Gearbox manufacturers are the closest wind energy analogies to the exploration and production companies in the oil & gas industries. With limited supply of their services and skills and very high demand, gearbox manufacturers control a valuable resource.

Trinity Industries (TRN) makes towers used for windmills. The company has specialized trucks to transport and install the massive structures. They are also based in Texas, the leading US state in wind power development and home of T. Boone Pickens, a wealthy and vocal proponent of renewable energies such as wind power.

Zoltek Companies (ZOLT) produces carbon fiber a variety of applications, but is biggest growth area is for the blades that drive wind turbines. Its customers include companies such as Gamesa and Vestas, the latter which contributed 33% of Zoltek's revenues in FY2007.

In July of 2009 a large boost was given to companies in China when the country announced that it would bring its total wind capacity up to 100 GW by 2020. It is part of an effort to generate 3% of the country's total electricity from non-hydro renewable sources. On August 8, 2009 the country began construction of its first 10GW wind farm in Jiuquan. The National Energy Administration (NEA) has planned six additional 10GW wind farms in areas such as: Inner Mongolia, Gansu, Xinjiang, Hebei and Jiangsu. Huaneng Power International, Datang Interntional Power and six additional foreign firms are among the current developers.^[8]

Companies who stand to lose

Nuclear generators, such as Exelon (EXC), would stand to lose out to wind in some cases, as the nearest competitor for relatively clean energy with high installation costs and few fans among local residents who have to suffer through giant plants nearby (sky-high turbines can seem nearly as bad as a nuclear dome). Wind turbines can negatively impact surrounding land values. Turbines are very tall and obstruct views, which drives down property values and any potential tourism. In addition to the requirement of large amounts of land, turbines are susceptible to lightning strikes and the constant noise of turbines can be damaging for humans and animals.

Ironically, small-scale wind companies are losing out from the rise of wind energy, as they have seen a rising cost of raw materials and engineered parts. This has been a problem for Vestas in particular, which originally pioneered the small-scale wind industry, but has moved to larger turbines and scuppered its beloved smaller turbines in order to service the commercial wind farm market.

Pros and Cons of wind energy

Largest users of wind for electricity, NREL

Harnessing the power of wind...(Skandia)

There are two clear advantages to wind energy for those looking to invest in new power capacity. The first is that it burns cleanly, and therefore is eligible for production tax credits as part of the electricity regulations targeting renewable energy and will benefit from any renewable energy purchasing requirements or carbon regime in the future. The second is that large-scale wind farms, even without subsidies, are cost competitive with fossil fuel powered plants, achieving cost parity with natural gas and coming close to competing with coal. As wind technology has improved increased capacity has enabled the advantage of economies of scale. Also, unlike coal, natural gas, or nuclear energy, wind energy has zero fuel costs.

Unlike its competitors, however, wind energy suffers from several unique problems. First, it is intermittent, based on when the wind is blowing, and therefore cannot be increased or decreased on demand. This problem is exacerbated by the difficulty of storing wind energy, though some inroads have been made on this front. Moreover, wind energy needs to be regulated to ensure that it does not "over-produce", i.e., providing more energy than the grid requires at a given point. Companies like Xcel Energy are utilizing massive battery storage units to save excess power generated by turbines for use when the winds die down. Second, wind is not omni-present. It is most common in windy areas along the coasts and high plains, and importantly, even in high wind areas, siting of wind turbines is crucial. Detailed and lengthy anemometer studies (essentially, poles with wind meters to measure directionality and wind speed) need to be undertaken prior to investing in wind projects, and even then, it is not 100% guaranteed that wind speeds will meet expectations.

Economics of wind energy

The economics of wind energy are driven by a few key factors.

(1) Cost of installation - With zero fuel costs, the economics of wind energy are similar to nuclear energy, in that the cost of installation represents the bulk of power generation costs. These costs include the turbine (typically, 70% of total installation costs), rotor, construction, and, critically, connection to the grid. Grid connections, in particular, can be very expensive, and therefore, wind farms typically are located relatively near a grid interconnection.

