The Alternative Green Energy Thread

Exiled_Tyke

JKenH said:

Exiled_Tyke said:

JKenH said:

World's largest offshore wind farm 'unprofitable' for Equinor, say government-funded researchers

We see considerable enthusiasm for renewable energy and the hope that it will solve our energy problems. However not everything in the garden is rosey as a recent report for the Norwegian government found. 

“In our estimate, Dogger Bank is unprofitable,” said University of Stavanger professor Petter Osmundsen. "The project has to compete with alternative investment opportunities."

Equinor has not disputed the study's conclusions, but emphasised that it had benefited from selling stakes in the project.

Costs have indeed come down for the bottom-fixed Dogger Bank and other offshore wind projects, but not at the same pace as strike prices have fallen in UK offshore wind auctions, according to the study.

The researchers calculated the Dogger Bank project's expected net present value (NPV) at minus £970 million (minus $1.3 billion). A negative NPV indicates that the value of the investment is below the rate of return which the company should require from its investments.

Equinor's bigger wind turbines, low prices for raw materials and limited competition helped the company generate solid profit from its larger early offshore wind projects.

That climate has since changed, as the world's largest player in the segment, Orsted of Denmark, has warned about supply-chain blockages and higher raw material prices. Increased competition for new licences also has significantly reduced strike prices in auctions.

https://www.upstreamonline.com/exclusive/worlds-largest-offshore-wind-farm-unprofitable-for-equinor-say-government-funded-researchers/2-1-1098012

So the conclusion must be that the system is working in providing the best possible value for money for the consumer? But obviously at a price that investors are (or were at the time of their decision) willing to accept.   In these times of escalating energy prices, a solid foundation for consumers with a relatively safe and stable return for investors sounds like the best balance has been achieved? 

michaels said:

Exiled_Tyke said:

JKenH said:

World's largest offshore wind farm 'unprofitable' for Equinor, say government-funded researchers

We see considerable enthusiasm for renewable energy and the hope that it will solve our energy problems. However not everything in the garden is rosey as a recent report for the Norwegian government found. 

“In our estimate, Dogger Bank is unprofitable,” said University of Stavanger professor Petter Osmundsen. "The project has to compete with alternative investment opportunities."

Equinor has not disputed the study's conclusions, but emphasised that it had benefited from selling stakes in the project.

Costs have indeed come down for the bottom-fixed Dogger Bank and other offshore wind projects, but not at the same pace as strike prices have fallen in UK offshore wind auctions, according to the study.

The researchers calculated the Dogger Bank project's expected net present value (NPV) at minus £970 million (minus $1.3 billion). A negative NPV indicates that the value of the investment is below the rate of return which the company should require from its investments.

Equinor's bigger wind turbines, low prices for raw materials and limited competition helped the company generate solid profit from its larger early offshore wind projects.

That climate has since changed, as the world's largest player in the segment, Orsted of Denmark, has warned about supply-chain blockages and higher raw material prices. Increased competition for new licences also has significantly reduced strike prices in auctions.

https://www.upstreamonline.com/exclusive/worlds-largest-offshore-wind-farm-unprofitable-for-equinor-say-government-funded-researchers/2-1-1098012

So the conclusion must be that the system is working in providing the best possible value for money for the consumer? But obviously at a price that investors are (or were at the time of their decision) willing to accept.   In these times of escalating energy prices, a solid foundation for consumers with a relatively safe and stable return for investors sounds like the best balance has been achieved? 

A safe real return somewhere between 3.6% and 4.4% sounds pretty good to me, I would buy some of that in my pension for sure. What the piece did not say was what the CFD strike price was as this should give some indication of where bids might be in the current round.

