1. Job number/BT/ serial number/ page number 008 BA003 1 Some thoughts on the cost of wind energy Andrew Garrad Garrad Hassan and Partners Cost effectiveness of wind energy EWEC Milan May 2007

2. Job number/BT/ serial number/ page number 008 BA003 2 Economics Cost Price Value ?

3. Job number/BT/ serial number/ page number 008 BA003 3 Cost drivers Politics Engineering Competition Volume Reliability Grid integration Financing Wind speed!

4. Job number/BT/ serial number/ page number 008 BA003 4 Cash flow in 2006 € billions per annum 4.5 BoP O and M 1.6 Finance 1.6 Power Purchaser 8.6 Turbines 10.5 Component 7 70,000 MW installed 15,000 MW new New capital 12.75 Owner Others 1.6 Developers 1.6 Services Who’s who in the wind industry €21 billion Without M and A

5. Job number/BT/ serial number/ page number 008 BA003 5 Project model Development Construction Operations Turbine supply BoP Installation Operations & Maintenance Power Purchase Site Selection and Design Equity Financing Debt Financing Who’s who in the wind industry

6. Job number/BT/ serial number/ page number 008 BA003 6 Project development Development Site Selection and Design Who’s who in the wind industry Construction Operations High demand High profit High cost Project pipelines exchanging hands at high margins Increased supply will reduce costs Country dependent Long lead items PPA Wind resource assessment Permitting Grid connection Scope for cost reduction? Time scale? 5 Years

7. Job number/BT/ serial number/ page number 008 BA003 7 Turbine and BoP supply Development Construction Turbine supply BoP Installation Who’s who in the wind industry Construction

8. Job number/BT/ serial number/ page number 008 BA003 8 Annual world capacity (MW) Maximum existing capacity?

9. Job number/BT/ serial number/ page number 008 BA003 9 Commercial price development (from price list) History of wind Reduction through technology and volume

10. Job number/BT/ serial number/ page number 008 BA003 10 The growth of commercial machines…. 198019902000 Will it continue? 15m 20m 40m 50m 124m History of wind Bigger & bigger Better & better “Commodity machines”

11. Job number/BT/ serial number/ page number 008 BA003 11 … or hidden disparity? Normalised tower head mass Similar technology Concensus not achieved Tower head mass normalised to 52m

12. Job number/BT/ serial number/ page number 008 BA003 12 GE 3.6 MW turbine – typical configuration Enercon turbine – direct drive Winwind – a hybrid The jury is still out!Permanent magnets?Superconductors?

13. Job number/BT/ serial number/ page number 008 BA003 13 Turbine and BoP supply Development Construction Turbine supply BoP Installation Who’s who in the wind industry Construction High demand Both turbine and BoP High cost Increased supply will reduce costs Key components New large suppliers Volume Technology Scope for cost reduction? Time scale? 3 Years

14. Job number/BT/ serial number/ page number 008 BA003 14 Operations and maintenance Operations & Maintenance Who’s who in the wind industry Neglected area No global supplier Present costs optimistic? Scope for cost reduction? Time scale? X - Years

15. Job number/BT/ serial number/ page number 008 BA003 15 Power purchase and incentives Operations Power Purchase Who’s who in the wind industry

16. Job number/BT/ serial number/ page number 008 BA003 16 Characterisation of incentives – Annual MW Mad! Highly political Political cum commercial Renewable obligation effective! Competitive market - Hopeless!

17. Job number/BT/ serial number/ page number 008 BA003 17 Characterisation of incentives – Annual MW The philosophy of the incentive does not matter If it is consistent and produces adequate returns It will work!

18. Job number/BT/ serial number/ page number 008 BA003 18 Power purchase and incentives Operations Power Purchase Who’s who in the wind industry Not a cost Area of substantial change Manifestation of political will Long term PPAs reduce price Move to merchant? Tradable credits Scope for cost reduction? Time scale? X - Years

19. Job number/BT/ serial number/ page number 008 BA003 19 Project model Equity Financing Who’s who in the wind industry Plenty of equity Is it the “right sort”? Speculative or utility? Scope for cost reduction? Time scale? 3 Years

20. Job number/BT/ serial number/ page number 008 BA003 20 Project model Debt Financing Who’s who in the wind industry Fast evolution Area of substantial change Individual project to portfolio Capital markets Re-finance to keep client Plenty of competition Scope for cost reduction? Time scale? 0 Years

21. Job number/BT/ serial number/ page number 008 BA003 21 Summary Development Construction Operations Turbine supply BoP Installation Operations & Maintenance Power Purchase Site Selection and Design Equity Financing Bank Financing Who’s who in the wind industry   But what about time scale?

22. Job number/BT/ serial number/ page number 008 BA003 22 Cost index (or guess!)

23. Job number/BT/ serial number/ page number 008 BA003 23 The myth of intermittency is a cost!

24. Job number/BT/ serial number/ page number 008 BA003 24 Example of portfolio forecasting… Results for a portfolio of 7 wind farms. Portfolio capacity 250 MW Max wind farm separation ~ 800 km 24 hours ahead Aggregation through the grid!

25. Job number/BT/ serial number/ page number 008 BA003 25 Explosion of a myth Wind is variable Wind is predictable Intermittency is binary – on or off Conventionals are intermittent Renewables are not

26. Job number/BT/ serial number/ page number 008 BA003 26 The grid is the key!

27. Job number/BT/ serial number/ page number 008 BA003 27 Ridicule + Security of supply + Least cost Environmental Animosity Co-operation 3 stages of wind energy’s relationship with the TSO’s 3 main arguments for wind energy Wind energy’s path to respectability 1980 2003 2005 2012? Transmission system operator Respectability trajectory!

28. Job number/BT/ serial number/ page number 008 BA003 28 Thank you!