DONG’s latest offshore financing deal, with details confirmed and officialling announced yesterday, is of interest for a number of reasons.
The scale of the project, the sums involved and the number of parties working in collaboration together, all stack up to undoubtedly make the deal a major talking point. And while it's been on the cards for some time, it's no doubt going to set tongues wagging at RenewableUK’s Global Offshore conference next week.
What's more, setting the deal in the context of other large scale project finance initiatives such as Global Tech 1, Meerwind and C Power Phase 2, seems to give lie to the assertion that there is a desperate shortage of funds available for offshore wind developments.
Rather, for the right development, project finance is no longer an issue. The funds are available and there's no shortage of would-be investors. But what makes for the ‘right project’? And what barriers need to be overcome in order to invest?
One supported by a national utility with a controlling stake from the Government – like DONG – certainly helps. Particularly since it substantially reduces the chance of default, or the employment of below-par contractorsn theory at least. And although the deal is ‘non-recourse’, the chance of DONG exiting the project is also calculated to be extremely low.
In terms of securing interest from the banks, a recent A Word About Wind event hosted in partnership with a top three global bank, demonstrated that slowly these major institutions are getting involved.
Yes, it's not an easy process and yes, there's a need to educate these players as they come onboard. But nevertheless, it is possible. And the amount offered up for investment continues to rise.
Construction risk, is for many, still an area to steer clear of, but as a number of our speakers noted, offshore wind is of increasing strategic importance to the banking community - diversifying existing energy portfolios and offering good returns.
And in the case of Lincs, the deal was supported by 10 banks, something that helps ensure that no one institution is overly exposed.
Safety in numbers?
Perhaps. Whatever the case, on paper the deal certainly seems to make sense.
The devil, as ever, will be in the detail.
Execution and management of 10 (minimum) different stakeholders will undoubtedly present headaches along the way but with time and focus, can surely be overcome. Now more than ever, effective project management will prove paramount.
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The circus is on the move. This week Atlanta plays host, as the American Wind Energy Association (AWEA) rolls into town.
However, as the organisers open the doors to its annual conference, there’s an undercurrent of uncertainty in the air. And it refuses to clear.
So, twelve months on from Anaheim, has the North American wind market done what was required and engaged with the wider international energy market? Particularly as it moves ever closer to the very real potential of a world without a production tax credit (PTC), come 1st January 2013?
Honest answer?
Perhaps the reality is something few dare speak.
After all, the thought of operating without what has amounted to a relatively lucrative tax break since President George Bush signed it into law back in 2005 is a tough pill to swallow.
This, combined with the now successful campaign to slap a 25% tariff on imported Chinese turbine towers, together with the increasing threat of domestic shale gas, has amounted to what for many has been a tough year.
A period that has involved fighting multiple battles on multiple fronts and by proxy, has left little time for those working within sector to look up, stop and think.
Only that’s not all.
Add to this a dangerous perception that ‘busyness breeds business’ and it’s led many to think that a re-doubling of efforts is all that is required to kick start the order books and repeat the 6,816MW added to the grid in 2011.
However, to focus on growth (more growth and protectionism), is to miss the point.
More tellingly perhaps, is the often-overlooked fact that five separate US states now supply more than 10% of their power through wind energy (with South Dakota topping the bill at 22.3%).
That’s a compelling statistic. And one that suggests that while the ability to protect existing market share is important, a focus on future long-term viability and market independence is far more valid.
Lobbying for a(nother) tax break extension and engaging with the Fed to fight the Chinese is hard work, offering short-term gains but precious little long-term reward.
As the US wind industry starts filling hotel rooms and setting up shop for another conference and another year, perhaps it’s time to move the debate on?
Yes, there's a short term factory closure crisis and yes, many will speculate about the impact on US maufacturing and jobs. Others will argue that a tax break is a tax break - not a subsidy - and that therefore there's no government saving to be made from scrapping it at all. However, politics is at play and the simple reality is that it can't be second guessed.
Naturally, the industry needs to sit up and take note and naturally the decisions made over the course of the next few months will have a profound impact on future innovation and investment. However, despite this, the industry simply can't afford to remain at the whim of Washington. It won't do anyone any good.
The US wind industry is big enough and bold enough to stand on its own two feet, it just needs the confidence to try.
The wind industry is frequently encouraged to learn from other sectors that have historically shared, or share, the same challenges.
A perhaps incongruous synergy could be said to be emerging between the automotive industry and the wind manufacturers. As we noted at Copenhagen 2012, Felix Ferlemann, Wind Power CEO at Siemens, and a man with an auto background, encouraged the wind industry to think more like the car sector when it came to economies of scale.
Perhaps Gamesa were paying particular attention at this point – the firm appointed ex-CIE Automotive SA man, Ignacio Martin, as new CEO last week following Jorge Calvert’s departure.
In all seriousness, however, given the problems currently being experienced by the global turbine manufacturers, what are their business models missing?
Well, according to research released by the US division of Barclays this week, 55% of US manufacturers offer services as well as products, compared to only 30% in the UK. Xerox was highlighted as a firm that now sees a greater proportion of its revenues from servicing than product sales.
Transposing this to the wind industry, though, is not so straightforward. And, the majority of turbine manufacturers are able to enjoy good incomes from operations and maintenance contracts.
But given the assets in most cases have been sold to the developer, the manufacturer will be at risk from specialist O&M businesses who may be able to provide servicing at a more competitive price.
Perhaps then, the turbine manufacturers could look towards the Rolls Royce model. Alongside the aero engine manufacturing business, the firm also rents its jet turbines to the airlines and ensures their maintenance under a scheme called Total Care. This has meant the business now secures over half its revenues from services.
The turbine manufacturers would obviously have to hold onto their assets, which given some of the technology reliability issues with the industry could cause a headache in its own right, and it’s not necessarily the panacea for all the travails of the turbine makers, but moving towards a service-oriented model has some obvious advantages.
Arguably though, in the final analysis, there is a conundrum. Manufacturing firms are often captained by excellent engineers who have risen to the top through visions in product innovation. But they might not come with the experience to broaden the business’s horizons into other models.
So, recruiting from more mature manufacturing industries, like the auto sector, could prove to be a mixed blessing. On the one hand it provides a safe pair of hands, but it may not provide a vision to take the firm to a new level.
Either way, the pressure is on for the manufacturers to think a little differently.
Growth often comes from the most unexpected of places.
Take UK farming. Last year, the market was one of the most profitable industries of them all, creating 10,000 jobs and lifting aggregate net profits up 25%, to £5.7 billion.
