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Well, apparently the answer to this question is "not yet".
I've been through an interesting article from Bloomberg - the  images of this post are taken from the same source.
As you can see, in addition to a new reshuffle in the top 3 (Vestas up again, together with GE), there is another important piece of information: Goldwind (and other Chinese companies such as Guodian United Power) are big but they are selling mainly in China.
European manufacturers have not been able to penetrate the Chinese market, but also the opposite is true.
Nevertheless, maybe the wind is changing: for instance, Envision has been recently awarded 4 wind farms in Argentina.

 

Wind energy, as probably all niche sector, is full of acronyms and hard to define terms.

One of them is the “bankability” of an EPC project.

In a nutshell, it express the idea that the lenders are fine with the development and are ready to put on the table a relevant percentage of the money (easily up to 70% or more), normally with a consortium of financial institutions.

In this post we will focus on the “Capex” part of the problem: we will ignore all analysis related to the expected cash inflow (PPA, wind data, financial models, etc.) and Opex (basically, Operation & Maintenance of the turbines and substation for 20 years).

In a EPC project the money will normally flow from the banks through the developer to one or more subcontractors.

The banks will check several different features of the contracts between the developer and the subcontractor, being  the most important point a fixed completion date and price. To reach this target, they will try to minimize the ability of the subcontractors to claim extensions of time and additional costs.

If unable to reach completion on time, the subcontractor(s) will have to pay delay liquidated damages (DLDs). These DLDs are normally expressed as “dollars per day of delay”. The amount is obviously project specific, but is usually several thousand USD per day and I’ve seen project with over 50K USD/day. Obviously banks likes high DLDs.

Another type of liability is the performance liquidated damages (“PLDs”) that the contractor will have to pay if it fails to meet the performance guarantees. These are usually linked to power curve and an availability guarantee for the whole wind farm, but can also (and do often) include other concepts more directly related to the civil and electrical works of the BoP.

Banks also like large caps on liability – being “uncapped” the best scenario for the lenders (which never happen in the real word).

Connected to these concepts there is the need for the lenders (and the project sponsor) to be able to get money from non performing subcontractors. Therefore, some kind of security (often in  the form of a Parent Company Guarantee) is requested to the main EPC contractor.

Bank also appreciate proven technologies, and like to pay for wind turbine with extensive track record.

In general, a project  may become “bankable” even in a situation where the bank is not 100% satisfied if the sponsor (the wind farm developer, or the shareholders behind) are ready to put a bigger percentage of money, lowering the risk profile for the bank.

Due to my education as a Civil Engineer there I already wrote a substantial number of posts regarding cost of the civil BoP.

However I do not want to neglect the electrical side, which as you might already know is usually accountable for approximately 50% of the total cost  of the balance of plant of a wind farm.

I went through the cost of several projects I’ve worked at in the last 6 or 7 year together with a very good friend that I’ve left in Madrid to see if it was possible to find a recurring pattern in the numbers.

Unfortunately, the Electrical Works costs are much more fragmented than the Civil Works, where few “usual suspect” such as concrete, steel and earthworks dominate the scene and are the key cost drivers.

If you are working in the wind business you will be probably thinking  that the most expensive items will be the main transformer.

This is not always the case: in project where we had to quote a long overhead line, it absorbed up to 40% of the electrical budget, quite an impressive figure. Even shorter overhead lines could easily end in the 10% to 20% range, that in a multimillion project  is obviously a big number.

The second item competing with the transformer in the Top 3 is the medium voltage cabling system.

Obviously is extremely difficult to give a number because it will depend on the layout of the wind farm (will it be a row of WTGs or a “cloud” of scattered positions?). Nevertheless, numbers in the 3 to 4 million USD are not unusual even for medium size wind farms.

Then you have the transformer, the last of the Top 3 items. This is the easiest item to quote, usually somewhere around 1 million USD.

Last but not least we have “the rest”. This include everything from the switchgears to the high voltage equipment to the capacitor banks, substation facility and other fancy equipment in the substations.

The impact of all this item can be huge, from 30% all the way up to 70%. Obviously, with such fragmentation it becomes clear that from the cost structure point of view Civil Works and Electrical Works are totally different.