It is actually working very well for the consumer with the current level of wind penetration, or rather it was prior to last year’s stilling. If wind speeds don’t pick up it will be disastrous for consumers and the industry alike as the current returns of 3-4% will disappear altogether and with less generation alternative sources will be required. The rise in gas prices to some extent concealed the underlying problem that more wind generation, while cheaper in itself leads to higher average prices. Doubling wind generation will only reduce the back up capacity we need by around 5- 10%. Back up plant is paid enormous sums of money to sit there doing nothing much of the year. When the wind stalls as we saw last autumn and in January this year prices go through the roof. Thes peaks are a feature of the market and will increase with the higher penetration of wind. 

Anyway that’s another discussion (albeit an important one) and the article I posted was looking at the investment argument for wind (renewables) rather than consumer pricing (or indeed the CO2 benefits which we all accept.)

So going back to the returns of 3-4%, that might be attractive in a low interest market but interest rates are rising and putting pressure on margins. Also the costs of operating/maintaining the turbines are increasing. The present wind turbines will no doubt keep their heads above the water financially if wind speeds hold up but if wind speeds fall they could quickly be in trouble. 

Wind power increases with the cube of the wind speed so a doubling of generation gives 8 times the power. Imagine what might happen if wind speeds fell a further 5%, that would produce around a 15% fall in generation. As wind farm operators on CfDs get a fixed rate per MWh generated that is going to translate directly into a 15% fall in revenue. Costs are essentially fixed (although there might be a small saving in maintenance). 

This isn’t just me being alarmist - see Europe’s electricity generation from wind blown off course | Financial Times

It wouldn’t take much for the that 3-4% profit margin to turn into a 10% loss. If you hold an asset that generates a 10% loss for the remainder of its fixed price contract with no prospect of renegotiating the selling price then that business is in serious trouble and its shares would be virtually worthless. 

Shares in wind energy companies have already started to fall.

Vestas and Orsted warn of tough times for renewable energy | Financial Times

Just have a look at Orsted’s share price over the last year. Orsted AS Share Price DKK10

I think this is actually alarmist. It is reasonable to assume that wind farm developers are aware of the issues and can weigh up investments accordingly.  Subsidy free turbines will also be able to benefit from periods of high prices: although a major issue here will be that high wind periods will raise production and lower prices.   So a reasonable conclusion is that we need a portfolio of RE sources as well of course as storage.  Currently too much of our electricity is produced from gas and so the link between electricity prices and FF is far too close.   Constant push for innovation in RE must be the solution.     As for Orsted, there is the argument that the shares simply became overpriced and whilst the industry continues to face challenges, there are reasons to be optimistic.   See: https://seekingalpha.com/article/4473683-rsted-go-against-the-wind-and-buy-this-dip for more on this.  


"You are quite right that we need much more storage but what I have been arguing for some time is that the  roll out of renewables and storage needs to be coordinated. At the moment we have new wind farm being commissioned without anything like the storage we require to balance them. We celebrate on here every new wind farm that is announced but without storage it is only making the electricity supply problem worse" 

We aren't yet at the stage of needing to balance wind power since at it's best it can only currently provide around 40% of UK electricity needs.   It's no surprise that more interconnections have been brought into use, which also help with the balancing. So I don't think we are yet 'making the problem worse' but I think we can all agree that storage rollout is too slow.  (It does slightly amuse me that we talk about 'storage' of electricity when in fact we mean turning electricity into potential energy, or rather 'energy storage').     

Incidentally a few year's back I was talking to the chief electricity engineer at the National Grid, who's view was the Dinorwig was far too expensive for what it did and was unlikely to be repeated.  That of course was before the current price crisis and before we had such a roll-out of wind energy but I assume he saw at least the latter coming.  So yet again we need innovation!  

michaels

The current max wind generation of round about 20gw seems to leave us with pretty much never having too much power in that we still seem to keep a few GW or gas and biomass going and positive imports even at peak wind and minimum demand. (Of course we just run the nukes 24/7 because their output is uniquely unsuitable for a mixed RE plus other sources model)

However we are getting pretty close to the point where we start dialling back biomass and imports and possibly wanting to go below the minimum gas we need to keep switched on for grid services so soon new wind rather than pretty much being all useful energy will start having some excess that under CfD we pay for even if we don't use.  Presumably we can use the connectors for export and dial down biomass but beyond that there will be spill but the effective cost per unit for wind does go under the CfD regime if we are paying for output we don't use.  However it may still be cheaper to throw away this energy than store it and use it later depending on the storage cost per cycle.