In fact, measured against the other sectors within the FTSE 100, only oil and gas were reported to have returned bigger growth. (And we all know how that feels!)
The findings, released by the NFU last week, were a surprise to many and a reminder to others that if you get it right, European farming is still fighting fit.
So how then, can the wider renewable energy industry (that is itself bringing in a regular harvest) capitalise on this wave of newfound landowner optimism and perhaps most important; make hay?
Just as it is in farming, the answer isn’t always terribly simple. Nevertheless, when you look behind the curtain, it’s worth noting that the markets share some common ground.
First, there’s that all too sensitive issue of the subsidy.
Within farming it’s the sort of thing that conjures up the traditional grumbling, particularly as agricultural enterprises battle to maintain margins in the face of declining incentives from the EU.
And if ever-changing sector subsidies and incentives sound all too familiar, then why not factor in the longer term macro trends such as population growth, pressure on available land resource?
All common challenges that are not too far removed from the industry battles of our own. Only that’s not the half of it because there’s something else.
An issue that strikes right at the heart of why these two industry’s share closer ties than one might have previously thought.
In short, it’s that ever-growing need for self-sufficiency, security and independence. A desire to no longer be at the mercy and the whim of other markets. And an issue that plays out on an international, national and local level every day of the week.
As one corner of the international farming industry basks in the spotlight and as the individuals behind the campaign work hard to reposition the sector as a driver, not a drag, on the global economy, perhaps there’s a lesson here, for us all?
He’s been at it again.
Love him or loathe him, when it comes to energising the energy markets, Scotland’s First Minister, Alex Salmond, knows the right buttons to press.
In his opening address at Aberdeen’s All Energy, he was quick to make a show of supporting the sector and of opening his wallet.
Announcing an £18 million marine energy fund to develop wave and tidal power and the first funding award from the £70 million National Renewable Infrastructure Fund (NRIF) – to transform a Scottish dock into a key manufacturing hub – he struck that now familiar balance between magician and politician.
However, once the conference clamour has faded, let’s just hope he’s got a few more tricks up his sleeve. Particularly when it comes to grid connectivity and transmission.
To be clear, grid connectivity is already an area of the market with which many are familiar, Salmond included.
Indeed, it was only earlier this month that the very same man was standing in front of an expectant Norwegian audience, touting the benefits of NorthConnect – a planned venture between British and Scandinavian electricity grids – that is, according to sources, expected to be operational before 2020.
However, it’s not NorthConnect that’s currently causing the bother. Moreover, it’s a domestic dispute that’s much closer to home. And while it’s currently focused on remote Scottish islands, it’s an issue that exemplifies a wider European challenge.
In short, it’s an issue of clarity of transmission charges and its associated cost.
Currently energy regulator Ofgem is in the process of setting the rate National Grid can charge customers, with a new transmission price control expected to provide a more predictable and transparent cost framework in the future.
As a result, developers have been accused of dragging their heels when it comes to hooking up projects to the grid – an issue that the National Grid describes as, “…one of timing and one of regulatory underpinning.”
Whatever the case, it’s got the makings of a headache for all concerned. And it exemplifies the growing challenge of pushing energy efficiently around the system.
The inescapable fact remains that with many western economies making the switch from a fossil fuel focus towards low carbon economies, the traditional radial grid infrastructure no longer works.
Governmental electricity market reform certainly helps with the transition but it should serve as a catalyst for change, not a solution in itself.
Waving a magic wand might seem like a tempting option for politicians, policy makers and project developers alike. However, they’ll need to conjure up more than sharp talk, if we’re to keep the lights on.
Vietnam has a habit of doing rather well for itself.
A fact made all the more remarkable given it’s history of colonisation and bloodshed. First by the Chinese (who handed the country back in 938 AD), then by the French in the mid-19th century, who were busy expanding their colonial empire in Southeast Asia.
More recently, there were the devastating effects of the Vietnam War – a battle that ended with a North Vietnamese victory in 1975.
It’s this chequered history then that might lead you to think the Vietnamese would be rather sceptical to the idea of international support. And that they might just be a little jaded by thought of future overseas energy intervention.
Only you’d be wrong.
Vietnam remains one of the most welcoming and outwardly optimistic territories within Southeast Asia – both in terms of tourism and in business.
Indeed, as the expansion of their oil and gas energy markets have shown, the Vietnamese are quick to recognise the benefits of enticing international talent. The burgeoning expat community and the perfectly manicured tennis courts close to Hoi Chi Ming City, are a testament to that.
So what then of wind?
Well until recently not much. Only now, following a flurry of announcements that all looks set to change.
In April, the Vietnamese government reported that the country’s first wind farm – a 20-turbine, 30MW initiative in the central province of Binh Thuan’s Tuy – had come online, with plans from the Vietnam Renewable Energies Joint Stock Company for plenty more.
Then late last week Malaysian developer Timar Wind Solar Energy Group announced plans to invest $800m in a large wind scheme in Ninh Thuan – another central Vietnamese province.
And what makes this agreement all the more interesting is not just the scale of the investment but the type of technology involved.
Using magnetic levitation, the Maglev turbine features vertically configured blades, suspended mid air around a hub, thereby reducing operating costs and the need for vast tracts of land. An interesting innovation that will no doubt benefit from such a vast commission.
However, for a country that has seen the demand for installed power capacity increase substantially over the past ten years and that is frequently blighted by power outages, it’s the new capacity potential, as opposed to the technology itself that excites.
Indeed, industry reports suggest that if Vietnam is to keep a pace with increased domestic electricity demand, it needs at least 1,700MW of new capacity has to come online every year in order to meet demand.
That’s no mean feat for any country placing a premium on energy security – let alone one that has continues to see such ambitious economic growth.
Nevertheless, as the appetite for Vietnamese wind energy grows, the international community will watch with considerable interest.
After all, emerging economies provide potential for much-needed manufacturer expansion, while at the same time offering up a valuable test bed for R&D.
As the history books show, time and again the Vietnamese prove to be highly capable, adaptable and resilient. Three core skills that have also proved central to wider wind energy expansion, innovation and growth.
With the results of the major utilities currently being published, it’s been interesting to take a look at how those with significant wind portfolios have stood up.
SSE announced earlier this week that its favourable yearly results were due in the main to strong figures from its wind energy portfolio. E.ON made a similar claim following strong Q1 figures earlier in the month.
It’s a change in fortune for many utilities that historically warned of the huge costs in developing wind energy.