There are several recurring questions that I normally hear at least 3 or 4 time each year.
Some are variants of things like “How much does it cost 1 Km of road in Brazil?” - this was asked by my ex colleague Pau many, many years ago but it’s still a classic for me, and a reminder of the fact that in the wind industry BoP is something ancillary to the core business and not really understood by the majority of the colleagues.

Other questions are more interesting (or at least, it is possible to try to answer them in a more elaborate and complete way).
This is the case of the question “What is more expensive, EBoP or CBoP?”
If you are reading this blog you will probably know the meaning of the acronyms:

EBoP: Electrical Balance of Plant – that is substation, medium voltage cables, step up transformers (if any) and in some cases overhead line.

CBoP: Civil Balance of Plant that is roads, WTGs foundations, crane pads, trenches and other fancy stuff that could be requested by the specific customer/project.

And the answer is… it depends.

In some project, you are requested to build 2 or more substations: one or more windfarm substation to collect the energy plus a substation to evacuate the energy to the grid. This type of layout will also need several Km of overhead line, in single or double circuit.
In situations like this, EBoP is usually more expensive – above all if you don’t need special foundations and earthworks are not particularly complicated (e.g. a flat country, like Uruguay).

The opposite case would be a situation where the EBoP is easy (maybe because there is an existing overhead line crossing the wind farm, or an even more lucky situation where you simply have to connect to an existing substation).
In this cases, if you also have expensive civil works CBoP will be clearly more expensive. This happened for instance in some project I’ve the pleasure to work at in Chile and Honduras.

You can see 2 examples in the pie chart at the beginning of the post.

By the way, if you really need to answer the question of Pau (“How much does it cost 1 Km of road in the country XYZ?”) the best answer that you can give is 100.000 euros.
If it’s a road in an expensive country, remote location, in the mountain, etc. increase the figure (150K – 200K euros), while if it’s in a cheap place it would cost around 80K.

Having the opportunity of working at several project worldwide I already discovered that the idea of what is “cheap” or “expensive” may vary a lot depending on the country.

Also, huge countries like Brazil or Chile may show a relevant price dispersion depending on the area (Patagonia or Atacama desert?).

A third consideration is that, due to inflation, market situation, other project being constructed at the same time, etc. the prices may move a lot (downwards, but normally upwards) from one year to the following.

However, here you have my favorite top 5 of the most expensive price I’ve ever seen. They are totally crazy, even with all the above considerations.

 

Concrete: Mozambique (900€/m3)

Steel: Morocco (15€/Kg)

Embankment: Mexico (241€/m3)

Crushed stones base layer: Mozambique (450€/m3)

Overheads: Chile (50% of the project cost)

 

On the cheap side I'd like to mention Portugal: a country with a lot of skilled civil works companies, used to the renewable business - and with great food as well! 😉

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Among the numerous fenomenous that follow a Pareto distribution (i.e., 80% of the effects come from 20% of the causes) there is the price of civil works in wind farms.

Through the years we’ve developed a really completed, exhaustive documentation for tenders. Our beautiful Bill of Quantities includes hundreds of items.

However, how many of them have a real impact on price?

Well, just 5.

Basically, around 70%-80% of the total price is driven by the following items:

  • Concrete
  • Steel
  • Cut
  • Fill
  • Crushed stones for base layer

I’m not saying that it would be a good idea to ask only these 5 prices to the subcontractors.

There are many reasons to produce a complete and accurate Bill of Quantities – for instance, to be sure that you are on the same page with the subcontractor.

Being a niche sector, often smaller local companies have an idea somehow distorted of what is included in a wind farm.

They might ignore the existence of something (“You need 50.000 kg of grout? For what?”) or overprice one or more items (20.000€ to assembly an anchor cage is a good example).

However, at the end of the day what will move the total price will be the 5 items listed above.

Concrete is usually the heaviest item. I’m including in it all types of concrete that might be found in a wind farm (lean concrete, foundation concrete, concrete used in roads, etc.).

