15/3/2009Poul Erik Morthorst1 Risø DTU, Technical University of Denmark

ProfessorPoul Erik Morthorst

Risø DTU

Photos:

DONGEnergy A/S

The Economicsof

Wind Power­

Status and Perspectives

15/3/2009Poul Erik Morthorst2 Risø DTU, Technical University of Denmark

The main parameters governing wind powereconomics include the following:

•Investment costs, including auxiliarycosts for foundation, grid­connection,and so on.

•Operation and maintenance costs•Electricity  production  /  average  wind

speed•Turbine lifetime•Discount rate

The main Socio­economic Parameters

15/3/2009Poul Erik Morthorst3 Risø DTU, Technical University of Denmark

Investment(1000 €/MW)

Share(%)

Turbine (ex works) 928 75.6Foundation 80 6.5Electric installation 18 1.5Grid­connection 109 8.9Control systems 4 0.3Consultancy 15 1.2Land 48 3.9Financial costs 15 1.2Road 11 0.9Total 1227 100

Investments in a 1 MW turbine

15/3/2009Poul Erik Morthorst4 Risø DTU, Technical University of Denmark

Turbine Investment Cost in differentCountries

2006

0

200

400

600

800

1000

1200

1400

1600

Italy UK

Netherlan

ds

Portug

a l

Germany

Japan

Greec

eSpa

in

Canada

Denmark US

Norway

1000

€/M

W

15/3/2009Poul Erik Morthorst5 Risø DTU, Technical University of Denmark

Development of Turbine Size in differentCountries

0

500

1000

1500

2000

2500

1990

1992

1994

1996

1998

2000

2002

2004

2006

kW

GermanySpainDenmarkUSAUKIndia

15/3/2009Poul Erik Morthorst6 Risø DTU, Technical University of Denmark

Operation and Maintenance

•O&M costs: Approx. 1.5c€/kWh

O&M components

•Insurance•Regular maintenance•Repair•Spare parts•Administration

Insurance13%

Service andspare parts

26%Miscellaneous

17%Power from the

grid5%

Administration21%

Land rent18%

15/3/2009Poul Erik Morthorst7 Risø DTU, Technical University of Denmark

Operation and Maintenance

•O&M costs: Approx. 1.5c€/kWh

O&M components

•Insurance•Regular maintenance•Repair•Spare parts•Administration

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

1 3 5 7 9 11 13 15 17 19År i produktion

Kr/k

Wh

55 kW

150 kW

225 kW

300 kW

500 kW

600 kW

660 kW

750 kW

Years inOperation

15/3/2009Poul Erik Morthorst8 Risø DTU, Technical University of Denmark

Cash flow for Wind Power plant

15/3/2009Poul Erik Morthorst9 Risø DTU, Technical University of Denmark

Cash flow for Wind Power plant

15­20% of total costs

15/3/2009Poul Erik Morthorst10 Risø DTU, Technical University of Denmark

Cash flow for Wind Power plant

NPC = I/(1+i)0 + C1/(1+i)1 + C2/(1+i)2 + …+ C20/(1+i)20

15/3/2009Poul Erik Morthorst11 Risø DTU, Technical University of Denmark

Cash flow for Wind Power plant

NPV = I/(1+i)0 + C1/(1+i)1 + C2/(1+i)2 + …+ C20/(1+i)20

Average cost over the lifetime = Levellised cost (PMT)

15/3/2009Poul Erik Morthorst12 Risø DTU, Technical University of Denmark

Calculation of Unit Cost

Number of full load hours:

The number of hours theturbine has to run atmaximum capacity toproduce the total annualproduction

0

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Fullloadhours

Year

15/3/2009Poul Erik Morthorst13 Risø DTU, Technical University of Denmark

Calculation of Unit Cost

Number of full load hours:

The number of hours theturbine has to run atmaximum capacity toproduce the total annualproduction

0

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Fullloadhours

Year

Unit cost  =  Levellised costs / Average Annual Production

=   c€/kWh (approx. 6­7 c€/kWh)

15/3/2009Poul Erik Morthorst14 Risø DTU, Technical University of Denmark

Production costs

15/3/2009Poul Erik Morthorst15 Risø DTU, Technical University of Denmark

Importance of discount rate

15/3/2009Poul Erik Morthorst16 Risø DTU, Technical University of Denmark

Socio­Economics vs. Business EconomicsBasic conditions

Socio­Economics BusinessEconomics

Prices Real terms(no inflation)

Nominal prices(including inflation)

Discount rate Socio determinedReal terms(6% p.a. in Denmark)

Market determinedNominal termsIncluding riskpremium

Revenues Normally only costs Payment schedulesimportant

Conditions Excluding taxes etc. Including taxes,depreciation rulesetc.

