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Support schemes and risk premiums for renewable energy technologies

Morthorst, Poul Erik; Grenaa Jensen, Stine

Publication date:2009

Link back to DTU Orbit

Citation (APA):Morthorst, P. E. (Author), & Grenaa Jensen, S. (Author). (2009). Support schemes and risk premiums forrenewable energy technologies. Sound/Visual production (digital)

Support Schemes and Risk Premiums for R bl E T h l iRenewable Energy Technologies

Poul Erik Morthorst Risø DTUPoul Erik Morthorst, Risø DTUStine Grenaa Jensen, Danish Energy Association

14 September 200914.September 2009

Offshore Wind Power Development

Denmark 409 MW28%

Rest91 MW6%

2008

28%

N h l d

UK591 MW40%

Netherlands247 MW17%

Sweden133 MW

9%

1500 MW

14/9/2009Poul Erik Morthorst2 Risø DTU, Technical University of Denmark

Offshore Wind Power Development

Denmark 409 MW28%

Rest91 MW6%

2008

DenmarkRest

Planned 201537440 MW28%

N h l d

UK591 MW40%

Germany10927 MW

29%Ireland1603 MW

4%

Finland1330 MW

4%

Denmark 1276 MW

4%

3877 MW10%

37440 MW

Netherlands247 MW17%

Sweden133 MW

9%

1500 MWSpain

Norway1553 MW

4%

4%

1976 MW5%

UK8755 MW

23%Sweden3312MW

Netherlands2833 MW

8%

14/9/2009Poul Erik Morthorst3 Risø DTU, Technical University of Denmark

3312 MW9%

Off h i d il d l dOffshore Wind Farms – Built and Planned

14/9/2009Poul Erik Morthorst4 Risø DTU, Technical University of Denmark

Off h i d il d l dOffshore Wind Farms – Built and Planned

14/9/2009Poul Erik Morthorst5 Risø DTU, Technical University of Denmark

Offshore Wind Power Development

Denmark 409 MW28%

Rest91 MW6%

2008

DenmarkRest

Planned 201537440 MW28%

N h l d

UK591 MW40%

Germany10927 MW

29%Ireland1603 MW

4%

Finland1330 MW

4%

Denmark 1276 MW

4%

3877 MW10%

37440 MW

Netherlands247 MW17%

Sweden133 MW

9%

1500 MWSpain

Norway1553 MW

4%

4%

1976 MW5%

UK8755 MW

23%Sweden3312MW

Netherlands2833 MW

8%

14/9/2009Poul Erik Morthorst6 Risø DTU, Technical University of Denmark

3312 MW9%

Offshore Wind Power Development

Denmark 409 MW28%

Rest91 MW6%

2008

DenmarkRest

Planned 201537440 MW28%

N h l d

UK591 MW40%

Germany10927 MW

29%Ireland1603 MW

4%

Finland1330 MW

4%

Denmark 1276 MW

4%

3877 MW10%

37440 MW

Netherlands247 MW17%

Sweden133 MW

9%

1500 MWSpain

Norway1553 MW

4%

4%

1976 MW5%

Technological Risk has shown to be much higher than expected

• Problems with gearboxes

UK8755 MW

23%Sweden3312MW

Netherlands2833 MW

8%

• Problems with gearboxes, transformers...• Operation and maintenance more costly

14/9/2009Poul Erik Morthorst7 Risø DTU, Technical University of Denmark

3312 MW9%

y• Availability

i k d iRisk and Uncertainty

• Technological Risk– Investment Costs– Maintenance Costs– Maintenance Costs– Production– Availability

Lifetime– Lifetime

• Regulatory Risk– Support Levels– Market design

• Market Risk– Power pricep– Competition– Fuel prices– ....