JKenH

QrizB said:

And the phys.org article links to ScienceDirect where you can read the original research paper:

https://www.sciencedirect.com/science/article/pii/S0378775312014759

From the abstract:

We find that the least cost solutions yield seemingly-excessive generation capacity—at times, almost three times the electricity needed to meet electrical load. This is because diverse renewable generation and the excess capacity together meet electric load with less storage, lowering total system cost.

I read the Science Direct paper (although it was hard going) and wondered if this quote (below) I came across was a little simplistic. 

“The model does not prohibit over capacity; the capability for excess generation above load and filling storage has no negative or positive value in the optimization other than its effect on the cost. (In the real-time management of a power system, excess generation is avoided simply by turning down fuel input to thermal generators, feathering the blades of wind turbines, or switching off solar inverters; excess capacity is not a management problem, only a potential economic problem.) “

That doesn’t seem to fit too well with our experience in 2020 when negative (plunge) pricing was being deployed to deal with excess generation suggesting that excess generation cannot easily be dialled back. Excess generation is a real problem but not one I fully understand. On a U3A visit to a local coal fired power station I asked what happens when there is more generation than load and no one could answer that. The situation is managed so that it does not occur. If as proposed we are building out renewables to 3x our existing demand we surely need more storage to absorb that, not less as the model suggests. 

The model of 99.9% renewable generation ( building out renewables to 3x normal demand) wouldn’t work in the UK without a very large amount of storage. Quite recently I tried to pit a figure on the storage we would need with double our existing capacity and it ran into ‘00s of billions. It would be less if we tripled generation to meet our normal demand then expanded it a further 3x as per the model but in the most extreme conditions I can recall [renewables providing less than 0.8 GW) that would still only provide around 30% of our generation needs. The rest would have to come from solar (which isn’t great in the depths of winter) and batteries. The demand to be met by batteries would still be around 70% for possibly several days. And what would we do with the rest of the renewables generation and what would it be worth? We have already seen negative pricing with our current generation capacity so with 200% excess generation for much of the time we would have to create a massive demand to mop that up. Who would want to invest in more renewables as we approached that scenario unless there were massive subsidies?

JKenH

Exiled_Tyke said:

JKenH said:

Exiled_Tyke said:

JKenH said:

World's largest offshore wind farm 'unprofitable' for Equinor, say government-funded researchers

We see considerable enthusiasm for renewable energy and the hope that it will solve our energy problems. However not everything in the garden is rosey as a recent report for the Norwegian government found. 

“In our estimate, Dogger Bank is unprofitable,” said University of Stavanger professor Petter Osmundsen. "The project has to compete with alternative investment opportunities."

Equinor has not disputed the study's conclusions, but emphasised that it had benefited from selling stakes in the project.

Costs have indeed come down for the bottom-fixed Dogger Bank and other offshore wind projects, but not at the same pace as strike prices have fallen in UK offshore wind auctions, according to the study.

The researchers calculated the Dogger Bank project's expected net present value (NPV) at minus £970 million (minus $1.3 billion). A negative NPV indicates that the value of the investment is below the rate of return which the company should require from its investments.

Equinor's bigger wind turbines, low prices for raw materials and limited competition helped the company generate solid profit from its larger early offshore wind projects.