Lifetime Technical lifetime(20 years)

Economic lifetime(< 20 years)

Typically 5­8% p.a.

15/3/2009Poul Erik Morthorst17 Risø DTU, Technical University of Denmark

A real Socio­Economic analysis alsoincludes…

Socio­Economics BusinessEconomics

Adjustmentfactor

Investment issubstitutingalternative use

Not considered

Externalities Issues not included inprices and costs

Not considered

15/3/2009Poul Erik Morthorst18 Risø DTU, Technical University of Denmark

Development of Unit Cost

0

2

4

6

8

10

12

1985 1987 1990 1993 1996 1999 2001 2004 2006

c€/k

Wh Coastal site

Inland site

15/3/2009Poul Erik Morthorst19 Risø DTU, Technical University of Denmark

Increase in Turbine Price in differentCountries

0

200

400

600

800

1000

1200

1400

1600

Denmark

Greece

Netherlands US

Portug

alI ta

lyJap

an

Norway

Spain UK

German

y

Canada

20062004

15/3/2009Poul Erik Morthorst20 Risø DTU, Technical University of Denmark

Experience Curve for Wind Power Unit Cost

0

2

4

6

8

10

12

1985 1987 1990 1993 1996 1999 2001 2004 2006 2010 2015

c€/k

Wh

Coastal area

Inland site

15/3/2009Poul Erik Morthorst21 Risø DTU, Technical University of Denmark

Experience Curve for Wind Power Unit Cost

0

2

4

6

8

10

12

1985 1987 1990 1993 1996 1999 2001 2004 2006 2010 2015

c€/k

Wh

Coastal area

Inland site

Learning rate of 10% estimated:

•Each time global capacitydoubles unit cost is expectedlydecreased by 10%

15/3/2009Poul Erik Morthorst22 Risø DTU, Technical University of Denmark

Wind Power Unit Cost by 2015

0

2

4

6

8

10

12

1985 1987 1990 1993 1996 1999 2001 2004 2006 2010 2015

c€/k

Wh

Coastal area

Inland site

Global Capacity:

•Doubled in three years time    4.3 –5.0 c€/kWh•Doubled in five years time       4.8 –5.5 c€/kWh

15/3/2009Poul Erik Morthorst23 Risø DTU, Technical University of Denmark

Wind Power compared to ConventionalPlants

Displaced or partly displaced cost components:

•Fuel costs

•Cost of CO2­emissions (as given by theEuropean Trading System for CO2, ETS)

•Operation and maintenance costs

•Capital cost, including planning and site work

15/3/2009Poul Erik Morthorst24 Risø DTU, Technical University of Denmark

Wind Power Compared to Natural Gas PowerPlant –changing fuel costs

0102030405060708090

100

Natural gas(40$/bbl)

Natural gas(60$/bbl)

Natural gas(120$/bbl)

WindPower ­

coastal site

WindPower ­

inland site

€/MWh

Regulation costs

CO2 ­ 25€/t

Basic

15/3/2009Poul Erik Morthorst25 Risø DTU, Technical University of Denmark

Wind Power Compared to Coal Fired PowerPlant –changing costs of CO2

0

10

20

30

40

50

60

70

80

€/MWh

Regulation costs

CO2

Basic

15/3/2009Poul Erik Morthorst26 Risø DTU, Technical University of Denmark

Conclusions

•Wind Power Economics are fairly simple with only afew important parameters

–The annual wind­generated power production is tantamount

•Operation and Maintenance Costs are gettingincreasingly important

–Improved reliability of turbine and fewer service visits

•Wind power has experienced a learning rate of 10%p.a.

–Disrupted in 2004 by a price increase of more than 20%

•Increasing fuel prices needed to make wind powereconomic competitive to conventional plants

–The European Emission Trading scheme on CO2 will not do thejob alone