14/9/2009Poul Erik Morthorst8 Risø DTU, Technical University of Denmark

Experiences until now with Offshore wind power productionpower production

4.0004.5005.000

r ye

ar

2002

2.5003.0003.500

hour

s pe

r

200320042005

5001.0001.5002.000

ull l

oad

h 200520062007

0500

den

msø Rev ted MW

Fu

Middelg

runde

Sams

Horns R

e

Nyste

On lan

d 1.5MW

Corrected for energy content in

14/9/2009Poul Erik Morthorst9 Risø DTU, Technical University of Denmark

O energy content in wind on land

i k d iRisk and Uncertainty

• Technological Risk– Investment Costs– Maintenance Costs– Maintenance Costs– Production– Availability

Lifetime– Lifetime

• Regulatory Risk– Support Levels– Market design

• Market Risk– Power pricep– Competition– Fuel prices– ....

14/9/2009Poul Erik Morthorst10 Risø DTU, Technical University of Denmark

Risk and Uncertainty

10% NPV

4%

6%

8%

-Market design-Performance-Support mechanisms-Environmental regulation

-Market design-Performance-Support mechanisms-Environmental regulation0%

2%

4%

Regulatory-…

Regulatory-…

RISKTechnol rk

et

RISKTechnol rk

et

Uncertainty in Return -Investment costs-Availability-Lifetime-Performance-Maintenance costs

ological

Mar -Fuel price risk

-Competition -Power prices-Demand-Fuel supply

-Investment costs-Availability-Lifetime-Performance-Maintenance costs

ological

Mar -Fuel price risk

-Competition -Power prices-Demand-Fuel supply

Uncertainty in Return of Investment

14/9/2009Poul Erik Morthorst11 Risø DTU, Technical University of Denmark

-… -…-… -…

Risk and Uncertainty

10% NPVEx ante optimisation

4%

6%

8%

-Market design-Performance-Support mechanisms-Environmental regulation

-Market design-Performance-Support mechanisms-Environmental regulation0%

2%

4%

Regulatory-…

Regulatory-…

RISKTechno ke

tRISKTechno ke

t

Uncertainty in Return -Investment costs-Availability-Lifetime-Performance-Maintenance costs

nological

Mar

k

-Fuel price risk-Competition -Power prices-Demand-Fuel supply

-Investment costs-Availability-Lifetime-Performance-Maintenance costs

nological

Mar

k

-Fuel price risk-Competition -Power prices-Demand-Fuel supply

Uncertainty in Return of Investment

14/9/2009Poul Erik Morthorst12 Risø DTU, Technical University of Denmark

-Maintenance costs-…

-Fuel supply-…

-Maintenance costs-…

-Fuel supply-…

i i iEx ante optimisation

• Technological Risk– Investment Costs

M i t C t– Maintenance Costs– Production– Availability– Lifetime

• Regulatory Risk– Support Levelspp– Market design

• Market Risk– Power price– Power price– Competition– Fuel prices

14/9/2009Poul Erik Morthorst13 Risø DTU, Technical University of Denmark

– ....

i i iOilprice

Ex ante optimisation

140160

p

• Technological Risk– Investment Costs

M i t C t6080

100120

$/bb

l

– Maintenance Costs– Production– Availability0

204060

– Lifetime

• Regulatory Risk– Support Levelspp– Market design

• Market Risk– Power price– Power price– Competition– Fuel prices

14/9/2009Poul Erik Morthorst14 Risø DTU, Technical University of Denmark

– ....

i i iOilprice

Ex ante optimisation

140160

p

• Technological Risk– Investment Costs

M i t C t6080

100120

$/bb

l

– Maintenance Costs– Production– Availability0

204060

– Lifetime

• Regulatory Risk– Support Levels70

8090100

pp– Market design

• Market Risk– Power price20

30405060

€/MWh

Regulation costs

CO2 ‐ 25€/t

Basic– Power price– Competition– Fuel prices

010

Natural gas (40$/bbl)

Natural gas (60$/bbl)

Natural gas (120$/bbl)

Wind Power ‐

coastal site

Wind Power ‐inland site

14/9/2009Poul Erik Morthorst15 Risø DTU, Technical University of Denmark

– ....