Although obviously the numbers will vary depending on the project (a mountainous area with a lot of rock will have expensive earthworks, while a project with dozen of piled foundations will rise steeply steel and concrete price) I’ve seen that they can be used as a rule of thumb and are a useful guideline when I skim through the offers.

As I don’t know if it’s better to present a graphical example with a pie chart or bar diagram (and I enjoy playing with Excel) I attach both.

It’s a 50 MW wind farm quoted by a subcontractor who charges a lot Overhead Costs (which is perfectly fine for me: I don’t want to have them “scattered” where they don’t belong).

71% of the total comes from the 5 key cost drivers.

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In this post I want to show some figures about the evolution of the wind sector worldwide, both on the demand and supply side, and what happened in 2012.

From my point of view as Vestas employees the biggest new has been that GE is now the biggest wind turbine manufacturer. They now have a market share around 15% percent, with Vestas slightly below (14%) still winning the battle of the installed capacity.

The market is fragmented, with 10 more or less big companies and several smaller ones. It’s peculiar that the “small” manufacturers together have sold more than 20% of the installed turbines: apparently, they are not so small.

The Chinese manufacturers (Goldwind, Sinovel, Mingyang, etc.) felt the pain of a slowing internal market, falling down in the market share fight. Basically, they install only “at home”, in a closed, protectionist Brazilian style environment.

About 45 GW have been installed in our planet last year (2012), with an increase of 19% of the installed capacity. Right now there are about 286 GW of installed turbines.

Installed GWCumulative
20072094
200828122
200938160
201039199
201142241
201245286

Apparently in 2013 the installation of new turbines is slowing down, although figures are only preliminary.

The country with the biggest number of wind turbines is China, with around 54.000 WTGs, followed by the USA with 51.000. Of course they are the biggest markets in the planet.

If you wonder how many turbines are installed in the whole planet, the cumulative figure is around 222.000 machines.

In Europe, Germany is leading the sector with around 23 thousand machines, followed closely by Spain with over 20.000. Looking the distribution of installed capacity by continent Europe is still ahead:

Installed capacity (2012, GW)
Americas72
Europe110
Asia95
Pacific7
Africa1
Others1
Total286

Offshore is developing quickly in Europe, thanks to the Mega-projects in Germany and in the UK. Global installed offshore capacity is above 5.000 MW, usually concentrated in very big wind farms. Preferred foundation technology has been monopile (if you are interested in the subject, you can read more here about offshore WTG foundations).

As you will probably know the market is moving towards biggest turbines, being the average size of the newly installed generators around 2 MW.

Regarding owners, Iberdrola is the company with the most installed MW (13K), followed by 2 companies that I don’t know, Chinese Longyuan (10K) and NextEra Energy Resources, from the States (about 10 GW as well).

To close the post, the answer to a typical question regarding wind energy:

What is the contribution of wind power to the global electricity generation?

About 3%.

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After the connection of a Wind Farm to the grid several parameters are used to analyze the smooth operation of the installation.

The more relevant are:

Capacity Factor

CF=\left( \frac{E(kWh)}{P(kW) T(h)}\right )

Is a parameter used frequently in power producing  plant. A high capacity factor means that the plant is working almost continuously (for instance a nuclear plant), while a low capacity factor may characterize a power plant working only in peak hours (like some hydro plants).

In the case of wind farms, capacity factor depends more on the wind that on the needs of the grid.

To be economically reasonable, a wind farm needs to have a capacity factor of more than 25%. Translated in hours, it would be around 2190 equivalent hours.

This parameter is probably too “global”, as it doesn’t add information about why the wind farm was not producing: was it for a low wind, for a technical problem of the WTG, for a disconnection from the grid?

Or maybe it is due to a scheduled maintenance or to the wind sector management (the automatic planned disconnection of some WTGs in particular wind conditions)?

Technical Availability

TA=\left( \frac{T(Available)}{T(Total)}\right )

This is easily defined: basically is the ratio between the hours the WTG was available for production an the total number of hours in the considered period. If there is a fault in the grid, or if wind condition is above or below the maximum, it doesn’t count as “unavailability”.

Production Availability

PA=\left( \frac{T(Producing)}{T(Total)}\right )

This is parameters start to be interesting from an economical point of view: is the ratio between the total number of hours producing and the hours in the considered period. It will be less than 1 due to grid disconnections, WTG problems and wind outside the operational limits.

Effective Availability

EA=\left( \frac{T(producing)}{T(wind)-T(disconnected)-T(stop)}\right )

This parameter give a very solid information about the quality of the turbine, and the “real” availability: is the ratio between the hours of production and the hours of wind speed between the operational limits, minus the hours disconnected by the grid (for a grid problem or order) minus the justified stops (for visits, preventive maintenance, etc.)

Together with the projects in Chile and Uruguay I’ve been involved lately in several wind farm developments in Jordan. Currently the country has a near-zero wind energy production, but due to his very strong dependency on energy import (more than 95% of the demand, absorbing about 13% of the GDP) committed to an ambitious plan to add up to 700 MW of power from renewable sources.

The target, according to the Renewable Energy and Energy Efficiency Law voted in January 2010, is 10% power generation from renewable in 2020. That is around 2.3 GWh, of whom about 1 GWh from Wind. We are already late to reach it, but something is moving.

Among other things, the Renewable Energy Law  allows the ministry to negotiate with investors directly, bypassing a competitive bidding process, and allow to sell electricity generated by renewable energy back to the national grid.

In December 2012 a feed-in tariff of USD 0.12/ kWh has been introduced by the local electricity regulatory commission, stimulating the appearance of Direct Proposal on behalf of several developers. Due to the low expertise only a few developers are local, and including a not so aggressive target of 15% local content (needed to improve the tariff) may be hard to reach.

No international tender like the Mega Moroccan tender has currently been done.

Lenders, as often in these cases, are big international financial institution (World Bank, Gulf Cooperation Council, Global Environment Facility and several other banks consortiums). They are founding not only wind energy, but also solar (concentrated and photovoltaic).

Projects reasonably advanced in the pipeline are Kamsheh (40 MW) and Fujeij (90 MW). Fujeij has already a shortlist of 8 developers.

There are also voices about a 200MW wind farm to be done by energy company Nareva in partnership with International Power. Nareva (ONA conglomerate) is controlled by the Moroccan royal family.

The wind potential of the country has been studied in collaboration with RISO, producing the Jordan Wind Atlas:

You can read more about the wind energy potential of the country here: Wind Energy Potential of Jordan

Here an older document on the subject: Wind energy in Jordan - use and perspectives

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After my trip to Uruguay I’ve had the pleasure of visiting Chile, another promising destination in South America. The country enjoys a high GDP growth, with controlled inflation and a stable regulatory framework, and it’s a place where several big players are betting.

We are ending the construction of Talinay, a 90 MW EPC wind farm I’ve worked at together with my team. Initially developed with Vestas money it has recently been acquired by ENEL Green Power, a Utility that is active in the local market with several other projects such as Valle de Los Vientos. The money comes from the Denmark's Export Credit Agency and (at least as far as I know) no PPA has been signed.

This is a peculiarity of the Chilean energy market: several developers are working on projects without power purchase agreement, selling on a merchant basis at the spot price of energy (right now around 80 $/MWh).

Other financial solutions do exist: Irish developer Mainstream Renewable Power, with many active projects, is using Chinese financing and Chinese turbines (Goldwind, of course). Pattern Energy has signed a long-term power-purchase agreement (PPA) with Antofagasta Minerals (a mining company). They are not alone: copper, the commodity that is moving the whole economy, has energy intensive extraction, and this model will be probably replicated in the future.

The strong economic growth justify this approach, as the energy demand is increasing while several mega-project have been stopped due to environmental problem and lack of popular support, like the HidroAysén dam developed by ENEDSA/ENEL  in the Patagonia region.

From a construction point of view, local prices are sky high (concrete and steel sells at around 1.5 to 2 times the European price) and salaries of skilled laborers are growing unstoppably. The good news is that you don’t have to build hundreds of kilometers of high voltage lines, because due to the peculiar geography of the country the main electrical line is always nearby.

You can learn more on http://www.centralenergia.cl/proyectos/mapa-de-centrales-proyectadas/

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