Project characteristics of wind energy projects in Europe

Project characteristics of wind energy projects in Europe Dominik Möst, Institute for Industrial Production (IIP), University of Karlsruhe (TH) Bangkok, 24.10.2002

Agenda • Wind resources and market development • Technical characteristics of wind farms • Policy instruments • Financing schemes • Economic data • Summary and Outlook

The role of renewables in Europe Western European countries (EU17) • Overcapacities in liberalised, fully competitive electricity markets • No direct need for additional and cost-intense energy projects • Climate protection strongly influences European energy policy • Political support for clean energy generation technologies • Strong public interest in environment issues: support for RE projects • local citizen financed projects: starting point in Denmark and Germany • Dropping electricity prices led to stronger cost disadvantages of RE • Dependency on supporting policy instruments

Wind resources in Europe High wind potential (Onshore) in • UK • France • Scandinavia Feasible for exploitation: • Wind speed above 4.5 m/s

Status of wind energy in Europe 2001 • Total installed capacity in 2001 about 17.000 MW • Installed capacity produces about 40 TWh of electricity annually

Wind capacity development in Germany • Wind energy development has started in the early 90ies • Development in Germany fostered by two fixed feed-in tariff-schemes • Average size of installed capacities almost 1300 kW in 2001 • Doubling of turbine size within four years • Doubling the size of a turbine will produce 4 times as much energy

Technical characteristics and development of wind energy in Germany

Picture of wind power plant Source: Bundesverband Windenergie

Different policy instruments for wind energy in Europe Fixed feed-in tariff systems • Fixed price paid per kWh, off-take obligation for local grid-operator • Enormously successful in Germany, Spain, Denmark • Advantage: planning security for investors (price risks) • Critics: Economic ineffiency, fixing “right“ price Renewable portfolio standards • Power companies are obliged to assure a fixed percentage of RE generation in their portfolio • Obligation is tradable: green certificates • Certificate trading is independent of electricity trading • Advantage: Economic efficiency (Economists) • Critics: High price risks, low planning security Competitive bidding, tendering or auctions • Governments fixes capacity target to be installed • Investor consortiums bid for power purchase agreements (merrit order) • Advantage: Economic efficiency (Economists), planning security • Problem: Strategic bidding results in extremely low prices that impede project realisation after project approval

Development dependent on these instruments

Financing schemes in Europe Application: Denmark, Germany, Netherlands, Austria Smaller windfarms, private investors • Individuals • beginning of the wind energy development • Closed end funds • Established financial product(private investors) • Market intermediaries: Banks • Participation schemes • Local citizen consortium • Fostered by low-interest loan capital Market maturity Application: Spain, France, Italy Bigger windfarms Investors: Utilities • Project – financing • Off-balance sheet financing • Risk mitigation by contractual network

Participation schemes • Small private investors form limited liability companies • Each regional market develops very homogeneous forms • Often fostered by low-interest loan capital of institutional lenders Applications: Wind farms in DK, D, NL, A Germany: also several PV projects and few applications for Biomass and Biogas Institutional Lenders Commercial Banks Preferential interest rates commercial interest rates Project Company Project Manager Limited Partner 1 Limited Partner 2 Limited Partner n ... limited liability, complete equity! Project Developer Company Private Investor

Closed-end funds Market structure:- Project development separated from equity investor acquisition - project participations (equity capital) are sold via public offers - market maturity: established financial product (like ship funds) - Market intermediaries: Banks, sales subsidiaries of developer firms Participations: - minimum participation typically fixed at 5.000, 10.000 or 20.000 Euro - Market average of investment heights: around 25.000 Euro (estimated) Advantages: - Specialisation allows improvements of market efficiency - increased market transparency - company image facilitates funds placement

Project Financing Project Developer Investors Plant Supplier Local Utility equity O&M equity equity turnkey equity grid revenues contract revenues revenues contract revenues connection Project Company Equity Sponsor Equity Sponsor Equity Sponsor Equity Sponsor Recource limited to project company activa !! Banks Institutional Lenders Bankers‘ perspective: • limited liability (project company) • risk mitigation by contractual network • well-known financing approach Investors‘ perspective • off-balance sheet financing • non-recourse financing • interdependent partnership

Experiences with local citizen participation Background • High population density • Strong legal position of local citizens • Attitude: „Not in my neighbourhood“ and „Think green“ Advantages • Public support for specific projects • intrinsically motivated investor group with low opportunity costs:lower profitability expectations Disadvantages / Problems • low individual financial strength:many investors / administration costs • non-professional investors: high risk aversion high consulting needs

Economic data of wind energy projects in Germany Projected costs:from closed-end fund prospectuses Operation costs 2,00 – 2,60 Cent/kWh Management costs 0,30 – 0,50 Cent/kWh Maintenance costs 0,05 – 0,10 Cent/kWh Electricity generation costs (project duration: 20 a, discount rate: 5%): 7,5 – 8,5 Cent/kWh Specific Investment costs 850-1200 EUR/kW Employees in the wind energy sector: 35.000

Success factors for wind energy projects • Wind characteristics of wind at planned site • Good wind sites are a prerequisite for high project revenues • Involvement of local citizens to avoid public opposition • Authorisation process efficiency • Grid connection: cost sharing and grid capacity • Planning security due to feed-in tariff

Summary and outlook • High potential of wind energy in countries like France and UK, where total installed capacity is low • Widely developped onshore wind energy market in Germany, Denmark • Few sites to exploite • Repowering, replacement of smaller older turbines with larger • Enormous additional wind resource in the seas around the coastline • Expected to take of in northern Europe from 2003 onwards • Fixed-feed in tariffs fostered wind energy boom in European countries

Picture offshore Thank you! Source: Bundesverband Windenergie

Picture offshore (2) Source: Bundesverband Windenergie

Picture onshore Source: Bundesverband Windenergie

Project characteristics of wind energy projects in Europe