Invest in wind energy option #1 – buy wind turbines

This is the first of several post that I’d like to write in the next weeks about investing in wind energy.

There are several possible alternatives to invest in wind energy, or more broadly in renewables: stocks, managed funds, ETFs or even direct investment in the development of a project.

The option described in this post (buy your own turbines) is probably the most extreme but it’s not unseen. I’ve been personally involved in several projects owned not by utilities, mega corporations or professional developers but by private investors or small companies willing to pay out of their balance sheet.

Additionally, it has to be considered that the banks are usually willing to finance a relevant portion of projects. The percentage that can be financed is somewhere around 60% to 70%, in some cases even more.

The capital cost of wind projects are dominated by the cost of the turbine. In this blog you will find quite a lot of post detailing the other costs associated with the project, usually called “Balance of Plant” (BoP).

As a rule of thumb I would say that the turbines, fully installed and operational (that is, including transportation, installation and commissioning costs) will be somewhere between 60% to 80% of the total investment.

How much does an industrial, multi megawatt wind turbine cost?

It’s obviously not easy to answer this question as it’s dependant on several variables such as number of turbines purchased, transportation costs (marine and overland), financing, insurance and warranties, etc. Actually is so critical that companies in the wind business have usually specialized departments devoted to the gentle art of Pricing.

However several reliable sources (Bloomberg in primis - they are the source for the image above) are concordant on the fact that the cost per megawatt is steadily decreasing.

When I joined the wind industry (2010) a MW was somewhere around 1.4 to 1.6 million dollars -  that is, you could expect to pay around 3 ML$ for a 2 MW wind turbine.

Today (end of 2018) prices have dropped dramatically. Buying a turbine today, with delivery at the end of the next year, will probably cost around 1 M$ per MW.

There are several reasons behind this price drop. I believe that the main 2 are scale factor (today, 3 to 4 MW wind turbines are the norm while in the past the standard was 1.5 to 2 MW) and market pressure in the majority of developed markets (USA and Europe).

To summarize, to invest in wind energy building your own small wind farm (1 turbine around 3MW, no substation or other substantial BoP costs) you would need probably between 0.5 and 1 ML$. This very rough estimate consider a total cost of the project between 3.5 and 4 ML$, with the banks financing around 70%.

 

Wind Energy in Finland

One of the things I enjoy more in my job is that it gives me the possibility to work in several  different countries.

In  the last months I've had the pleasure to visit several time Finland for a project developed by Neoen (the French developer that it's about to launch its IPO) and Prokon.

It's a 81 MW project called "Hedet". 18 Nordex/Acciona N149 4.0-4.5 MW turbines will be installed under a full EPC contract in an area near Närpiö (a low - medium wind site in West Finland).

It will be built in 2019, bust some preliminary works for roads and tree cutting have already been started.

The energy will be used to power a Google data center (see my other post on this topic).

It’s interesting to note that this is a private, unsubsidized PPA – meaning that it is a transaction between companies, not a “classic” setup where the electricity is sold by the developer to an utility for public consumption.
I believe that this kind of deal will increase in the next years given the sharp decrease of solar and wind plants.

Wind energy use is growing in Finland – the country started somehow late (in 2010 they had less than 200 MW installed) to accelerate strongly in the last few years. The country has over 2 GW installed now, covering about 5% of consumption.

I would like to thank our colleagues in Finland and all the subcontractor we’ve worked with in the last months. Thank you for your hospitality!

Wind farm construction steps: generic timeline infographic

One of the pleasures of fatherhood is the fact that you have quite a lot of extra times during the night – if your kids do not sleep.

Yesterday night has been exceptionally short due to a son diving out of the bed and hitting his head and another who decided that at 6 AM the night was ended.

Therefore I’ve used this extra time to create a timeline with a very generic overview of a small wind farm construction steps.

They can (and do) vary a lot between a project and another. However it should give you a rough order of magnitude of the key steps and the time needed for each of them.

The editable PPT file is available on demand. It’s based on a free template made available by Hubspot (thank you guys!).

Enjoy!

Target Price for BoP: a basic introduction to a complex topic

There is an old joke that say something like “What happens when you put 10 economists in a room? You'll get 11 opinions.”

My experience with Target Price is similar: I’ve heard many opinions in favour and against it and probably in general it’s not “right” or “wrong", but it's a strategy that, depending on the context, can be more or less appropriate.

Basically, the idea is to share with the subcontractors the price level that they are supposed to reach – or if you want to see it the other way around how much you can afford to pay to build the wind farm.

On a smaller scale the idea is not new. It is what happen when you ask someone if they can meet a certain budget, for instance asking to an artist “Can you do me a portrait for 100$?”. The answer could be for instance something like “Yes, but the dimensions will be 20x20 cm”

There are indeed some arguments I can see in favour of it:

  • BoP is (partially) a custom service with certain technical specifications that in some cases can be changed.

The implication is that the input of the subcontractor can be requested to hit the target, or some initial requirements can be changed. A classic example is the level of redundancy of the substation: fail proof solutions are not cheap.

  • Material costs can be clearly identified (in some cases).

This is for instance the case when items like medium voltage cables are purchased - a key driver in the cost of cables is the spot price of the raw materials (copper, steel, aluminium) so it’s relatively easy to calculate how much you should pay.

However, it’s also easy to find arguments against it:

  • To give a target price, the buyer should understands the cost structure.

This is not so easy as sit might seem: people dealing with BoP are usually operating in different markets, interacting with companies of different sizes and with different business models. Therefore having a clear view of the seller costs structure can be a daunting task.

  • Price volatility should be low.

This is true in certain markets where it’s easy to find a steady supply of bidders. However, overheated markets with several competing projects executed at the same time can create price volatility: basically, the resources that you need to build the wind farm (for instance the crane, or the mobile batching plant) will go to another project – another wind farm nearby, or possibly something totally different.

 Wind turbine foundations cracks – an update

I already discussed in another post a frequent problem of with turbines foundation, the appearance of cracks.

In general, my impression is that the new foundations with anchor cages are much more reliable that the previous technical solution (the “embedded ring” – the industry standard some years ago).

However, every now and then I still hear story of foundations that need some kind of  intervention due to mistakes during design and/or execution.

Unfortunately there is a lot of secrecy on this issues. Unlike other civil engineering products (e.g. roads, dams, etc.) problems with wind turbines foundations are generally hidden, probably due to the fact that they are mainly private investments and probably the companies experiencing an expensive problem prefer to have as little publicity as possible.

From several studies I’ve been able to found on the topic it seems that towers and foundations are accountable for less than 5% of WTG failures – being blades, gearbox and generator much more frequent sources of problems.

However,  while replacing a blade or a gearbox is “business as usual”, replacing a foundation is not  really an option – and any intervention will probably be quite expensive.

Problems in the foundations usually materialize as cracks in the concrete.

In many cases they are caused by the cyclical nature of foundation loads – with a lifespan of 20 to 25 years the foundation can be exposed to millions of loads cycles.

These cracks can be radial or circumferential, and appear both in the pedestal (the visible part of the foundation, where the tower connect to the foundation) and in the buried part of the foundation.

Usually these cracks tend to appear soon (1 or 2 years) and they doesn’t pose a danger to the stability of the wind turbine. However, water could infiltrate them damaging the reinforcement bars.

The position of cracks can be defined with ultrasonic devices.

These technology use the echo of sonic waves to create tridimensional images of the foundation. In practice a crack will appear as a discontinuity, reflecting the wave to  the receiver.

Should cracks on a foundation worry you?

It depends.

It’s important to note that not all cracks are created the same: shrinkage cracks or cracks in the grouting due to an excess of material are usually less critical than the appearance of voids (for instance below the load spreading plate or the bottom flange of the anchor cage).