Wind turbines do, however, have the lowest installation costs of any of the renewables, especially with large wind installations, which take advantage of economies of scale to reach lows of $800 per kilowatt installed^[9]. Small wind farms and individual turbines can cost up to $3,500 per KW installed^[10], which is a bit higher than the average geothermal plant, at $2500 per kilowatt installed^[11], but still less expensive than the $8,000 per kilowatt installed^[12] associated with photovoltaics. Wind farms also have the capacity to generate much more electricity than geothermal or solar installations. Wind rivals natural gas ($1200 - $1600 per kilowatt installed^[13]) and is much less expensive than a coal plant that has all the emissions retrofittings ($2,200 - $3,700 per kilowatt installed^[14]), though gas and coal plants generally take up much less land than wind farms with equivalent capacities.

Modern wind technology has a generation cost of just $0.08 per kWh, near coal's $0.05 per kWh. If coal were to receive a $30 per ton carbon tax, however, or to implement carbon sequestration technology, its cost would rise to $0.08 per kWh, putting wind on par with the world's cheapest form of power.^[15]

(2) Utilization - After investing all that money in build-out, it is crucial that the wind turbine is actually turning as much as possible. On average, wind only produces for 35% of the day^[18]. Therefore, both the utilization of the turbine (think of it as what percent of the time the turbine is spinning) and the wind speed are critical to the economics of wind power plants. For this reason, project developers must choose their sites carefully.

Wind investment has boomed prior to expiry of the PTC, only to plummet after the PTC has been renewed (AWEA)

(3) Tax credits - Historically, wind energy has benefited from an investment tax credit, especially in California which saw a host of installations of wind turbines in the 1980's. Unfortunately, these turbines never need to actually generate power in order to receive the credit. The second round of tax subsidies for wind has focused on the Production Tax Credit (PTC), currently at 1.9 cents per kwh produced. The American Recovery and Reinvestment Act of 2009 included a 30% tax credit on new purchases of small wind energy systems across the United States with capacity of up to 100kW.^[19] Tax credits have been very beneficial for wind production, encouraging new investment and fulfillment of power production expectations. Historically, investment in wind energy has been heavily dependent on tax credits.

(4) Government Support: Aside from a production tax credit on renewable energy sources (including wind), and the Renewable Portfolio Standards that have been adopted by 26 states, the U.S. government is coming out in vocal and financial support of wind energy. On May 23rd, 2008, the U.S. Department of Energy released a report titled "20% Wind Energy by 2030" stating that, even with contemporary wind technology, it will be possible for the U.S. to generate 20% of its electricity through wind farms by the year 2030, a move which would reduce natural gas consumption by 11% and coal consumption by 18%. China is planning on having 100 GW of wind energy installed by 2020.^[20] Even oil maverick T. Boon Pickens is getting into wind, investing over $2 billion in a Texas wind farm in May, 2008.^[21]

Since the passing of the American Recovery and Reinvestment Act, by May of 2009 $118 million has been announced to support the wind industry. Notably, in April of 2009, through the Department of Energy (DOE), $93 million was allocated to support further development of wind energy in the U.S. This strong support will move the industry forward through expanding domestic capabilities. It will allow for advancements such as the ability to test blades longer than 50 meters, which currently can only be done in Europe. It will also increase the cost competitiveness of wind energy, speed the next generation of turbines and the creation of large-scale offshore facilities.^[22]

At the end of June 2009 the Obama administration announced that it had issued five offshore exploration leases for wind energy production. The leases included areas 6-18 miles off of the coasts of New Jersey and Delaware. The leases were granted to: Bluewater Wind New Jersey Energy, Fishermen’s Energy of New Jersey, Deepwater Wind, and Bluewater Wind Delaware.^[23] There are other proposed leases off the coast of Northern California, Florida and Georgia.^[24]

The exploratory leases will allow for the creation of meteorological towers to collect data on wind speed, intensity and direction. The leases will cost about $17,000 per year and the data collected from them will be used to support future renewable energy projects and to assist coastal states in meeting renewable energy requirements. It has been proposed that offshore wind energy could account for nearly one-fifth of the U.S. wind capacity by 2030.^[23]

(5) Shortage of Raw Materials: Wind energy, despite not requiring a raw material fuel source other than high and low pressure zones, has suffered from the same shortage of raw materials that has plagued natural gas, coal, nuclear, and solar power plants. In the case of wind, the shortage has centered around the availability of components to complete a wind installation, especially gearboxes and castings, which are highly engineered. Additional components required include rotor blades, a tower (on which to place the rotor), and a generator. For this reason, the wind industry has seen some vertical consolidation, for example, Suzlon's recent acquisitions of Hansen and REpower.