In the case of SSE, the business has significantly benefitted from installed capacity that is starting to come online, with Credit Suisse analysts expecting a further 500MW to become available in 2013.
But not all wind portfolios perform consistently though, and that’s one reason for the ever-increasing importance on technology solutions to enhance predictability.
And, in the interests of balance, projects that have hit problems can cause enough fallout to damage group profits – as witnessed by Vattenfall recently with repairs to cabling at Thanet denting the performance of the renewables division.
Overall though, despite some others in the sector suffering, most notably the European and US manufacturers, the utilities are starting to see the return on their investment that they had originally been so nervous about.
Perhaps this may encourage the utilities to take more development risks on their balance sheets. With the investment community still proving reluctant to get heavily involved in wind, well developed, securely backed projects would do the industry’s reputation a lot of good.
And of course, good results from the utilities should be of long term encouragement to the manufacturers – as long as wind performs, then order books will stay full.
Growth. Flick through the pages of any major newspaper and it is a subject that has become an increasingly common theme.
The perfect antidote to the much discussed economic doom and gloom – a subject that quite understandably keeps many executives awake at night.
Growth on the other hand, reflects something far more positive. It points people towards a more prosperous future and it’s just the sort of thing that presents a catalyst for commerce.
And yet in this search for something better, many within emerging energy markets have forgotten about something far more pressing. Growing pains.
Or, perhaps more precisely, an innate ability to manage that upward trajectory of growth.
Of course, for upwardly mobile upstarts it’s all perfectly understandable.
Several years ago – when many firms were starting out – few would have guessed that the wind energy market would have had such potential and scope.
Indeed, many support services firms took on the additional contracts and jobs as a sideline to their core business – somehow finding space to squeeze the projects in around the mêlée of existing contracts.
The thinking for many was that the work provided a welcome boost to the bottom line – keeping the accountants happy and off their backs and keeping the workshops, consultants and service offerings topped up at full capacity.
The work – they thought – would be a welcome balance sheet blip and would quickly fall away to be replaced by the next best thing.
Only, that fall never happened. And firms that had previously had very limited involvement in negotiating and fulfilling long term contracts with the major market players suddenly found themselves thrust into the spotlight.
The money was on the table and the pressure was (and indeed, still is!) on.
Developers, utilities and major manufacturers filled the order books of these young and ambitious firms and in doing so, piled on the expectation to deliver.
And so it is then, that as these contracts are realised and rolled out, there’s inevitably going to be some the shut up shop, some that stumble and some that succeed.
For those firms stuck in the thick of it, that search for success is as much about managing reputations and relationships, as it is about turning the handle faster.
Mixed fortunes for Gamesa, in its first quarter results, announced yesterday.
Although revenues at the Spanish manufacturer are up, its profits fell by €21.7million over the period.
For a firm we’ve looked at previously, questioning some of its diversification strategies, the figures are broadly good news, particularly given the increased order intake the firm is seeing.
Indeed, this continued increase in orders, notably from India and South America, vindicates some of the business’s recent decisions.
Only last week, Gamesa announced that it would be spending a further 2 billion Rupees ($37million) for additional Indian factories, on top of the 5 billion Rupees it has invested in the country since January 2011.
Gamesa argues that India continues to make a lot of sense for its business, claiming that the margins found in Indian production now outweigh those found in China.
If this is the case, then Indian facilities naturally allow Gamesa to compete with the Chinese manufacturers on a more even footing. Compare this to fellow European manufacturer, Vestas, still looking to compete, in the words of Ditlev Engel with ‘Asia, plus freight’.
But it's not only India where Games is seeing strong growth. Orders from Latin America and the ‘Southern Cone’ (Argentina, Chile, Uruguay) provided 30% of MW sold – the highest across all regions. Given the commonalities in language, and the fact that the predominant South American wind market - Brazil - has started to reach over-capacity, it’s a first-mover advantage that should serve Gamesa well.
What’s crucial in the long run though, is whether these moves will enable Gamesa to meet the firm’s prediction that by the second half of 2012, profits will rise and costs will fall. Integral to this is not only having enough reserves to innovate for new designs, but also to secure ongoing operations and maintenance contracts for developments in new markets.
In the short term, investors will wear a decline in profits, providing the long-term strategy paves the way for future growth. We’ll know soon enough whether Gamesa has it right.
Last Thursday we hosted an invitation-only half-day conference, in partnership with a major international bank.
The event, which focused on the challenges and complexities associated with financing the future of offshore wind, brought together a fantastic collection of people, most of whom subscribe to this service.
And what was particularly interesting to note throughout the presentations, the panel discussions and the multitude of conversations taking place around the room, was that when you dipped below the surface, the focus wasn’t really about finance at all.
Rather, it was about the people, the connections and the personal relationships. That was what really mattered most.
In fact, it was this broader theme – namely, the ability to build relationships, reputations and trust within a rapidly expanding market – that was returned to again and again throughout the morning.
For the financiers and investors of course, it’s these relationships that remain key to future industry innovation, learning and growth. And it is these relationships that will have a longer-term implication on the ability to de-risk the market and cut costs.
For the manufacturers, developers and utilities, it’s a similar story. For too long, they’ve been told that there’s insufficient capital within the markets, that the investment isn’t there and that there’s little appetite to invest.
Put simply, that couldn’t be further from the truth. The capital is there. The financiers are indeed ready to invest and the opportunity remains. The challenge is in unlocking the right funds and deploying what we’ve got.
That’s a challenge that can only ever be tackled by building a direct link between the city and this growth area of the energy markets. A link that is built one relationship at a time and that moves investors out of comfort zones and encourages them to share the risk.
As an industry, we’re already building out the supply chain, increasing policy support, investing in the technology and the grid connectivity and beginning to champion the wider cause.
Perhaps now it’s time to invest in our own people – promoting the good and weeding out the bad. After all, it’s the human capital that really makes this market tick.
As offshore wind power moves out into deeper, more dangerous waters it is time to make sure the ships involved are fit for purpose - By Jason Deign, European Correspondent
What have luxury yachts and offshore wind operations and maintenance (O&M) vessels got in common? A lot more than you would think, according to Ian Baylis, managing director of Seacat Services from the Isle of Wight, UK.
Right now Baylis is busy commissioning a fleet of custom-built, multi-purpose wind farm support vessels from boat builder South Boats, which he hopes will set a new standard in the industry.
