How do you maximize profit with a wind farm?

There are several factors to consider but it boils down to wind resource, new (or very cheap old) wind turbines, an effective economic regime to sell wind energy into, relatively cheap connections to the grid and highly optimized management and maintenance.

Wind Resource

A reasonably large factor in the amount of energy a wind farm can generate is how regularly and steadily strong winds blow at the site. Brazil is seeing 50%+ capacity factors on some of its wind farms in part due to the strong and ceaseless winds that they experience. King Island in Tasmania, if the feasibility study currently under way bears fruit, will be in a similar position.

Source: Utility-Scale Land-Based 80-Meter Wind Maps

This is a reason why offshore wind farms make economic sense despite the anti-wind rhetoric about higher costs: the wind is stronger and steadier out to sea than onshore due to a lot fewer obstacles creating near surface turbulence and disrupting the laminar flow of the wind.

This is also why ridgelines are often favoured for siting wind farms. The geographical feature at 90 degrees to the prevailing winds causes compression and speeds up the wind, pushing more energy through a smaller area.

All of these various things mean that there is more energy in the moving air and so wind turbines can extract more energy from it.

Source: Wind Resource Assesment and Met Tower Installation by Anemometry Specialists

Wind resources are a very serious business with enormous amounts of data analytics behind them. The best wind resource spots are identified first by meteorological historical and predictive models, then assessed by putting up a wind sampling tower that assesses the real local conditions as opposed to the modelled ones. The reason this is important is that most meteorological models operate on 30×30 kilometer grids or larger, and a wind turbine and farm sits in a particular part of one square.

There’s an important proviso here that many people commenting on wind energy miss. Modern wind turbines are tuned for specific ranges of wind energy. Differences in blade widths, pitches and profiles, along with differences in gear boxes and other internals, allow modern wind turbines to be much more productive at taking energy out of lower wind energy resources. What this means is explored more in the next section.

Modern Wind Turbines

Wind turbine technology has changed a lot in the past twenty years. Where a 600 KW faceplate capacity wind turbine of twenty years ago might have a 20-25% capacity factor, a modern 3 MW faceplate capacity wind turbine might have a 40% capacity factor in reasonably good wind resource locations and 47%+ in the best wind resource locations.

(See more and the reasons why here: The wind doesn’t blow all the time. Why doesn’t this make wind power ineffective?)

Doing some math and assuming about 7 cents a kilowatt hour wholesale price, that means a 20 year wind turbine might receive about $91K revenue annually, while a modern wind turbine might receive about $735K revenue annually. Put 30 of them up and the wind farm comparative annual revenue is $2.8M vs $22M.

To the last point in the previous section, get wind turbines that are tuned to be most productive at the average wind velocities that modelling and assessment tell you are required. Many lower wind resource sites are now much more productive than the highest wind resource sites that were used for siting earlier in the development of the wind industry. That’s the major reason why wind turbines statistically are being replaced years earlier than their projected 20 year lifespans by the way; it’s economically beneficial to replace older wind turbines in good wind resource areas with much more effective modern wind turbines. For more information on wind turbine end-of-life: Wind farm end of life? Repowering or benign decommissioning.

For an interesting read, check out Vesta’s low wind energy efforts in China: Vestas continues to deliver solutions to very low wind speed sites in China.

Modern wind turbines are, of course, more expensive than used wind turbines, and as pointed out, used wind turbines are being taken out of the best wind resource sites. This means that in many cases it can be economically viable to buy old used wind turbines, put them up in a lower or untapped wind resource area and get many more years life out of them with a much lower capital outlay.

Effective Economic Regime

Most jurisdictions around the world recognize that fossil fuel generation of electricity is heavily polluting, emits CO2e that causes global warming and doesn’t have great social license. As a result, a wide variety of incentive programs have been put in place to shift the generation equation from legacy forms of generation to renewables including wind energy. Programs include the Production Tax Credit in the USA (roughly 2.3 cents per KWH of tax breaks for renewables), the Feed in Tariff Program in Ontario (guaranteed higher wholesale rates for renewable electricity for twenty years), the Renewable Energy Target in Australia (penalties for utilities who do not purchase specific percentages of renewable energy annually) and more.

Understanding the incentives plan, the likelihood of it continuing and the fine print associated with it can make the difference between marginal or unreliable profitability for a wind farm and rock solid returns.

Source: Energy to the masses…

A second major factor, and a poorly understood or ignored one by many commenters on wind energy, is the merit order effect. Most jurisdictions have a regulated market for wholesale electricity. One of the aspects of this market is that the cheapest bid for wholesale electricity requirements at any given time sets the price for all sellers of electricity. As wind energy has very low operating costs, and per earlier statements has favourable economic conditions so that fossil generation will be replaced, the economics typically allow wind energy to set the merit price far more often than competitors that have to pay for the coal or gas that they consume. As wind energy is profitable at that price point, typically all wind energy gets purchased, all else being equal, but fossil generation units ramp down and end up with lower annual capacity factors and at a reduced price for their electricity as well. (Incidentally, this is why no corporation with major thermal coal units in their fleet is touting the profitability of that segment of their assets; they aren’t very profitable, and annual revenue is declining as well.)

A corollary of the merit order effect that will be obvious if you think about it for a second is that wind energy is driving down the wholesale price of electricity where regulated markets are aligned to it. This is happening in Germany, many US states and in Australia, and is fully documented although once again commenters  frequently ignore this or make completely false statements.

