Implementing Agreement for Co-operation in the Research, Development and Deployment of Wind Energy Systems - Maureen Hand, nrel

Implementing Agreement for Co-operation in the Research, Development, and Deployment of Wind Energy Systems

Implementing Agreement for Co-operation in the Research,

Development and Deployment of Wind Energy Systems

Spanish Fork Wind Farm in Utah, U.S.

Task 26 - Cost of Wind Energy: an Overview

Wind Energy R&D Seminar

M. Maureen Hand, Ph. D.

May 26, 2014

Dublin, Ireland

IEA Wind Task 26: Cost of Wind Energy

• Multi-year, multi-national study on the cost of wind energy • Participating countries (2008-2011): Denmark, Germany,

Netherlands, Spain, Sweden, Switzerland, United States and EWEA

• Participating countries (2012-2015): Denmark, Germany, Ireland, Netherlands, Norway, United States and European Commission – Joint Research Centre

• Objective:

• Provide information on cost of wind energy in order to

understand past, present, and anticipate future trends using

consistent transparent methodologies as well as understand how

wind technology compares to other generation options within the

broader electric sector.

2

Levelized Cost of Energy (LCOE)

• Four basic parameters

– Initial Capital Cost (ICC), Annual Operating Expenses (AOE), finance

parameters (Fixed Charge Rate (FCR)), and net Annual Energy

Production (AEP)

• Metric is useful to explore

– Long-term trends or projections

– Relative differences in resource quality, geographic locations, or technology options

netnet AEP

AOE

AEP

ICCFCRLCOE

Annual Energy Production

Operating Expense

Capital Investment

Financing

Source: Short et al. 1995

3

Multi-national Wind LCOE Comparison (2007-2008)

• Use of publicly available ECN

model to estimate wind LCOE

in seven countries

• Originally designed to set

Dutch feed-in tariff or feed-in

tariff premium levels

• Model customized for this

task; estimates unsubsidized

country LCOE

• Represents the perspective

of the project’s

investor/developer

Cash flow model for financial gap calculations

Wind: Netherlands 2008

Symbol INPUT PARAMETERS Unit

U Unit size kWe 15000

H Operational time / full load hours h/yr 2200

T b Economic life yr 20

C tot / U Investment costs €/kW 1325

Decommisioning costs €/kW 0

c f Maintenance costs fixed €/kW 31.39238321

c v Maintenance costs variable €/kWh 0.013363553

Other revenues €/kWh 0.080

Other costs €/kWh 0.0097

Upfront tax-based investment subsidy 20%

Upfront cash investment subsidy 0%

Feed-in tariff €/kWh 0.028

Production-based tax credit €/kWh 0.000

Production-based tax deduction €/kWh 0.000

R d Return on debt 5.0%

R e Required return on equity 15.0%

e Equity share (excluding EIA benefit) 20%

d Debt share (including EIA benefit) 80%

Corporate tax rate (Municipal/state) 0%

t Corporate tax rate (National/federal) 25.5%

T r Loan duration yr 15

T d Depreciation period yr 15

T p Economic life yr 20

FG Financial gap €/MWh -3

LC Levelized electricity generation cost €/MWh 94

Fixed or

average

value

Output

Costs

Project

features

Market

Project

financing

features

Time

horizons

p e

Policy

support

4

5

Country Data Collection: Onshore Wind

Reference Case weighted by project capacity

Representatives provided country-specific onshore wind energy cost estimates

including investment costs, energy production, O&M and other variables

Denmark Germany Netherlands Spain Sweden Switzerland

United

States

Reference

Case

Unit size (MW) 2.3 2.0 3.0 2.0 2.4 2.0 1.7 2.1

Number of

turbines 7 5 5 15 41 6 50 34

Full load hours 2,695 2,260 2,200 2,150 2,600 1,750 3,066 2,628

Investment

(€/kW) 1,250 1,373 1,325 1,250 1,591 1,790 1,377 1,449

Decommissioning

costs (€/kW) 0.0 1.5 0.0 0.0 1.6 0.0 0.0 0.6

Other costs

(€/MWh) 3 0 10 3 0 0 0 1

O&M costs fixed

(€/kW-yr) 0.00 46.33 31.39 0.00 0.01 0.00 8.60 6.29

O&M costs

variable (€/MWh) 12 0 13 20 11 31 5 11

Converted total

O&M costs

(€/MWh)

12 21 28 20 11 31 7 13

Reference Case

Weight 6.1% 3.8% 5.7% 11.4% 36.6% 4.6% 31.8% N/A

2008 “Typical” Wind Project Technical Parameters

Source: Schwabe et al. (2011). IEA Wind Task 26: Multi-national Case Study of the Financial Cost of Wind Energy.

6

Country Data Collection: Onshore Wind

Reference Case value based on median country parameter value

Denmark Germany Netherlands Spain Sweden Switzerland

United

States

Reference

Case

Return on debt

(%) 5.0 5.5 5.0 7.0 5.0 5.0 6.0 5.0

Return on

equity (%) 11.0 9.5 15.0 10.0 12.0 7.0 7.5 10.0

Debt share (%) 80 70 80 80 87 70 0 80

Equity share

(%) 20 30 20 20 13 30 100 20

Loan duration

(yrs) 13 13 15 15 20 20 15 15

National tax rate

(%) 25.0 29.8 25.5 30.0 28.0 21.0 38.9 28.0

WACC (%) 5.2 5.6 6.0 5.9 4.7 4.9 7.5 4.9

2008 “Typical” Wind Project Financial Parameters

The LCOE calculation was based on a predefined return on equity that was provided

by each country representative along with other financial input parameters

Source: Schwabe et al. (2011). IEA Wind Task 26: Multi-national Case Study of the Financial Cost of Wind Energy.