The vessels will be kitted out to the highest specification for sure. But that is not the main point, says Baylis, whose previous marine experience includes working in the high-end yachting business.
“If you’re a boat owner and you’ve got your family on board then you will pay what it takes to make sure nothing can happen to them,” he observes. “That means having the best possible vessel, the best equipment, the best crew and best skipper.”
In offshore wind, the stakes are getting just as high, he says. As the ventures move into the deeper waters and more hazardous conditions involved in Round 3 projects, the costs of making a mistake in turbine installation or O&M rise dramatically.
Similarly, with anti-wind campaigners and the media keeping a close watch on the industry, one thing wind power developers simply cannot afford is a tarnished safety record. That is why having boats that can go beyond the call of duty is critical. It has not always been this way, of course.
Peter Hodgetts, marine health and safety champion for the Crown Estate, which owns the seabed around the UK, says: “A couple of years ago there was a lot of pressure to do surveys and they were using whatever was available.
“Not all of it was fit for purpose.”
That may have been OK for shallow water operations, he adds. But it will not do now. “Whereas you may have got by using 12 to 13-metre boats near shore, on Dogger Bank it’s a very different boat that you need,” he says.
That need has triggered a fully warranted increase in attention around the standard of O&M vessels. There is no question that the industry has not been taking the issue of vessels seriously up until now, of course. But, states Hodgetts: “We have already had accidents and fatalities in what has essentially been a small industry.
“If you extrapolate that out into Round 3 it would clearly be unacceptable. One accident is one too many.”
The safety incidents so far are not a result of cutting corners, he believes, but of a simple lack of awareness of some of the risks involved.
To help remedy this, Hodgetts has led the production of a Crown Estate Vessel Safety Guide in association with the standards and certification body Det Norske Veritas (DNV) KEMA Energy & Sustainability. The guide aims to give project owners and developers a better idea of the things they should be looking out for when it comes to offshore vessels, says Hodgetts.
And Mark Young, head of department for Cleaner Energy and Utilities UK in DNV KEMA’s Europe and North Africa Division, says offshore vessels is an area his organisation is intending to focus on more closely in the future.
“We’re going to be more active in the performance evaluation of access vessels and access vessel technology,” he confirms. “The question is how do you compare two vessels or two technologies to each other?
“Right now it’s difficult to do a sea trial in one location and compare it to what might happen in another location.”
There is still no timeframe set for this work, but there is no doubt it will be welcome.
Already Seacat Services is ensuring its vessels meet DNV’s overall standards for wind farm operations, as well as conforming to a host of other regulations, including International Safety Management, ISO 9001, 14001 and 18001.
“The speed of development has been huge,” notes Baylis of Seacat. “If you look at what was being put on a wind farm five years ago, you were talking about adaptive vessels, previously built for another purpose – not an ideal situation by any means.
“Now you have boats specifically designed and fit for purpose, made of bespoke materials, with strengthened decks and propulsion systems designed to hold securely to fixed structures, in increasingly harsh environments.”
This care for quality extends to crews. “Utilising classified vessels ensures that the standard and certification of crew is extremely high,” Baylis points out.
Naturally the vessels and crews offered by companies such as Seacat Services come at a price; Baylis estimates his vessels are costing approximately 30% more than run-of-the-mill equivalents. But he believes the extra cost will be worth it, not least because his boats and people should be able to carry on working safely in conditions that others could not venture out in.
And even the premium placed on comfort and safety could have a payback, he says: “Having shock mitigation seating and soft-mounted superstructures might seem extravagant, but ultimately the safety and comfort of our passengers and crew remains our primary concern.”
“It is all about using the best quality materials to ensure the vessel and the crew can continue delivering as much value as possible. For as long as possible. And as safely as possible.”
One question that was pondered by the editorial team last week at EWEA, was whether the industry has yet fostered a culture of innovation.
Of course there are new designs unveiled reasonably frequently, but in truth these are more variations on a theme, as opposed to a wholesale reinvention.
Take the wind turbine for example. In the computing hardware industry, components are said to conform, on average, to Moore’s law – that is, evolving design will enable chip performance to double every two years. So far, it is a rule of thumb and pace of change that has held constant for the past 40 years, and is expected to continue until 2020.
But in the wind industry, where basic turbine design goes back 30-odd years, the pace of change is much slower.
Of course it can be argued that one is comparing apples and oranges, but the fact remains the computing industry used its cost base as an incentive to keep innovating.
We have seen the emergence of direct drive turbines, but only very recently. Designs for low wind profile regions are also only just emerging too.
But what of vertical axis machines, for example? This idea, once given attention, seems to have been quietly shelved without any clear explanation.
The answer lies in the classic conundrum of risk versus reward, and is another reason why the renewables sector, and wind in particular, needs to think differently from the established models of sector growth.
From the outside, the industry all too often found to be ‘siloed’ – that is firms operating in isolation without a consensus on working to a mutual benefit of driving the industry forwards.
What’s staring us in the face is the need for collaboration - at all levels - from firms within the industry, Governments, policy makers and investors.
Felix Ferlemann in his EWEA conference address, which we touched on last week, emphasised the need for the wind industry to learn from the automotive sector. But when was the last time that wind the industry saw a large joint-venture design or project? The car industry is littered with examples of shared ‘platforms’, leaving individual manufacturers to pursue minor styling differences and badge engineering to price differentiate and still operate profitably.
Some will argue that this will be to the detriment of the profit motive for firms to plough on with their own inventions, but if this were the case, surely the industry should be further along the development timeline?
In the most likely scenario, the industry will continue its technology development in a piecemeal fashion.
Which makes this week’s announcement from the Government’s Clean Energy Ministerial that the United States and United Kingdom will collaborate on floating turbine technology all the more interesting.
If successful, the project should facilitate the development of designs that enables the offshore wind industry to cut its costs in tower and foundation installations, and secure greater wind potential by being further out to sea.
It’s an opportunity for the industry to prove itself capable of working to a set of common goals and fostering a spirit of invention and innovation it currently lacks. Time will tell whether the sector has truly seized the nettle.
Within the wider wind markets, one area of discussion that is cropping up with increasing frequency is the challenge of de-risking existing energy portfolios.
In fact, it was a subject of much discussion in Copenhagen last week, where a number of parties were keen to outline the various ways in which they can alleviate the problem and help.
And what’s interesting from the outset is the sheer variety and spread of companies and industry sectors that are already looking to get in on the act.
Quite aside from their own intentions and ambitions, it’s one of the clearest signs yet that as the European market develops, and moves one step closer to grid parity, the issues that cause the greatest concern are already beginning to shift.
