Wind Power in Europe
by D. M�st; N. Enzensberger; W. Fichtner; O. Rentz
Institut f�r Industriebetriebslehre und Industrielle Produktion (IIP), Universit�t Karlsruhe, Germany
Wind energy development started in Europe in the early 90s. In the space of fifteen years, it has evolved from an industry producing small and simple machines into a technology which can compete with the well established forms of power generation. In particular, wind power development in Spain, Denmark and Germany experienced double-digit growth rates every year. The plant suppliers in these countries have profited from this strong development on their market and are now well positioned among the leading plant suppliers.
To understand this development, the framework conditions for renewable energies in Europe have to be viewed:
Existing overcapacities in most newly liberalised power markets in Europe�as they became apparent during the last years�reduce new investment possibilities for renewable energy technologies to a niche market as the additional generation capacity of newly installed renewable energy projects has no added value for the overall supply system. Thus, there is no direct need for additional and cost-intense energy projects which are given by renewable energies projects.
Climate protection strongly influences the European energy policy and therefore the political support for clean energy generation technologies in Europe is very intensive.
There is also a strong public interest in environmental issues whereby the support for renewable energy projects is high. But the public interest for clean technologies declines from North to South. In northern countries such as Denmark and Germany local citizens are willing to support renewable energy projects in their environment.
Dropping electricity prices lead to an increasingly stronger cost disadvantage of renewable energy projects in comparison to conventional power plants. This development enhances the dependency of renewable energy projects on supporting policy instruments.
Figure 1.1: Picture of wind power plant and technician (Source: Bundesverband Windenergie)
Wind resources in Europe
Figure 1.2 shows the wind map of Europe, where the wind resources in a height of 50 meters above ground level is pictured. The purple zones are the areas with the strongest winds, while the wind is the weakest in the blue zones. The dividing lines between different zones are not so sharp, as they appear on the map. As shown in the wind map, the wind resources of the United Kingdom and the Scandinavian countries are greater than in the other European countries. France has the largest wind energy potential in Europe after the UK. The windiest regions are along the Mediterranean (>7.5 m/s) and the English Channel (6.5-7.5 m/s). Despite this enormous potential, however, only a very few wind turbines have been installed to date.
An average wind speed of about 4,5 meters per second (m/sec) at a height of fifteen meters above ground level is recognized as feasible for the exploitation of wind energy today.
Figure 1.2: wind map of Europe (Source: Risoe National Laboratory)
Status and advances in Wind Technology in Europe
During 2001 another 4.500 MW of wind power capacity was added to the European electricity grids, bringing the total installed wind power capacity in Europe to more than 17.000 MW, an increase of more than 35%. The 17.000 MW will produce about 40 terawatt hours of electricity annually which equals the electricity consumption of 10 million average European households. Germany is once again at the top of the new installations list in 2001 and brings the total installed wind power capacity in Germany to 8.734 MW. This represents 3.3% of national electricity demand. In Table 1.1 the new installations as well as the total installation at the end of 2001 of Europe are shown.
As mentioned above, the wind energy development has started in the early 90s in Europe. At the top of the total installed capacity list, Germany is an example for pointing out the wind energy development. In Germany this development was fostered by two fixed feed-in tariff-schemes and the strong boom of wind energy resulted in a steady and exponential growth. The wind capacity development over the years for Germany is shown in Figure 1.3.
Figure 1.3: Wind capacity development in Germany
The technical characteristics of wind projects in Europe have slightly changed over the past years. The most obvious change is the continuous increase of the installed turbine size. The average size of all turbines that have been installed in the year 2001 in Germany has reached almost 1300 kW which means a doubling within four years. Also the supply side adapts to these changes. The number of wind turbine types offered within each size class illustrates similar findings.
The technical characteristics of the newly installed turbines have also changed over the years. While in the early 90s still a few 2- or 4-blade turbines have been installed, the 3-blade structure has reached full market penetration since then, similar to the luff-side rotor position. Pitch-regulated turbines have reached a market share of 68% (2000), the same as asynchronous generators.
