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Risks & Cost of Wind Energy

Risks & Cost of Wind Energy. Global Challenges and Opportunities European Wind Energy Conference Milan, Italy 9 May, 2007 Soren Krohn, World Bank Group, ESMAP, Energy Sector Management Assistance Program. Summary. Global Risk & Cost: Climate Change & Mitigation Cost

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Risks & Cost of Wind Energy

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  1. Risks & Cost ofWind Energy Global Challenges and Opportunities European Wind Energy Conference Milan, Italy 9 May, 2007 Soren Krohn, World Bank Group, ESMAP, Energy Sector Management Assistance Program

  2. Summary • Global Risk & Cost: Climate Change & Mitigation Cost • National Risk & Cost: Optimal Generation Portfolio • Project Risk & Cost: Optimal Risk Sharing Buyer / Seller

  3. Global Risk & Cost • Climate change debate (Stern)driving policy planning • Key Variables for Economists: • Temperature = f(greenhouse gas concentration) • Mitigation cost / ton CO2 equivalent ...and development over time • Baseline energy consumption path • GDP / Capita development • Elasticity of marginal utility of income • Pure rate of time preference

  4. Global Risk & Cost • Concern that wind turbine prices have grown as much as oil prices • Could lead to wind being left outin favor of • Energy Efficiency • Other Renewables (Solar PV case) • Nuclear • "Clean" coal • Adaptation to climate change • Doing nothing • Concern about uncertainty of CO2 prices • Global carbon price needed

  5. (National) Economic Risk & Cost • WBG Guideline:Neither risk aversion nor risk seeking at project level • Exception:Population welfare at stake(oil-GDP effect)

  6. (National) Economic Risk & Cost • Traditional method, China: • Find least cost technology solution

  7. (National) Economic Risk & Cost • Systematic resource risk(bad hydro experience) =>diversification away from hydro • Fuel price volatility =>Weighing cost against risk(not happening at present) • Models inadequate

  8. MadnessorMethod? • Accounting forfuel price risk in power systems planning Economic methodology development withmore to come…

  9. Risk in Power Systems Planning • Develop quantitative model based on: • National fuel prices (large uncertainty) • O&M costs (some uncertainty) • Capital costs (no uncertainty) • Other risks, e.g. CO2 value (large uncertainty) • Risk preferences • Develop recommendations on data • Test model on 2 countries (backcasting), discuss, upgrade • Plug-in for WASP, train users & use it!

  10. Project Risk & Cost • Develop tool for energy regulators for optimal risk sharing between buyer and seller • Exogenous risks • Oil prices, exchange rate, interest rate, ... • Endogenous risk • Seller controlledProject cost overrun, generator availability, mean wind,... • Buyer controlledGrid availability, nationalization, ...

  11. WBG Wind Energy Projects • Argentina, Bolivia, Brazil, Bulgaria, • Cap Verde, Chile, China, Colombia, • Costa Rica, Croatia, Djibouti, • Dominican Republic, Ecuador, Egypt, • Estonia, Ghana, Honduras, Hungary, • India, Jordan, Kazakhstan, Latvia, • Malaysia, Mexico, Kenya, Morocco, • Nicaragua, Outer Mongolia, Pakistan, • Panama, Philippines, Poland, Romania, • Russia, South Africa, Slovakia, Sri Lanka, • Tanzania, Tunisia, Turkey, Ukraine, • Uruguay, Western Balkans, Yemen

  12. Thank You ! • Contact • Soren Krohn,World Bankskrohn@worldbank.orgworldbank.orgESMAP.orgworldbank.org/retoolkit

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