Of course, the specifics of what de-risking a project actually entails varies greatly from one individual to the next. However, most key players are broadly in acceptance that the ability to de-risk any given project is centred around three core areas.
First, that the wider challenges of wind energy – and indeed the energy markets as a whole – are focused on the fundamental issue of supply and demand. A factor that means that energy per se, remains a broadly a domestic commodity that is not frequently exported.
Second, that as emerging markets continue to come online and offer significant potential for future opportunity and growth, they’re all too often hampered by local challenges associated with cultures, currency and costs.
A particularly thorny issue that, if not sufficiently understood, can significantly impact on the long-term viability of a project.
And third, that local political and regulatory risk remains an ongoing concern for investors, developers, manufacturers and support services businesses, alike.
Concerns that while often associated with the emerging markets, can all too often become just as big an issue within established territories as well – as the ongoing wrangling associated with the PTC in the US and with UK’s commitment to Feed in Tariffs and renewable obligation certificates, have made especially clear.
So what does all this mean for the pipeline of existing deals and developments?
Well, with European clean energy investment noticeably down in the first quarter of 2012, it’s clear that nervousness remains. A nervousness that directly correlates to, and impacts upon, a future ability to de-risk.
Thankfully, deals continue to be pushed through by some of the more active participants and individuals within the market. However, it’ll only ever be through working together, and ensuring that the right deals land in the right hands, that we’ll truly be able to mitigate the longer-term risk.
The opening conference address is always a good barometer by which to judge the tone of the following days. In Copenhagen on Monday, it was no different.
Whilst Danish Crown Prince Frederick and Prime Minister Helle Thorning-Schmidt highlighted how far the industry has come, and naturally, the great leaps forward made by Denmark in the past 30 years, comments from EU Energy Commissioner Gunther Oettinger, and EWEA conference chair and Siemens Wind Power CEO, Felix Ferlemann, were more circumspect.
Mr Oettinger criticised recent cut backs in renewable energy subsidies highlighting their role in the decline of investor confidence in the industry. Fiscal austerity, he said, should not be an excuse to cut back renewable energy ambitions.
Without the confidence to look at projects beyond 2020 and the European roadmap beyond 2050, he noted, the future could be uncertain. He’s right of course, but here’s the conundrum: As yet there is still no mechanism available to provide potential wind energy investors with that crucial mix of enough risk to see a return, but safe enough to be seen as a long term asset class.
Carbon trading, hailed as the global solution to mixing the free hand of global capitalism with responsible and green development, hasn’t lived up to expectations. Oettinger pointed out that the carbon floor price is at an historic low, leaving the market without any impetus.
Felix Ferlemann, who characterised the industry as suffering from three distinct malaises, built on Oettinger’s comments: addressing regulatory uncertainty, infrastructure concerns and planning issues, he noted, is key to building investor confidence.
To listen to the two back-to-back provided an interesting contrast for two people calling for some urgent steps to be taken. The politician asked what the market makers could do, whilst the businessman asked what the politicians could achieve.
Both are right, and the answer isn’t simple. Ferlemann highlighted how the wind industry should look to the automotive sector for lessons in how to achieve economies of scale, but praised manufacturers for a re-investment rate of 5% into research and design – well above average.
Rounding of the week it’s obvious that individually, the industry is continuing to see some very positive developments – announcements this week from DONG, Siemens et al have been testament to that – but the elephant in the room grows larger. Governments aren’t necessarily going to provide the answer this time – and European investors have yet to truly seize the initiative. Let’s hope by the time we arrive in Vienna next year, the picture is a little clearer.
The first quarter of 2012 has already seen a steady flow of western politicians pack a suitcase, board airplanes and head East. Last week, it was the turn of UK Prime Minister, David Cameron who worked his way through a gruelling schedule that has included stops in Japan, Malaysia and Burma.
It’s certainly no holiday, for him or for his country peers that have come before; who all inevitably arrive with a flotilla of dignitaries and business folk – each keen to demonstrate their products and services and do a deal.
And that of course, strikes at the very heart of these visits. With near stationary domestic economies, Europe and indeed North America, has a growing desire to re-establish past ties and encourage existing exports.
Only recently, there’s been something else on the agenda too. Namely, a wider desire to funnel future foreign investment from the east, back into the west. That’s why last week’s agreement, signed between Japan and the UK, was significant.
With a memorandum of understanding now in place to organise and subsidise finance for large infrastructure projects, green energy (and in particular, wind) can surely expect to benefit.
Of course, Japanese investment in European wind energy initiatives has already begun – most notably with the 49.9% stake in Gunfleet Sands and more recently, with the Marubeni’s acquisition of offshore wind servicing business, Seajacks. Nevertheless, it’s the sort of agreement that can only encourage future investments.
Indeed, this when combined with efforts already underway within the UK to establish the Green Investment Bank, suggests that pourning money into large-scale infrastructure not only creates jobs and kick starts new industries but can also register genuine, long term financial gain.
And so it’s set in this context that EWEA this morning publishes a report that assesses the impact that the wind energy market has had on the wider European economy. According to the organisation, from 2007 to 2010 wind energy's contribution to Europe’s GDP rose 30%, while GDP fell – suggesting that the emerging energy market is outpacing regional economic growth.
If the statistics stand up to the scrutiny, the report paves the way for an ambitious and exciting next chapter. And the conference this week in Copenhagen, is just the start.
On the eve of next week’s EWEA Copenhagen conference, the European industry reaches the end of 2012’s first quarter in a mixed mood. There are many reasons to be cheerful, but a few to sound a note of caution...
The parlous state of the European economies continues to exert a drag on the wind industry, as subsidies are re-assessed. The planning difficulties in some markets – particularly the UK - calls into question whether the multi-GW targets of onshore wind by 2020 are realistic. Offshore wind remains expensive, and an industry that has still a long way to go to reach maturity. Some of the larger European turbine makers have yet to adjust to the new landscape, and are finding themselves under threat from more prophetic competitors. Grid connections are another headache: plans for a European supergrid aside, expertise in this area is thin, with projects already facing connectivity issues.
So what about reasons to be cheerful?
Well, there are continuous efforts to improve and refine wind energy technology, be it in scale, efficiency or location. Whilst some large manufacturers are having to reduce R&D budgets, there are a number of smaller firms in the supply chain looking at innovative approaches.