 

I trust you, but… Professional Indemnity insurance

The Professional Indemnity insurance, also known as Professional Liability or “PI” here in Europe and “Errors & Omissions” at the other side of the ocean is an insurance who protect individuals (engineers, geologist, topographer…) and companies in case they made gross mistakes, negligence and similar errors causing losses to the counterpart who purchased their service.

In the majority of the projects I’ve worked at I have had the pleasure to know very good professional working for external subcontractors - people who helped us develop wind farms in faraway countries providing a variety of services.

Even if many work for “big names” in the business and I know many of them personally, it’s always a good idea to have a PI insurance in place when you purchase a professional service (in my case, something related to civil or electrical engineering).

The amount of the insurance should be related to the potential damage – in my case, the bigger the wind farm, the bigger the insurance that will let me feel comfortable.

However,  this type of insurance is not cheap – the more onerous the request, the more expensive the service will become because the consultant will (obviously) ask you to pay for the policy extension.

As far as I know, PI is not mandatory (at least, not for all professions and not in all countries). However the vast majority of companies and individuals I’ve worked with had it in place.

It’s also worth mentioning that such insurance will also need to stay in place quite a lot of time – some design errors are not self-evident and are usually discovered after a few years.

Lastly, I want to highlight that every now and then I see a new technical solution in the market (for instance, I’m currently studying at least 3 alternative foundation types).

As this are new, unproved technologies the need for a strong Professional Insurance insurance in place becomes even greater.

Types of cranes

Even if I’m not a specialist I would like to dedicate a post to a relevant element in a wind farm construction – the crane.

Crane procurement and wind turbines installation is normally organized by a specialized department, staffed with experts who knows what are the cranes available in the market and the implication of having a specific model instead of another on site.

In some countries, when the economy is thriving or if wind farms installations are booming, it can be really hard to find a free crane in the correct time slot - the few months when turbines are installed. In some case it might be necessary to import it from a different country.

Generally speaking, cranes can be categorized considering different technical characteristics:

  • Crawler vs wheels: cranes on wheel can use public roads and travel at a reasonable speed, while cranes with crawlers can go everywhere and they are often moved off road.
  • Standard vs narrow track: cranes on crawlers come in 2 version, with the crawlers at a “standard” distance (somewhere around 10 meters) and very near (below 6 meters). Obviously with a narrow track you will need less earthworks and the roads will be less expensive.
  • Telescopic vs lattice boom: 2 different solutions for the boom. “Hybrid” intermediate solutions are available

Cranes on wheels have a variable number of axles, usually somewhere between 6 and 9. As they are designed to be used on public roads the standard load per axle is 12 tons, even if partially rigged cranes can have a load per axle of 16 tons, 20 tons or even more.

The same crane can have different configurations, meaning that  the owner can purchase different tools and components to increase the maximum load and lifting height.

The configuration is indicated by hard to read manufacturers codes such as “T7YVENZF”. For instance, the code of the example means that the crane has a 100 meters telescopic boon, a Y- shaped guying system, an extension and a lattice jib.

Cranes can be moved from one wind turbine position to the following one fully rigged (not a frequent choice nowadays, given the increasing hub height of the turbines), partially dismantled or fully dismantled.

When a crane is dismantled the components are loaded on a truck and unloaded in the following wind turbine location. The number of trucks (and back and forth trips needed) depends on the crane model configuration but can be quite relevant: dozens of trips may be needed to move all components.

With a fair wind – something interesting to read this summer (if you like wind farms)

If you are reading this blog,  chances are that you are somehow interested in wind energy.

And if you are looking for a good, interesting book on this topic I would suggest you to start from here: With a fair wind (full disclosure – I’ve written the chapter on Civil Works).

It is a book edited by the Esteyco Foundation, who was established more than 25 years ago with the aim of contributing to the progress of engineering and architecture.

There are quite a lot of contributors including Manfred Petersen, a very experienced wind farm foundations designer who is working at several interesting new technical concepts. They are coordinated by Ramón López, who in addition to his career as an Engineer is also very active as Triathlete.