Push for Offshore Wind Energy

In September 2009, the European Wind Energy Association (EWEA) held a conference in Stockholm with 4,750 attendees. The organization projects 50 gigawatts will be installed offshore by 2020. At the conference Vestas showed a new model they have made for the offshore market, V112-3.0.^[25]

In May of 2009 DONG Energy finalized a $3 billion deal to build a 90 square mile wind farm 12 miles off the coast of the UK, deemed the London Array. It will be the largest offshore wind farm in the world with hefty support from the British government in offshore wind energy incentives. The wind farm is expected to provide 7% of the 15.4% of the country's target for energy from renewable sources by 2015.^[26]

Leading manufacturers have begun to invest in wind power for offshore locations. Siemens has established an offshore wind business unit and General Electric acquired ScanWind for a product specifically designed for offshore applications.^[25]

Capital Costs Have Been Rising

Installed wind capital costs in the US, after two decades of decline, have risen markedly since 2004 from their low point of about $1100 / kW, moderately affecting wind's competitiveness. Analysts at the Lawrence Berkeley National Lab have attributed this to a mixture of several factors:[1]

• The component shortages mentioned above that have been exacerbated by the irregular renewal of the PTC, preventing suppliers from investing in new capital to optimize large-scale production
• General raw materials (steel, oil, etc.) price increases
• The decline of the dollar against the euro
• Higher than expected maintenance costs for warrantied turbines (especially for Vestas)
• Possible increased profit-taking by suppliers (GE is the dominant US supplier, and has been able to raise its prices as the rising Euro has made the European firms comparatively less competitive).

The Financial Crisis of 08 Has Been Unfavorable For Wind Energy

The recession is hitting the wind industry hard in 4 ways:

1. Governments are seeing shrinking budgets and pressure to divert funds away from research and tax credits. As tax credits have been one of the greatest determinants of profitability for wind companies, when tax credits shrink companies face smaller margins and smaller investment.
2. Big investors in the industry like Lehman, AIG, and Wachovia have gone bankrupt, been bought, or are just plain suffering. Without money the capital intensive industry can't do much. Large sums of money are needed to produce economical wind farms, either through economies of scale (construction and management), or through cost cutting research.
3. Banks are tightening credit. The industry already faced shrinking margins. Rising interest expense is making the situation worse.
4. The global economic downturn has caused demand growth for energy & petroleum to slow.^[27] Cheap oil and gas, and CO2 emissions permits in Europe has put the economics of new wind farm projects into question. Without greater subsidies, a number of plans will likely collapse.^[28]

Large Growth Expected For The Industry

Despite slowing demand, the medium and long-term prospects of the industry remain bright. According to a report released by the Global Wind Energy Council in March of 2009, the installed wind capacity of the world will increase 177% from 2009 to 2013.^[29]

Wind Market Forecast 2009-2013^[30]

Long-term forecasting is difficult, but a study by Stanford University puts the total wind capacity for locations with wind speeds greater than 7m/s at 72 TW, 60 times the worlds current wind capacity.^[31]

Modernization of the U.S. Electrical Grid is Needed to Ensure Full Potential of Wind Energy

As interest in renewable energies has increased, focus has turned to the ability of the nation's electricity grid to handle this energy and in a more efficient manner. With the passing of the American Economic Recovery and Assessment Act $4.5 billion dollars was allotted to the Office of Electricity Delivery and Energy Reliability to be used to modernize the electric grid, enhance security of the energy infrastructure and to ensure that growing demand is met.^[32] However, this is a small amount of what is required to upgrade grids and interconnects. It has been reported that to support the transportation of the proposed 300,000 MW of wind energy will require the investment of $60 billion by 2030.^[33]

The current grid is over 100 years old and consists of over 9,200 electric generating units with more than 1,000,000 megawatts of generating capacity and more than 300,000 miles of transmission lines. Integrating large amounts of wind or solar power into the grid will require advanced energy management techniques and approaches at the grid operator level. According to the European Wind Energy Association for these energies to supply more than 20%, vast improvements will be required. If these are not met and planned for, the full potential of wind and solar power will not be realized. This is crucial considering that 29 states have committed to the use of renewable energy sources, with goals of increasing energy portfolios by up to 20% by as early as 2010.^[34]

Also for the second year in a row a poll conducted by NRG Systems at the American Wind Energy Association's (AWEA) WindPower 2009 conference found that transmission and interconnection constraints were the greatest barrier to the development of wind energy. 43% of respondents (making it the leading opinion) stated that an upgraded national transmission system would contribute the most to the development of wind energy.^[35] Without improvements the ancient electric grid of the U.S. will continue to struggle to meet increasing demand and the ability to incorporate input from renewable resources. Work must not only focus on the generation of wind energy, but to ensure that it can be distributed and utilized to its full potential.