And whilst wind projects may have slowed, they have far from dried up with recent additions to the EU in the form of Romania and Latvia expressing a desire to see the technology become a staple part of their energy generation.
The harsh environment of offshore wind will always make it a difficult sector, but with Round 3 in the UK now on the horizon, and some of the issues from Rounds 1 and 2 nothing more than an uncomfortable memory, investors are starting to show a keen interest in the sector.
And yet despite all the talk, this week also saw research released by the Pew Charitable Trust and Bloomberg New Energy Finance that confirms 2011 saw a significant improvement on 2010 for clean energy investment. Something that once again spells out the opportunity and appetite for future investment.
Yes the risk remains, but as the clock keeps ticking and the doors of the conference hall open once again, the desire to succeed is undiminished.
Grid operators will need to be as good at forecasting as developers and investors, as wind power’s penetration of the European energy mix grows.
By Jason Deign, European Correspondent
Heard of Gregor Czisch? He is a researcher who has studied renewable energy at institutions from the Fraunhofer Institute for Solar Energy Systems to the University of Kassel’s Institute for Solar Energy Supply Technology. But, ironically for a solar power researcher, he is a big fan of wind power.
In fact, in looking at how renewable energy technologies could best meet Europe’s power supply requirements, he has come to the conclusion that wind energy is the best answer.
That is because it is the cheapest to deploy and potentially plentiful. And what about the variability? That might not be a problem given a sufficiently large area, says Czisch. While it is true that the wind does not always blow, if you take a region the size of Europe, for example, it is always blowing somewhere.
In fact, according to Czisch’s models, if you had a grid extensive enough and powerful enough to connect the whole of Europe, you could almost power the entire continent, using wind energy alone.
Powering a whole continent exclusively with wind may be pushing it somewhat. However, much of Europe is already on track to achieve significant wind energy penetration. And there is no doubt that linking wind resources over a sufficiently large area may help solve much of the problem of intermittency, and allow the industry to contribute much more to the grid.
In Spain, Iberdrola is already considering using its vast wind farm estate in ways which will allow it to achieve greater generation stability, effectively keeping some turbines or farms on standby and only bringing them online when the wind drops.
On a bigger scale, however, this will not just take lots of wind farms and an improved super-grid, which is already in the works under European Commission proposals. It will also take improved forecasting, and for two reasons.
The first is that a good knowledge of upcoming weather patterns will obviously help in understanding where wind energy can be captured and where it will need to be transported to.
Right now, wind farm site selection is often a case of putting turbines in any potentially windy area where they will not get in the way. If Europe is serious about running on wind power, however, it would make sense to study macro weather patterns and understand where and when the wind blows at a continental level.
That would help to identify major wind generation areas and the times when their yield is likely to rise or fall, as well as regions where power may need to be brought in from abroad at certain times of year.
But the second reason is potentially even more important. Up until now, grid operation was mainly about understanding and forecasting demand and adjusting the output of coal, gas or nuclear plants to suit. Renewable energy is changing that. With significant input from solar energy, and particularly wind, grid operators also need to be able to understand generation patterns.
If a particular day in June, for instance, is likely to see plenty of sun in the Med and plenty of wind in the North Sea, grid operators need to know about this well in advance. Only then can they adjust the contribution from non-renewable sources accordingly.
Without this knowledge, grid operators risk having to ask wind farm owners to switch off their turbines, which does nothing to help the growth of the renewable energy sector, nor Europe’s attempts to reduce carbon emissions.
Steve Ross, managing director for Europe, Middle East and Africa at the renewable energy risk management company 3TIER, says: “A grid operator’s main objective is to ensure stability of supply, whereas a wind farm owner has to maximise assets.
“Using forecasting intelligently will allow both parties to meet their goals in a harmonious fashion, maximising both the reliability of the supply and the profits for the asset owner.”
Grid operators in countries such as the UK have already started to apply these kinds of forecasting techniques, but this process needs to speed up if it is to keep pace with the introduction of renewable energy sources, Ross adds.
“Five years ago, wind power’s contribution to the grid was negligible, but now we are seeing the introduction of 1GW or 2GW wind farms.
“These are serious power production facilities, which means that there has to be a wider understanding and appreciation from both transmission operators and project developers alike, of wind conditions, to enable the grid to function effectively in the future.”
Ross finishes with a word of caution. “The UK is currently remembering Titanic, an unsinkable ship that failed 100 years ago due to a fixable design fault," he says. "Not to invest in what is a simple cost effective solution here seems a little bizarre.”
As the industry grows, one of the issues that this column continues to reflect upon and tackle is the sheer size and scale of the resultant manufacturing challenge.
It’s important, since it’s an issue that generates significant implications, both within established western markets and across emerging markets throughout South America and Asia Pacific.
However, irrespective of the geography, to a greater or lesser degree the manufacturing challenges for many mid market players remain the same, all over the world. And the greatest challenge for many is the ability to understand the investment risk and tool up.
Let’s be clear. Designing, manufacturing and assembling parts and components, for what are quickly becoming larger and larger turbines, isn’t cheap. And it’s certainly not for the faint hearted. The up front investment is high, there’s limited short term market certainty and the returns are measured in terms of five and ten year chunks – at best.
Combine this with the need to be able to negotiate with the major turbine manufacturers and market gorillas - and to not just form commercial relationships but to form trusted working relationships as well - and suddenly you’ve got a complex new market on your hands.
And for many mid tier engineering companies and manufacturers, it’s the ability to understand the complexities of a new market that all too often sucks too great a slice of short term operating profits and investment and generates too many unknowns.
The result?
A hesitancy to invest and a caution associated with upsetting the status quo. Fair enough, perhaps. However, for those with an eye on the future, the risks simply have to be quantified and assessed. And fast.
The European manufacturing base cannot afford to sit back and let others take the lead. Instead, firms – both large and small – need to stand up and tool up. Individual goivernment support might change from country to country but one thing remains clear – the market for European large-scale wind is here to stay.
It was never positioned as a ‘green budget’. That much could be gathered from the now customary leaks ahead of the official unveiling, which seemed to offer little prospect for clean energy.
There were few surprises, then, when the Chancellor unveiled new measures of fiscal support for the North Sea gas industry.
Having inflicted some rather heavy taxes on the sector last year, the UK Chancellor appears to have reversed his commitment to leaning on oil and gas businesses in favour of giving more opportunities to renewable developers.
The Chancellor has perhaps been spurred into action following a reported 25% decline in gas production in the second quarter of last year – a slump blamed on the tax imposed on the industry in last year’s budget.