Download it here

Time is never enough: Early Works

Early Works, sometime also called Preliminary Works, Limited Notice To Proceed or something similar, are a common project strategy that is currently more frequent than ever before.

Basically, it means that some field works, engineering tasks and/or procurement activities are done before that the EPC contract enter into force.

EPC contracts have usually a long list of condition precedents to be fulfilled – basically things that should happen to give validity to the contract.

However, due to demanding planning and “hard” deadlines such as changes in the regulatory framework or a variety of other issues, it’s often difficult to wait for that point in time.

Additionally, negotiations can be longer than expected or problem with project finance closure are a reality in the majority of the developments.

Therefore Early Works are often the only chance to keep the project alive. Basically is a separate agreement between the customer and the contractor where both party acknowledge the situation and recognize that some tasks need to be performed immediately to keep the time schedule of the wind farm feasible.

It’s usually a “light” contract, a few pages highlighting the main terms and conditions. The content of the early works is obviously project specific.

Some activities that are frequently performed upfront are:

  • Geotechnical investigations
  • Foundation design
  • Finalization of the internal layout
  • Engineering and procurement of the main transformer

However, in the past I’ve seen a variety of tasks included in the Early Works, from the engineering of the substation to support to permitting for wind turbine transportation (in some countries authorities can be VERY slow).

I’ve also read of a wind farm in a very remote area with an Early Works package including an air runways, so as mentioned before the type of early works are dependent on the specific wind farm planning.

Piled foundation for wind turbines

I’ve noticed last week that the blog has no post on piled foundation and decided to write a couple of words on the topic on a flight back to Hamburg.

Piled foundations is a broad term that include several technical solution aimed at increasing the bearing capacity of the soil when design requirements such as bearing capacity, limited differential settlement and/or necessary rotational stiffness can’t be met designing a standard shallow foundation.

Piled foundation are a type of “deep foundation”, a concept opposed to the standard “shallow foundation” solution - other type of deep foundation solutions are for instance soil substitution and soil injections.

They are relatively frequent. The number of piled foundation that you will see are very dependent on the countries you are working in – probably almost 100% of the new WTGs in the Nederland are piled, while turbines installed in Portugal on the top of a mountain ridge are usually on a shallow foundation.

Piled foundation are usually expensive – as a rule of thumb, they can cost between 1.5 and 2.5 times the cost of a standard shallow foundation for the same turbine type.

The selection of a solution will  usually depend on 2 main criteria:

  1. Cost: unsurprisingly, the main concern is usually to limit the impact of special foundations on the project budget.
  2. Constructability: sometimes the “best” solution can’t be selected due for instance to a shortage of machinery (a problem more frequent that you might think, above all in good times of strong economic growth), environmental constraints or other potential impacts (for instance, some piles are hammered and they can induce vibration on other building and structures nearby).

The main categories of piles are

Precast piles: this solution use concrete (or more infrequently, steel) piles fabricated somewhere else. Piles are driven into the ground by a hammering machine that measure the resistance of the soil to each blow. They say that “a driven pile is a tested pile” – and if you are not reaching the needed capacity you can keep hammering the pile to a greater depth as they are modular. Precast piles are usually more expensive and as mentioned they generate noise and vibrations.

In situ piles: this type of piles are fabricated on the spot. Augercast piles, also known as continuous flight auger piles, are drilled by a machinery that first drill the hole to the requested depth and after, while retracting the auger, inject cement ground in the ground. After concrete reinforcement bars are inserted in the pile. Drilled piles are similar – first the hole is drilled, after the walls of the excavation are kept into place using a fluid like bentonite or a steel casing. After, as in the previous case, concrete is pumped and concrete bars are inserted in the hole. The last type are rammed aggregate piles (also called impact piers), where instead of concrete gravel is inserted in the hole and after hammered by the machine. By doing so a higher density is achieved for the  gravel and for the soil around it. This solution is specially effective in seismic areas, were concrete piles can be broken by earthquake.