Table 1.2: Development of technical turbine characteristics over time in Germany (Source: ISET Kassel, Wind Energy Report Germany 1999/2000)
Figure 1.4: Drawing of Nordex turbine (Source: Bundesverband Windenergie)
Policy instruments for wind energy in Europe
At a time when Governments in Europe process of liberalizing their electricity markets, wind power�s increasing competitiveness should lead to higher demand for wind turbines. Without political support, however, wind power remains at a competitive disadvantage, because new wind power stations have to compete with old nuclear and fossil fuel power stations that produce electricity at marginal costs. Political action is needed to overcome these disadvantages. There are different types of instruments to support renewable energies:
Fixed tariff systems: Tariff systems based on a fixed price paid per kWh produced have been enormously successful at fostering wind energy and are enshrined in law in Germany, Spain and Denmark. In Germany, legislation fixes the price of electricity from renewable energy in relation to the generation costs of renewable technologies. In the Spanish system the wholesale price of electricity from renewable energy follows the market price for electricity after an environmental bonus is added per kWh. As production costs decline, for instance as a result of improved technology and economies of scale, lower wind speed sites become profitable, expanding wind power further. The most important advantage of fixed price systems for renewable energy is that they facilitate planning of new renewable energy plants for the investors in renewable energy. The challenge in a fixed price system is fixing the "right" price.
Renewable portfolio standards (RPS): Under an RPS, such as the one operating in the UK, power companies or electricity customers are obliged to buy a number of green certificates in proportion to their total electricity consumption. The certificates are bought from the producers of renewable energy -the wind turbine owners � who will receive certificates in proportion to their electricity delivery, for example one certificate per delivered kWh. The system implies that part of the payment to the wind turbine owners is made in a special currency - green certificates. The price of the certificates is set in a market where buyers� demand and seller�s supply determine the price. So the operator of a e.g. wind energy plant receives payments for the delivered electricity and for the green certificate.
Competitive bidding, tendering or auctions: Governments define a fixed amount of funds and tenders for projects which can be technology neutral or specific. It accepts projects tendered up to the level of the available funds Under auction or tendering systems, power purchase agreements are entered into for an agreed period � typically 15 years. In this system there is a politically decided quantity which the power companies or the customers must purchase. This is achieved by letting the suppliers of electricity from renewable energy sources compete for the power purchase agreements. Experience has shown that the aggressive competition created for lowest price leaves only small margins that will deter investors and force developers to use only a limited set of highest wind resource sites.
As mentioned above the fixed feed-in tariffs are used in the three countries (Germany, Spain and Denmark), which are at the top of the list total installed capacity in 2001. Because the financing schemes in Europe are not the same in all countries and Germany represents the largest part of the European wind sector, the focus will be on economic project characteristics of wind energy projects in Germany.
Economic project characteristics of wind energy projects in Germany
Most wind turbines installed in Germany form part of larger wind parks. These wind parks use to apply quite homogenous project structures, i.e. the legal form of a private limited liability company and a limited partnership (GmbH & Co. KG) and a financing scheme based on closed-end funds structures. The special feature of the GmbH & Co KG structure is that the role of the full partner within the limited partnership (KG) is taken over by the private limited liability company (GmbH) which itself has limited liability. This means, that within the whole legal construction, there is no owner/partner left that would provide a full liability. The basic motivation for applying this legal form is twofold. First and as seen above, the GmbH & Co. KG structure offers similar characteristics as a corporation regarding liability issues. Second, it offers tax effects a normal corporate structure cannot benefit from. Given that the principal owners of the company are partners of a private, i.e. unincorporated company, the company�s revenues are treated as incomes of the equity investors and taxed under the income tax scheme instead of corporate tax schemes. Applying the income tax scheme, financial losses during the first years of the project can be offset against other incomes of the investor thereby provoking a deferment of tax payments to later years. Every wind park usually forms one separate company. The GmbH serving as a full partner within this legal construction is usually a legally independent company, however financially belonging to the project developer. Given that these GmbH�s are legally separated companies, project developers do not take over any unlimited liability (or any significant liability at all) for their projects. Equity capital is basically provided by external limited partners, usually small private investors, that participate in a wind project under a closed fund scheme.