That climate has since changed, as the world's largest player in the segment, Orsted of Denmark, has warned about supply-chain blockages and higher raw material prices. Increased competition for new licences also has significantly reduced strike prices in auctions.

https://www.upstreamonline.com/exclusive/worlds-largest-offshore-wind-farm-unprofitable-for-equinor-say-government-funded-researchers/2-1-1098012

So the conclusion must be that the system is working in providing the best possible value for money for the consumer? But obviously at a price that investors are (or were at the time of their decision) willing to accept.   In these times of escalating energy prices, a solid foundation for consumers with a relatively safe and stable return for investors sounds like the best balance has been achieved? 

michaels said:

Exiled_Tyke said:

JKenH said:

World's largest offshore wind farm 'unprofitable' for Equinor, say government-funded researchers

We see considerable enthusiasm for renewable energy and the hope that it will solve our energy problems. However not everything in the garden is rosey as a recent report for the Norwegian government found. 

“In our estimate, Dogger Bank is unprofitable,” said University of Stavanger professor Petter Osmundsen. "The project has to compete with alternative investment opportunities."

Equinor has not disputed the study's conclusions, but emphasised that it had benefited from selling stakes in the project.

Costs have indeed come down for the bottom-fixed Dogger Bank and other offshore wind projects, but not at the same pace as strike prices have fallen in UK offshore wind auctions, according to the study.

The researchers calculated the Dogger Bank project's expected net present value (NPV) at minus £970 million (minus $1.3 billion). A negative NPV indicates that the value of the investment is below the rate of return which the company should require from its investments.

Equinor's bigger wind turbines, low prices for raw materials and limited competition helped the company generate solid profit from its larger early offshore wind projects.

That climate has since changed, as the world's largest player in the segment, Orsted of Denmark, has warned about supply-chain blockages and higher raw material prices. Increased competition for new licences also has significantly reduced strike prices in auctions.

https://www.upstreamonline.com/exclusive/worlds-largest-offshore-wind-farm-unprofitable-for-equinor-say-government-funded-researchers/2-1-1098012

So the conclusion must be that the system is working in providing the best possible value for money for the consumer? But obviously at a price that investors are (or were at the time of their decision) willing to accept.   In these times of escalating energy prices, a solid foundation for consumers with a relatively safe and stable return for investors sounds like the best balance has been achieved? 

A safe real return somewhere between 3.6% and 4.4% sounds pretty good to me, I would buy some of that in my pension for sure. What the piece did not say was what the CFD strike price was as this should give some indication of where bids might be in the current round.

It is actually working very well for the consumer with the current level of wind penetration, or rather it was prior to last year’s stilling. If wind speeds don’t pick up it will be disastrous for consumers and the industry alike as the current returns of 3-4% will disappear altogether and with less generation alternative sources will be required. The rise in gas prices to some extent concealed the underlying problem that more wind generation, while cheaper in itself leads to higher average prices. Doubling wind generation will only reduce the back up capacity we need by around 5- 10%. Back up plant is paid enormous sums of money to sit there doing nothing much of the year. When the wind stalls as we saw last autumn and in January this year prices go through the roof. Thes peaks are a feature of the market and will increase with the higher penetration of wind. 

Anyway that’s another discussion (albeit an important one) and the article I posted was looking at the investment argument for wind (renewables) rather than consumer pricing (or indeed the CO2 benefits which we all accept.)

So going back to the returns of 3-4%, that might be attractive in a low interest market but interest rates are rising and putting pressure on margins. Also the costs of operating/maintaining the turbines are increasing. The present wind turbines will no doubt keep their heads above the water financially if wind speeds hold up but if wind speeds fall they could quickly be in trouble. 

Wind power increases with the cube of the wind speed so a doubling of generation gives 8 times the power. Imagine what might happen if wind speeds fell a further 5%, that would produce around a 15% fall in generation. As wind farm operators on CfDs get a fixed rate per MWh generated that is going to translate directly into a 15% fall in revenue. Costs are essentially fixed (although there might be a small saving in maintenance). 

This isn’t just me being alarmist - see Europe’s electricity generation from wind blown off course | Financial Times

It wouldn’t take much for the that 3-4% profit margin to turn into a 10% loss. If you hold an asset that generates a 10% loss for the remainder of its fixed price contract with no prospect of renegotiating the selling price then that business is in serious trouble and its shares would be virtually worthless. 

