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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