Results: Key Variable Comparisons

Across Countries – 2008 LCOE

0

28

56

83

111

139

167

195

0

20

40

60

80

100

120

140

Swit

zerl

and

Net

her

lan

ds

Ger

man

y

Spai

n

Swed

en

Un

ited

Sta

tes

Den

mar

k

LCO

E $

/MW

h

LCO

E €

/MW

h

Country Cost of Energy RC (Reference Case)

RC with Country Energy Production RC with Country Investment Cost

RC with Country O&M RC with Country Financing

Source: Schwabe et al. (2011). IEA Wind Task 26: Multi-national Case Study of the Financial Cost of Wind Energy.

7

Wind Plant LCOE Declined by More Than

2/3 Between the Early 1980s and 2000s

$0

$50

$100

$150

$200

$250

$300

1980 1985 1990 1995 2000 2005 2010

Leve

lize

d C

ost

of

Ener

gy

(201

0 U

SD/M

Wh

) US (LBNL/NREL Internal Analysis)

Denmark (DEA 1999)

Coastal European Sites (Lemming et al. 2009)

Source: Lantz et al. 2012

Escalation in wind power capital costs since 2003 resulted

from:

• Rising commodity and raw material prices

• Increased labor costs

• Improved manufacturer profitability

• Turbine upscaling. 8

Lower Turbine Prices Since 2009 Along With Improved

Wind Turbine Performance May Yield a Return to

Historically Low LCOE Levels in 20122013

$50

$70

$90

$110

$130

$150

$170

5.5 6 6.5 7 7.5 8 8.5

Leve

lize

d C

ost

of

Ener

gy in

th

e U

nit

ed

Sta

tes

(201

0 U

SD/M

Wh

)

50 Meter Wind Speed (m/s)air density = 1.225 kg/m3

Class 2 Class 3 Class 4 Class 5 Class 6

Estimated LCOE:

2002-03

Estimated LCOE:2009-10

Estimated LCOE:

2012-13

$50

$70

$90

$110

$130

$150

$170

5.5 6 6.5 7 7.5 8 8.5

Leve

lize

d C

ost

of

Ene

rgy

in D

en

mar

k

(20

10

USD

/MW

h)

50 Meter Wind Speed (m/s)air density = 1.225 kg/m3

Class 2 Class 3 Class 4 Class 5 Class 6

Estimated LCOE: 2002

Estimated LCOE:2009

Estimated LCOE: 2012

Source: Lantz et al. 2012

• Estimated wind plant LCOE based on observed market variation

in capital investment and modeled wind plant performance

• Incentives or policies that reduce price of wind energy in

wholesale power markets (e.g., production tax credit) excluded. 9

New Technology Options Reduce Variability in LCOE

Across a Range of Wind Resource Sites

$44/MWh

$25/MWh

8 m/s

7 m/s

6 m/s

$0

$20

$40

$60

$80

$100

$120

2002-03 Current, 2012-13

Standard Technology Technology Choice

Leve

lize

d C

ost

of

Ene

rgy

($/M

Wh

)N

o In

cen

tive

s

• Low wind speed technology designed for International Electrotechnical

Commission Class III sites provides Technology Choice in 20122013

for annual average sea level equivalent wind speeds at 50 meters.

Source: Lantz et al. 2012

10

Future Forecasts: Variety of methods and

assumptions generally anticipate LCOE reduction

over next decades

Sources include: EREC/GPI 2010, Tidball et al. 2010, DOE 2008, AEO 2009,

Lemming et al. 2009, EWEA 2009, EPRI 2010, Peter and Lehmann 2008, GWEO

2010, IEA 2009, EC Primes 2007.

Methods include learning curves, engineering models, and expert

elicitation with varying levels of detail with respect to projected

technology advance

50%

60%

70%

80%

90%

100%

2010 2015 2020 2025 2030

Tren

ds

In W

ind

Po

wer

LC

OE

2011

= 1

00%

20th to 80thPercentile Range

Note: -Shaded area represents the full range of expectations in the literature

-Each individual line details the expected cost of energy pathway for a given study

11

Conclusions

• Focusing only on capital cost trends or energy production trends does not capture inter-relationship, but LCOE does. – Range of data about project required to assess trends

• Quantifying impact of technology trends, e.g., larger rotors and taller towers effect type of wind resource site to exploit, allows greater understanding of future trends.

• Variety of methods used to project future cost estimates with varying levels of detail; likely that greater insight attained through application of multiple methods

12

13

RE deployment increases in scenarios with lower

greenhouse gas concentration stabilization levels

Source: IPCC, 2011: Summary for Policymakers. In: IPCC Special Report on Renewable

Energy Sources and Climate Change Mitigation

Current and Future Work

• Update onshore cost of energy estimates

with more recent data and trends from 2007 -

2012

• Assess offshore wind cost of energy

similarities and differences among

participating countries

• Explore methods and approaches to quantify

value of wind energy and future cost of wind

energy by engaging international experts

14

IEA Wind Task 26: Cost of Wind Energy

• Publications

• Multi-national Case

Study of the Financial

Cost of Wind Energy

in 2008

• The Past and Future

Cost of Wind Energy

• www.ieawind.org/Task_26

15

Notice: The IEA Wind agreement, also known as the Implementing Agreement for Co-operation in the Research, Development, and Deployment

of Wind Energy Systems, functions within a framework created by the International Energy Agency (IEA). Views, findings and publications of IEA

Wind do not necessarily represent the views or policies of the IEA Secretariat or of all its individual member countries.

Thank you!

Maureen Hand

IEA Wind Task 26, Operating Agent

National Renewable Energy Laboratory

Phone: (303) 384-6933

E-mail: [email protected]

Web: www.ieawind.org/Task_26