Shares in wind energy companies have already started to fall.

Vestas and Orsted warn of tough times for renewable energy | Financial Times

Just have a look at Orsted’s share price over the last year. Orsted AS Share Price DKK10

I think this is actually alarmist. It is reasonable to assume that wind farm developers are aware of the issues and can weigh up investments accordingly.  Subsidy free turbines will also be able to benefit from periods of high prices: although a major issue here will be that high wind periods will raise production and lower prices.   So a reasonable conclusion is that we need a portfolio of RE sources as well of course as storage.  Currently too much of our electricity is produced from gas and so the link between electricity prices and FF is far too close.   Constant push for innovation in RE must be the solution.     As for Orsted, there is the argument that the shares simply became overpriced and whilst the industry continues to face challenges, there are reasons to be optimistic.   See: https://seekingalpha.com/article/4473683-rsted-go-against-the-wind-and-buy-this-dip for more on this.  


"You are quite right that we need much more storage but what I have been arguing for some time is that the  roll out of renewables and storage needs to be coordinated. At the moment we have new wind farm being commissioned without anything like the storage we require to balance them. We celebrate on here every new wind farm that is announced but without storage it is only making the electricity supply problem worse" 

We aren't yet at the stage of needing to balance wind power since at it's best it can only currently provide around 40% of UK electricity needs.   It's no surprise that more interconnections have been brought into use, which also help with the balancing. So I don't think we are yet 'making the problem worse' but I think we can all agree that storage rollout is too slow.  (It does slightly amuse me that we talk about 'storage' of electricity when in fact we mean turning electricity into potential energy, or rather 'energy storage').     

Incidentally a few year's back I was talking to the chief electricity engineer at the National Grid, who's view was the Dinorwig was far too expensive for what it did and was unlikely to be repeated.  That of course was before the current price crisis and before we had such a roll-out of wind energy but I assume he saw at least the latter coming.  So yet again we need innovation!  

Have a look at my post earlier today on the new Ripple wind farm where I explained that the Ripple proposal made more financial sense than investing in an offshore wind farm. You didn’t seem to think the Ripple wind farm was a great investment so why would you think that offshore wind farms were? 

I had seen the SeekingAlpha article at the the time and did consider going back in but I had started to see a few articles suggesting wind was not the place to be and my own sums confirmed it. People are putting a premium on green assets but that doesn’t change the underlying dynamic for a long term investment.

Edit: I don’t profess to be right all of the time but I do like to look at things from a different perspective. It’s good to think and try and make other people question ingrained views.

QrizB

JKenH said:

QrizB said:

And the phys.org article links to ScienceDirect where you can read the original research paper:

https://www.sciencedirect.com/science/article/pii/S0378775312014759

From the abstract:

We find that the least cost solutions yield seemingly-excessive generation capacity—at times, almost three times the electricity needed to meet electrical load. This is because diverse renewable generation and the excess capacity together meet electric load with less storage, lowering total system cost.

I read the Science Direct paper (although it was hard going) and wondered if this quote (below) I came across was a little simplistic. 

“The model does not prohibit over capacity; the capability for excess generation above load and filling storage has no negative or positive value in the optimization other than its effect on the cost. (In the real-time management of a power system, excess generation is avoided simply by turning down fuel input to thermal generators, feathering the blades of wind turbines, or switching off solar inverters; excess capacity is not a management problem, only a potential economic problem.) “

That doesn’t seem to fit too well with our experience in 2020 when negative (plunge) pricing was being deployed to deal with excess generation suggesting that excess generation cannot easily be dialled back.

Agreed. The way the UK has set up its renewables with FITs and so forth means that the Grid has to pay renewables companies to abate their generation if there is oversupply. It can be cheaper to pay people to take the energy instead, hence plunge pricing.

The model of 99.9% renewable generation ( building out renewables to 3x normal demand) wouldn’t work in the UK without a very large amount of storage.