Unfortunately, the move does seem a little short sighted. Even official figures from the Oil and Gas lobby – Oil And Gas UK – suggest that there are only 14 – 24 ‘equivalent barrels of oil’ (to use industry barometres) remaining. Whilst this represents a security for what some estimate to be the next forty years, and there is of course always the prospect of future discoveries, gas’s green credentials are poor.
Contrast this with other European states, particularly Germany, which has just announced it will invest $263billion in renewables. And whilst Germany does have some sources of natural shale gas, it has held off the temptation to exploit this rather more risky resource.
Natural gas can be a solution – but only a short term one. What Osborne risks is a slow down in renewable developments – notably wind – that means there is a shortfall in generating capacity when the gas eventually runs out.
It’s no secret that as we approach the middle of the decade, many European nations are heading for an energy supply crunch. And the UK is no exception.
In fact, over recent months the situation’s been compounded further, as energy companies rapidly burn through their remaining EU production allowances.
The situation is particularly severe when it comes to coal. Currently eight UK power stations are scheduled to shut down operations by 2015.
However, that figure may well escalate given recent price hikes within European natural gas – a scenario that has reduced per MW profit margins and pushed power producers to quickly dial up the operating capacity of coal fired stations and shift the balance away from increasingly expensive gas.
In the short term, it’s a switch that helps the energy giants maintain the margins.
In the longer term however, it only serves to shorten future permitted operating hours and makes the business case for new natural gas power plant sites all the more unpalatable. Yes, there are a number of new sites in planning - actually building them however, is an entirely different matter, despite Ed Davey’s comments over the weekend.
So what does this mean for wind power – an industry that currently represents less than 4% of the country’s energy consumption mix? Actually, it means a lot.
Let’s be absolutely clear – no European nation is about to weaned off a diet of coal overnight. Globally, nuclear is pushing on despite the Fukushima disaster. And national electricity grid infrastructures – particularly within the UK (but also within continental Europe) are currently ill equipped to handle a very different approach to the transport and distribution of alternative energy.
Nevertheless the opportunity remains. Put simply government’s no longer want to be at the mercy of international fuel price fluctuations and the risk of a halt in supply.
Yet despite a suppressed demand for power as a result of the current economic weakness, in the longer term the demand for energy is only set to increase.
For the renewable market, and for wind energy in particular, that fact is key. As the future energy mix begins to take shape, it’s time to engage, expand and fight for slightly bigger slice of the pie.
It was a week of contrasts as the editorial team has been on the road at the Oceanology and RenewableUK Wave And Tidal events. And what’s this got to do with wind? Actually, quite a bit...
Although it’s the 9th annual RUK conference on marine renewables, when comparing it alongside the wind industry, its progress seems rather more pedestrian.
And whilst this can in the main be attributed to the complexity of the technology required, there seems to be less of a common industry consensus on the best way to proceed – something that for all its foibles, the wind sector manages rather well.
Where the wave tidal industry appears to be struggling is in attracting the right sort of investment; ahead of wider commercialisation.
Investment from Governments in both Westminster and Holyrood whilst favourable, and which have achieved a large part of the burgeoning success of the industry, can only provide part of the answer.
Like the early days of the wind industry, the sector needs confidence from a large OEM to take a risk, as Vestas did many years ago. But at the moment, it would appear most industry OEMs are reluctant to put all their eggs in one basket - thereby backing one technology that they’re as yet uncertain how to support. Understandably, they’re reluctant to provide technology in exchange for project equity, either.
The venture capital community is even more remote. Until there are discernible track records for the technology, and also for any independent power producers looking to get involved, then VC investor confidence in the sector will remain low.
So can the wind industry provide any assistance in helping to get another promising renewable energy source off the ground, or more accurately, in the water?
Well yes, it can. There are a number of obvious synergies between offshore wind and marine energy and the experience gained in project management, installation and financing for the risk-heavy offshore wind industry, should be readily transferred to the marine business.
And at a technical level, given the constraints on grid infrastructure, it would make sense if wave and tidal schemes could share the interconnectors used by offshore wind.
Together is usually stronger. There’s no reason why this shouldn’t be the case for renewables.
As industries go, the ferry business isn't known as the most entrepreneurial of sectors.
Indeed, over the past fifteen to twenty years - and with the rise and rise of low cost airlines - it's a sector that has become increasingly reliant on the freight and road haulage market; leaving many European operators struggling to stay afloat.
So for many, it may have been surprising to see one particular operator linked with something altogether different. Something that could offer an insight into the shape of things to come.
As part of a deal struck with Centrica, European Seaway, a 23,000 tonne P&O operated passenger ferry is to be taken off its traditional cross channel route and will be moored 7 kilometres off the UK coast. The boat - having undergone a refit - will then enter a two-year charter, serving as a floating hotel and workstation for technicians and engineers working on the Lynn and Inner Dowsing wind farm array.
Of course, this isn't the first time that a ferry has been used in this manner. Companies such as C-Bed have already started making a name for themselves refitting older passenger and freight vessels and promoting their potential benefits.
Nevertheless, the P&O deal is different. Since it's the first time that such an industry heavyweight has broken ranks and started dealing with the developer direct.
For now, P&O are positioning the deal as a one-off and, despite the marketing department's efforts, are evidently keen to downplay the development. How long that will last, remains to be seen.
With offshore wind energy crews currently being shipped from port to park on an almost daily basis, technicians will quickly tire of the transfer times. While at the same time, developers risk losing out on valuable construction and maintenance man hours.
Viewed in this light, floating service stations would appear a logical choice and the next natural step in the evolution of operating offshore.
A potentially lucrative new revenue stream then. Particularly for those entrepreneurial types, willing to dip their toe in the water.
Ten million pounds is quite a sum for a ‘nimby’ campaign. Yet this is what Donald Trump has said that he is willing to spend fighting future wind developments in Scotland. And not just the one that ‘threatens’ his planned golfing resort.
As it is announced that Mr Trump is to be called to a Scottish Parliamentary committee as part of an inquiry into green energy, there may be some who are a little nervous that his threats are being taken with more consideration than is perhaps justified.
Trump claims to be making an investment of £1billion into the Scottish economy through the construction and operation of his resort. For a man reputedly worth $2.9billion, that’s not an insignificant sum.
But is the Scottish parliament in danger of paying his threats a little too much attention? Possibly. Although Mr Trump can find ready allies in the likes of Murdo Fraser and other Tory MSPs who are keen to secure political support from the Scottish anti-wind lobby.
The real danger here is probably not that Mr Trump’s opinions matter more than the next person, but that its indicative of how, on balance, the ‘anti’ wind campaigns continue to be far better organised and far more efficient than those that the pro wind lobby ever seem able to achieve.
Too often, those against wind couch their argument in terms of financial cost to ordinary people already facing fuel poverty, and the technology's 'inefficiency', without ever having to recourse to more sound judgements on future energy security, or the ability to hedge against future price rises in oil and gas.
And given the bias against wind seen almost daily in the media – this just yesterday – the true figures for wind support are swept under the carpet. Something that continues to astound, particularly if the latest YouGov figures (that suggest that 61% of UK consumers support renewable forms of energy), are anything to go by.
Ultimately, if the wind industry is to win over the cynics, then it needs to respond with greater clarity and conviction when it comes to dealing with the rants and ravings of the likes of Donald Trump. A chap that - despite what US television audiences may say - is hardly the European role model that the energy market ever needs.
Moreover, instead of forever fighting a reactive communications campaign, isn't it time to change the conversation and change the game?
Wind energy isn't about eco warriors and the green agenda anymore. Rather, it's about diversifying an existing energy portfolio, increasing existing levels of self sufficiency and creating a greater level of certainty when it comes to meeting future energy needs.
As with any electricity generator currently sitting within the wider energy mix, wind power is no silver bullet. However, with the right level of support and the right infrastructure and governance in place, then it can become a credible part of our future.
As an industry, we've moved a long way in a short space of time. However, as we continue to race ahead, we've got to be careful not to leave the public behind. And effective communication is often the best place to start.
There is a good reason why many wind farm projects underperform financially. And there is a good way to prevent it from happening. By Jason Deign, European Correspondent
Trust the UK tabloid Daily Mail to give a balanced view of why many wind farms in Britain are failing to meet power output expectations.
“It’s because the developers grossly exaggerate potential,” the paper quotes environmental consultant Michael Jefferson as saying in a March 2010 exposé highlighting how 20 UK wind farms were operating at less than 20% of capacity.
The story accuses developers of systematically building in areas where there is not enough wind resource. At the end of it, though, Nick Medic of RenewableUK, the British wind industry association, makes a valid point: “If it’s not windy, it’s not profitable, so why would you build? No business is going to build something that is not profitable.”
Indeed. This is a major concern for the wind farm industry, because poor wind farm performance is not just a feature of the UK. It is also found in markets from the USA to Brazil. And that means a lot of investors are losing a lot of money.
Why do wind farms underperform so often? Wind is naturally variable, so it is only to be expected that a given proportion of projects will fail to operate at full capacity, either for a period of time or even the entire lifespan of the development. However, if the problem were just down to wind variability then a roughly equal proportion of projects ought to be expected to over-perform, and this does not seem to be the case. The bias
is only in one direction.
Wind farm developers are obviously doing something wrong, then.
Last year a John Hopkins University fluid mechanics and turbulence expert called Charles Meneveau suggested turbine spacing might be the issue. He advised locating turbines 15 rotor diameters apart, compared to around seven presently. Reducing the density of turbines might improve the output of each machine, but will clearly have an impact on the total amount of power you can get from a defined size of wind farm.
And that might not be the only factor leading to underperformance. There is at least one other potential candidate, and it could be a lot easier to deal with, because it is all in the mind of the developer. To illustrate it, Matthew Hendrickson, senior director of energy assessment at 3TIER, a global leader in renewable energy risk analysis, asks you to consider five potential wind plants that you could invest US$200 million in.
If each project has a similar price in terms of capital and operational expenditure, and wind resource is the only apparent difference, then logic dictates you will select the one that has the highest net present value.
But now consider that these projects actually all have the same net capacity factor (NCF), and the differences in apparent output are actually the result of the underlying uncertainty in your wind resource assessments. If you picked the project with the highest apparent output then you have essentially picked the project with the most optimistic wind resource assessment and the one that, therefore, is most likely to underperform.
“Examining the historic bias of the industry, it is possible that the assessment process is more accurate than it receives credit for, only that the industry tends to build projects with the error on the side of underperformance,” Hendrickson says.
One way of dealing with selection bias, or indeed any bias, is to try to eliminate it by counterbalancing your calculations in the opposite direction. And, indeed, wind project investors and developers now traditionally give their figures a ‘haircut’ to counteract uncertainties.
Fitch, for example, states in its Global Infrastructure & Project Finance Rating Criteria for Onshore Wind Farms Debt Instruments that it “typically applies a 5% haircut to the results of the wind energy assessment for most greenfield projects.”
There are a couple of drawbacks to the haircut approach, however. The first is that although the haircut levels can be improved through on-the-ground feedback on performance, this information takes three or four years to trickle through, so it is usually relates to older turbine technology.
And the second is that it does not inspire much confidence in the professionalism of the industry when investors have to routinely lop chunks off the value of business plans in order to feel comfortable about putting money into them.
For this reason, Hendrickson says: “The challenge is on us to not only demonstrate we have a grasp on the sources of uncertainty, but to systematically reduce them through guidance and the sophisticated use of observations and advanced models that begin years before the project is built.” Although it is not the only determinant of project locations, he adds: “In the typical model the wind resource is the most sensitive driver of financial return.”
The extent to which it is important to estimate wind resource accurately is dramatically underscored if you model the profitability of net present value returns based on different degrees of NCF uncertainty. For a typical 100MW project, if there is an NCF uncertainty of 10%, which is not unusual, you have a 5% probability that the project will lose $6.1 million, according to Hendrickson’s calculations.
But because of the influence of selection bias the potential loss could be much greater. “Even a modest consideration of the NCF in selection decision yields bias of 4.8% and a further reduction of the P95 by $1.7 million,” Hendrickson says. At 6% NCF uncertainty, however, the P95 value equates to a gain of $4.8 million relative to expectations. “This is a $10.9 million improvement over the 10% case,” Hendrickson points out. And selection bias is minimised.
In fact, Hendrickson estimates that in a 100MW project each 1% reduction in uncertainty improves the P95 downside case by $2.7 million and improves the P50 selection bias by $1 million.
Gaining such reductions is not difficult. It starts with collecting high quality observations. Additionally, companies like 3TIER can combine those observations with advanced numerical weather prediction models to greatly reduce temporal and spatial uncertainty in wind resource estimation, helping to shave off those valuable percentage points.
So maybe it is time the industry developed a new kind of bias: for more accurate modelling.