In most (over 95%) of the wind parks, external limited partners (i.e. the private investors) are legally represented by a trustee, only very few wind parks permit a direct partnership of external limited partners as equity investors. The trustee is therefore another typical characteristic of the German public wind funds. The intention of his involvement is to reduce administration costs and to ensure managerial efficiency.
Equity capital for German wind parks is typically derived from participations that are offered in the finance market as financial products similar to closed-end ship or property funds. The market volume of such wind funds has reached 1.350 million Euro in 2001 (total investment sum) with a total equity capital of around 400 million Euro (average equity share: 30%).
In most funds, a minimum participation height is fixed. Typical heights for this minimum participation are 5.000, 10.000 or 25.000 Euro. Projected rates of return typically range between 7 and 9% excluding tax advantages.
Loan capital for these wind park projects nearly exclusively derives from two sources: the European Recovery Program: Environment and Energy Saving Program and the DtA- Environment Program. Interest rates range between 5,25% (DtA) and 5,75% (ERP). The equity share typically ranges between 27-33% (50%-percentile).Economic data of wind energy projects in Germany
Projected operation costs typically range between 2,0 � 2,6 Cent/kWh, management costs between 0,29 � 0,42 Cent/kWh and maintenance costs between 0,05 � 0,1 Cent/kWh. Electricity generation costs (project duration: 20 years, discount rate: 5%) then range between 7,7 � 8,3 Cent/kWh.
As the market has grown, wind power has shown a dramatic fall in cost. The production cost of a kilowatt hour of wind power is one fifth of what it was 20 years ago. The cost of wind power generation falls as the average wind speed rises, and as recent analysis shows, at an average site with a speed of 8 metres per second, and a cost per installed kilowatt of 700 �, wind can be cost competitive with gas (see Figure 1.5).
Figure 1.5: Prices for different generating technologies (Source: Wind Force 12, EWEA)Success factors for wind energy projects
The success factors for wind energy projects in Europe are different. An important factor is to verify the abundance of wind at the planned site. Good wind sites are a prerequisite for high project revenues, which determine project profitability. Another important point ist that public opposition against wind could be of importance. Even when the population density is high in a country, the risk of public refusal is high. For this case an important success factor is the participation of local citizens.
Other success factors are a short process of authorization and a regimentation of the grid connection.
In Germany the main success factors have been the feed-in tariff which offers attractive remuneration and satisfactory planning security. The second success factor can be seen in the up-coming and the wide-spread application of the closed-end funds scheme that created the possibility to involve local residents directly into this new market thus significantly reducing public objections.
In Spain, Europe�s second largest country of total installed wind capacity, the success development of wind energy can be summarized to the high wind potential, the stable legislation framework to electricity generation and the development of administrative procedures at regional level to wind farms authorization.
Prospects of wind power in Europe
In Europe, there is an exploitable potential for onshore wind power of more than 600TWh/year. In countries like France and the United Kingdom, where the total installed capacity of wind energy is "low", the potential for wind energy is very high. In Germany the wind energy market is widely developed and the construction of onshore power plants gets more and more difficult, because site selection of good onshore wind sites complicates successful project development.
But there is an enormous additional wind resource to be found in the seas around the coastline of Europe. Several European countries, led by Denmark, are already seeing the first large scale offshore wind farms built in their territorial waters. The European wind turbine manufacturing industry is also focussing its current R&D effort on producing new designs specially adapted for the emerging offshore market. This is expected to seriously take off in northern Europe from 2003 onwards. In Europe an important factor will be the opening up of the offshore wind market.