The US has the advantage of covering three million square miles; by being four timezones wide they get >15 hours of daylight a day, on average, and it's always windy somewhere. The UK doesn't have those features and can't go it alone in the same fashion. It does gain some (not all, by any means) of those advantages by being interconnected to continental Europe.

michaels

QrizB said:

JKenH said:

QrizB said:

And the phys.org article links to ScienceDirect where you can read the original research paper:

https://www.sciencedirect.com/science/article/pii/S0378775312014759

From the abstract:

We find that the least cost solutions yield seemingly-excessive generation capacity—at times, almost three times the electricity needed to meet electrical load. This is because diverse renewable generation and the excess capacity together meet electric load with less storage, lowering total system cost.

I read the Science Direct paper (although it was hard going) and wondered if this quote (below) I came across was a little simplistic. 

“The model does not prohibit over capacity; the capability for excess generation above load and filling storage has no negative or positive value in the optimization other than its effect on the cost. (In the real-time management of a power system, excess generation is avoided simply by turning down fuel input to thermal generators, feathering the blades of wind turbines, or switching off solar inverters; excess capacity is not a management problem, only a potential economic problem.) “

That doesn’t seem to fit too well with our experience in 2020 when negative (plunge) pricing was being deployed to deal with excess generation suggesting that excess generation cannot easily be dialled back.

Agreed. The way the UK has set up its renewables with FITs and so forth means that the Grid has to pay renewables companies to abate their generation if there is oversupply. It can be cheaper to pay people to take the energy instead, hence plunge pricing.

The model of 99.9% renewable generation ( building out renewables to 3x normal demand) wouldn’t work in the UK without a very large amount of storage.

The US has the advantage of covering three million square miles; by being four timezones wide they get >15 hours of daylight a day, on average, and it's always windy somewhere. The UK doesn't have those features and can't go it alone in the same fashion. It does gain some (not all, by any means) of those advantages by being interconnected to continental Europe.

So I had sort of been guessing that the CfD would be the same for each unit whether it was generated or abated but if that were the case then pricing would never go more negative than the CfD strike price.  Perhaps the highest CfD would be the market minimum in this situation?

Exiled_Tyke

JKenH said:

Have a look at my post earlier today on the new Ripple wind farm where I explained that the Ripple proposal made more financial sense than investing in an offshore wind farm. You didn’t seem to think the Ripple wind farm was a great investment so why would you think that offshore wind farms were? 

I had seen the SeekingAlpha article at the the time and did consider going back in but I had started to see a few articles suggesting wind was not the place to be and my own sums confirmed it. People are putting a premium on green assets but that doesn’t change the underlying dynamic for a long term investment.

Edit: I don’t profess to be right all of the time but I do like to look at things from a different perspective. It’s good to think and try and make other people question ingrained views.

I don't like Ripple, not because of the expected returns but because of the inflexibility of the investment. In a fast changing market with various options on how to meet personal need for power Ripple could involve significant opportunity costs to investors.   

The fact that Dogger Bank has relatively low returns does not make it a bad scheme.  From the perspective of the consumer and the lack of negative externalities (compared to the other forms of generation) it is excellent and deserves support.  The income will be index linked. The capital structure is highly geared  across a consortium of banks, presumably at fixed and relatively low rates (given the nature of the assets).  Again the nature of the assets should support high gearing.  So any returns do have a potential upside for investors.  All in all  I'm quite happy with a little off-shore in my portfolio. But I don't expect to become a millionaire from it. 

Verdigris

There's more to life than "opportunity costs", IMO.

JKenH

Development needs delay Nigeria’s energy transition

Fossil fuels will dominate the country’s energy mix for decades to come

Another example of why we need to focus on the world picture, not just what is happening in the UK.

https://www.ft.com/content/5baa9cf8-1844-4961-933b-435432b3f9df

JKenH

I wonder how many more of these we will see tomorrow.

Or even this



https://www.newscientist.com/article/dn23848-why-storm-winds-turned-wind-turbine-into-a-fireball/