i i iEx ante optimisation

• Technological Risk– Investment Costs

M i t C t– Maintenance Costs– Production– Availability– Lifetime

• Regulatory Risk– Support Levelspp– Market design

• Market Risk– Power price– Power price– Competition– Fuel prices

14/9/2009Poul Erik Morthorst16 Risø DTU, Technical University of Denmark

– ....

i i iEx-post optimisation

• Technological Risk– Investment Costs

M i t C t– Maintenance Costs– Production– Availability– Lifetime

• Regulatory Risk– Support Levelspp– Market design

• Market Risk– Power price– Power price– Competition– Fuel prices

14/9/2009Poul Erik Morthorst17 Risø DTU, Technical University of Denmark

– ....

Ex postEx post

When the turbine is established the sum of Risks is (almost) constant

- But we can pay somebody else to bear the risk for us

- We can hedge the power price- We can agree on a prepaid service

contract- We can buy a production warranty

- ... and, of course, some companies are it d th th f t ki i k

14/9/2009Poul Erik Morthorst18 Risø DTU, Technical University of Denmark

more suited than others for taking risks

Comparison of two support systems:- A premium system and a fixed feed-in p y

system - Two actors: The private investor and the

state

•Power price (average): 50 €/MWh•Power price (std.): 5 €/MWh (10 %)p ( ) / ( )•Premium: 34 €/MWh•Fixed feed-in: 84 €/MWh/•Duration: 44,000 Full Load Hours•Discount rate: 6 %Discount rate: 6 %•Production: 4000 h/MW/year

14/9/2009Poul Erik Morthorst19 Risø DTU, Technical University of Denmark

Development of Power Price

14/9/2009Poul Erik Morthorst20 Risø DTU, Technical University of Denmark

Development of Power Price

14/9/2009Poul Erik Morthorst21 Risø DTU, Technical University of Denmark

Comparison of two support systems:p pp y- A premium system- A fixed feed-in system

•Power price (average): 50 €/MWh•Power price (average): 50 €/MWh•Power price (std.): 5 €/MWh (10 %)P i 34 €/MWh•Premium: 34 €/MWh

•Fixed feed-in: 84 €/MWhD ti 44 000 F ll L d H•Duration: 44,000 Full Load Hours

•Discount rate: 6 %P d ti 4000 h/MW/•Production: 4000 h/MW/year

14/9/2009Poul Erik Morthorst22 Risø DTU, Technical University of Denmark

Premium Feed inPremium Feed-in

14/9/2009Poul Erik Morthorst23 Risø DTU, Technical University of Denmark

Premium Feed inPremium Feed-in

14/9/2009Poul Erik Morthorst24 Risø DTU, Technical University of Denmark

Fixed Feed-inFixed Feed in

14/9/2009Poul Erik Morthorst25 Risø DTU, Technical University of Denmark

Fixed Feed-inFixed Feed in

14/9/2009Poul Erik Morthorst26 Risø DTU, Technical University of Denmark

Risk for the State and the turbine owner

14/9/2009Poul Erik Morthorst27 Risø DTU, Technical University of Denmark

Correlation between Price and Support

60

70

Investor

Premium

40

50

Wh

Investor

Feed-in

20

30 €/M

W

Premium

0

10

20

State

Feed-in

Premium

0 30 35 40 45 50 55 60 65 70

Power Price (€/MWh)

14/9/2009Poul Erik Morthorst28 Risø DTU, Technical University of Denmark

Turbine income-Fixed State expenditure-FixedTurbine income-Premium State expenditure-Premium

Conclusions

• After the turbine is established the sum of risks is constantconstant

– But some companies/organisations might be better suited to bear the risk

• A premium system might for the private investor have a five-fold higher risk than a feed-in system

– The state bears a high risk in the feed-in schemeThe state bears a high risk in the feed in scheme

• If the state bears part of the risk this might imply a lower risk premium for society at largelower risk premium for society at large

14/9/2009Poul Erik Morthorst29 Risø DTU, Technical University of Denmark