References

1. ↑ SeekingAlpha: "Solar, Wind and Biofuels' Impressive Growth Surge in '08"
2. ↑ ^{2.0 2.1 2.2} AWEA, Wind Energy Fast Facts, accessed October 14, 2009
3. ↑ Annual Report on U.S. Wind Power 2007
4. ↑ American Wind Energy Association, AWEA REPORTS 78% GROWTH IN 2008 FOR U.S. SMALL WIND MARKET
5. ↑ ^{5.0 5.1} AWEA Annual Wind Industry Report 2008 Pg. 2
6. ↑ American Wind Energy Association, 1Q 2009 Market Report
7. ↑ The Wall Street Journal "Alternative Energy Hurt by a Windmill Shortage", July 9th, 2007
8. ↑ Reuters.com, "China starts building first 10-GW mega wind farm," August 8, 2009
9. ↑ http://www.telosnet.com/wind/future.html
10. ↑ California Energy Commission: Economics of Owning and Operating DER Technologies"
11. ↑ U.S. Department of Energy, Energy Efficiency and Renewable Energy: Geothermal FAQ
12. ↑ http://www.wind-works.org/Solar/SolarPVCurrentInstalledPricesperkWinCaliforniaElsewhere.html
13. ↑ http://www.memagazine.org/mepower03/bbuster/bbuster.html
14. ↑ Gristmill Post by GreyFlcn, July 19th 2007
15. ↑ The Economist: The Future of Energy: "Trade winds"
16. ↑ Montana Environmental Information Center
17. ↑ Suzlon FY 07-08 Annual Report, Management Discussion and Analysis, p. 5
18. ↑ SeekingAlpha: "Edison International: Solar is the Great Untapped Resource"
19. ↑ Database of State Incentives for Renewables and Efficiency
20. ↑ SeekingAlpha: "Wind Power, Big and Small"
21. ↑ MarketWatch: "Department of Energy Says 20% Wind Power Achievable"
22. ↑ U.S. Department of Energy Energy Efficiency and Renewable Energy News, Recovery Act Announcement: Secretary Chu Announces $93 Million from Recovery Act to Support Wind Energy Projects, April 29, 2009
23. ↑ ^{23.0 23.1} Mouawad, Jad First Offshore Wind Leases Issued Green Inc. June 3, 2009
24. ↑ U.S. Department of the Interior- Offshore Energy Minerals & Management, accessed on July 6, 2009
25. ↑ ^{25.0 25.1} Stuebi, Richard,"Offshore Wind: Europe Now, U.S. When?," SeekingAlpha.com, September 21, 2009
26. ↑ London Array Website, accessed on September 23, 2009
27. ↑ Reuters - OPEC sees oil demand growth slowing in 2008, 2009
28. ↑ Financial Times - Funding doubts for giant wind farm
29. ↑ Environmental Capital - Thar She Blows: Industry Forecast Calls for More Wind
30. ↑ Global Wind Energy Council - GLOBAL WIND 2008 REPORT
31. ↑ Stanford University - Evaluation of global wind power
32. ↑ The American Recovery and Reinvestment Act Includes $4.5 billion for the Office of Electricity Delivery and Energy Reliability, Office Of Electricity Delivery and Energy Reliability News, February 25, 2009
33. ↑ Fessler, David "Why Isn't Midwest Wind-Generated Power Blowing East?," Seeking Alpha, July 14, 2009
34. ↑ U.S. Department of Energy, The Smart Grid: An Introduction, accessed on June 24, 2009
35. ↑ NRG Systems News Room, Industry Poll Finds Transmission Constraints Pose Greatest Barrier to Wind Development, accessed on June 24, 2009