For more on the Merit order effect, Wikipedia and its links isn’t a bad place to start, and there is accessible material from Australia and the US on this as well, in part because people against renewables are now arguing that it makes electricity too cheap:

Ontario, Canada, as a conspicuous example, does not have a regulated market, so the merit order effect does not apply. As a partial result of having a directly managed generation supply by a governmental organization subject to political interference, wind generation is now being curtailed in situations of surplus baseload generation caused by Ontario’s excessively large nuclear fleet. As a result, wind farms are being paid a nominal fee to not generate rather than the full rates for the electricity that they provide, with obvious impacts on their revenue streams.
Have a look at Ontario’s IESO Forecast Surplus Baseload Generation Report for more information.

Relatively cheap grid connections

Wind farms typically feed mid-level utility distribution grids at around the 100 KV range. Households and businesses are plugged into the typically 25 KV distribution grid via local transformers, and long-range transmission is typically in the 250 KV range.

That connection to the grid, its associated wires, poles, transformers and SCADA-devices costs money. How much money and who pays for it are critical factors in a business case, as there is capital and operating outlay for it.

The first big factor is merely being close to existing 100 KV distribution lines. Putting up a wind farm near existing lines means that it’s much cheaper to attach the wind farm to them, which is pretty straightforward.  This, incidentally, is why most onshore wind farms are built nearer to people rather than further from them; the 100 KV distribution lines follow populations, not the other way around.

The second big factor is who pays for installation and maintenance. As utilities that maintain the lines usually do not own the wind farms, and as the utilities are typically regulated and charged with maintaining stability of the lines, and as most jurisdictions sensibly want more renewables to supplant fossil fuels, most jurisdictions have required utilities to pick up the cost and effort, and to prioritize the work appropriately. However, that’s not true everywhere, and utilities often don’t have the resources to build connections as fast as required.

There is a hidden factor in the above issue of grid connections: utilities often don’t have sufficient resources or don’t prioritize them to get renewables connected as rapidly as they can be built. Delays in connectedness mean delays in revenue, which means delays in achieving profitability while continuing to incur financing and operational costs. This has been problematic in Ontario and is a significant inhibitor in China and India at present. It’s a political football in New England.

Optimized Management and Operations

This has been a relatively poorly explored area over the past several decades, with most wind farms choosing to opt for expensive and sometimes sub-optimal maintenance contracts with the wind turbine manufacturers. This is changing rapidly at present because so many other portions of the supply chain and cost structures have been refined to a highly optimized state, so this relatively smaller area is now undergoing scrutiny.

Asset management and analytics software is being applied to the wind industry, with typical results of more efficient and lower cost maintenance regimes and operations cycles.

This last is low-hanging fruit for existing wind farms that are being acquired and consolidated under larger companies at present. These companies are bringing better and cheaper practices that they can afford across their fleet, where individual wind farm operators don’t have critical mass for the optimization costs.

Summary

There are roughly 240,000 utility scale wind turbines around the world. A very small percentage aren’t profitable. Many aren’t as profitable as they could be. Like every other portion of the electrical grid, it’s a major business with substantial knowledge and experience required to maximize profits.  This is just a rough initial guide to the questions asked as wind farms are considered.

———————
This material was originally written for a Quora question here: http://www.quora.com/Wind-Energy/How-can-one-maximize-profits-with-a-windfarm/answer/Mike-Barnard

One of my regular correspondents, Malcolm Hamilton, was responsible with his business partner Roger Short for identifying, assessing and locking in host leases for the Melanchthon wind farm in Ontario, Canada. Until recently it was the largest wind farm in Canada. He has proven ability to make a profit on wind energy. He commented on the Quora answer after I asked for his input, and I recreate his comment here because it adds value.
———-
Good piece.  In our experience, here are a few key success factors:
1. Lock up land in a good wind resource (harder to do when wind maps abound).
2. Gain access to transmission (probably the toughest thing to do once the industry is up and running).
3. Avoid delays in permitting and appeals (time is the enemy, especially when capital expenditures are locked in).
4. Eliminate downtime using preventive maintenance and rapid response to failures.
5. Spend a lot of time devising a strategy for negotiating with and choosing a capital equipment supplier (it’s the biggest project cost).

These points may seem trite, but each one needs to be backed up by a strategy, a playbook and a really competent team.

4 comments

  1. Hi,

    Thank you for this nice and comprehensive article. I would suggest to also have look at http://www.windbarb.com. It gives you just these answers on how much wind energy is possible for any type of turbine and any location in the World. It also explains how much Solar energy you can gain from your configuration of PV panels. Knowing and understanding the available resources will help to minimise the risk of investment.

    best regards
    Jordan

  2. Calamity Jean · · Reply

    A: Your link “Vestas continues to deliver solutions to very low wind speed sites in China.” isn’t working. I’d be interested in reading what it says if you can find where it went.

    B: What you said about newer wind turbines being put into wind farms in high-wind locations, and the used turbines being sold for use elsewhere reminds me of The Dancing Ladies of the Isle of Gigha. http://www.gigha.org.uk/windmills/index.php .

    I’m a big fan of windpower and have been enjoying reading your site. Thanks for writing it.

    1. Thanks Jean . . .

      The link is fixed now, but here it is directly for your convenience.

      http://www.vestas.com/en/media/~/media/4d57480eebca479a89da48fdb51236f6.ashx

  3. Eben · · Reply

    I’m new to the industry and this was very insightful and well written for the first-timer. It gives me hope this industry will begin to offset carbon and continue to grow in application across the world.

    cheers, Eben

Be nice, be respectful, be relevant.

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 1,228 other followers

%d bloggers like this: