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Is Wind Power All It's Cut Out to Be? Or Is It All Just Hot Air?
Much has been made in all forms of media recently about the benefits of wind power as an alternative source of energy, but here at dVT Consulting we have been seriously considering some of the costs and inefficiencies that are associated with wind power. dVT Consulting and de Vries Tayeh are all very much in support of the use of renewable energy but in keeping with our usual approach of “thinking outside the box” we have put together some thoughts and comments that hopefully will highlight some of the difficulties that we see are likely to arise.

Until recently, all of us have been fed a constant diet that wind power was to be our savior! But is it?

We hear reports from all quarters how wind power is going to take 45,000 cars off the road through the commissioning of one wind farm in NSW, that wind power is able to provide limitless electricity and thereby reduce pollution and carbon emissions significantly; it appears to be as simple as switching on the light switches on the wall at home! But there is mounting evidence we have been deceived and it is not as simple as it appears.

dVT Consulting has raised concerns that accounting standards and conventions, coupled with Stock Exchange and ASIC requirements, may not enable directors and auditors to present company accounts adequately, so as to give a true picture of the affairs of any company with an exposure to wind generation; this could create the situation that banks and other financial institutions are unable to adequately assess risk and predict the financial performance of wind generators.

As it turns out, a dVT Consulting director, Peter Tyree, (recognised as one of Australia’s top Engineers) has verified these concerns. Peter has confirmed the unreliability and high cost of wind power and agrees that these businesses are very vulnerable to massive revenue, profit and operational cost swings. He also ponders the long term real viability to operate such a costly source of electricity in Australia. Simply put - no wind, no power; too strong a wind, no power; and for every dollar spent on wind power capacity, the generators had better install an equivalent amount of capacity as a backup, thereby making wind power a very costly proposition to run with in the long term. There are also now more and more questions being raised regarding the health worries associated with wind turbines so environmental issues may even worsen.

Ahead of the reporting season, it may be that a few qualifications or questions need to be answered!

Financial Facts
  • The Federal Government’s policies on carbon reduction will stimulate investments in renewable energy.
  • A $23 per tonne starting price for a carbon tax.
  • A $10 billion assistance program (through newly created Clean Energy Finance Corporation) to assist the commercialisation of renewable energy.
  • Penalties on polluters will speed up the closure of some coal fired power stations.
  • Investment in renewable based generation will increase.
  • The cost of electricity from wind power generation is approximately 5 to 6 times more than that of coal, gas and nuclear. (This cost does not include the transmission costs from the place of generation to the place of consumption of the electricity.)
  • Wind power can only be competitive when the wind is blowing within certain velocities (or strengths) and through massive subsidies.
  • For every mega watt of installed wind power, if you want to have certainty of electricity delivered, (no blackout) you need to build a mega watt of back up generation in coal, gas, nuclear or some other generation.
  • If actual cost is the driver, wind cannot have a future. A carbon tax if introduced should favour other alternatives like solar. Wind power in our opinion will have limited acceptance. Consequently, rebates or any other form of subsidy for this sector are likely to be phased out. As a result, projects that are not sustainable without such subsidies are likely to fail.
Australia

In order to understand any investment or financial exposure in this sector, it is wise to get up to speed regarding some of the facts and key drivers involved:

  1. Australia’s total demand for electricity is approximately 35 gigawatts, (slightly greater than the state of Texas in the USA). Australia was determined as the world’s 17th largest electricity consumer in 2010. Consumption rankings are dynamic and this year is likely to see China outpace the USA for the top position.
  2. Australia operates the world’s longest interconnected transmission system - more than 5000 kilometres. 
  3. Traditionally, Australia has built its electricity grids and networks based on power stations being built both close to the sources of energy (coal in particular) and in reasonable proximity to the loads requiring the energy. Australia has, and still does enjoy, one of the world’s lowest costs of electricity as measured at the output of its power stations.
  4. 10 years or so ago, Australia was rated as the 3rd lowest cost for electricity in the world, as measured at the consumer’s meter. Regulatory imposts and catch up for a lack of capital investment in the industry have taken us to the world’s 17th highest cost for electricity at the consumer’s meter.
  5. The average demand for electricity in Australia is approximately 63% of the maximum demand. In the “peakiest” states, Victoria and South Australia, approximately 20% of the demand occurs less than 1% of the time. There is not a lot of usage of plant that is supplying the top 20% of demand. This may result in price cutting between generators, or marginal costing techniques could be applied thereby selling energy way below the prices shown in the table above. This could result in further marginalising wind power, which puts it further in jeopardy even with subsidies!
  6. Air conditioning in summer to cool homes, hotels and commercial buildings has had enormous growth in Australia and has caused summer peaking in demand. It is normal that this cooling will continue into the evenings. Wind power is not suitable for these demands especially when it is hot and still.
  7. The renewable energy certificate scheme (RECS) introduced a few years ago has had a profound effect on the types of generation equipment being installed. Wind power has been a beneficiary of this scheme. Put another way, it will be profoundly affected in a negative way if subsidies are removed or other technologies advance closer to where the load or demand for electricity is.
  8. Overseas owners of Australia’s generation utilities, bankers and other sources of capital to the industry are seeing Australia as a higher sovereign risk for their investments in the electricity sector in other countries. Australia has too much uncertainty: will there be a carbon tax and if so how much? If a carbon tax is introduced at $23 how long before it goes to $30 and then $40?? Will subsidies be removed? Wind power is a relatively high cost and an uncertain return proposition. Given global investor uncertainty, governments will have to move to stabilise this sector. Wind is the most difficult for them to deal with.
  9. Investments in power generation in Australia must be considered as high risk compared to other countries, and investment in wind power is even higher risk.
Wind Power Facts
  1. No wind, no electricity generated.
  2. Too high a velocity wind, no electricity generated as the turbines are stopped for safety reasons.
  3. Efficiency of wind generation in Australia is averaging 9 to 11%.
  4. Cost of coal and nuclear thermal generation is approximately $30 to $40 per megawatt hour.
  5. Cost of conventional gas thermal generation is approximately $48 per megawatt hour.
  6. Cost of wind generation is approximately $190 per megawatt hour Note: the above costs do not include transmission and distribution costs, carbon taxes or any utility surcharges.
  7. The vast majority of the location for wind turbines is away from existing transmission grids, thereby adding to the cost of delivery of power to the consumer.
  8. Power cannot be generated without wind blowing and the amount it can generate is dependent on how strong the wind is blowing.
  9. Can wind energy be stored economically? The basic answer is No!
  10. Can wind energy be stored at all? Yes, however:
    a. The most convenient way to store wind power’s energy is to use the part time generation to pump water into hydro electricity dams; the green lobbies would most likely not want this and we may as well simply make new hydro dams without the wind....this would be cheaper.
    b. Alternative storage can be achieved by installing massive battery banks somewhere in the system; again, high cost and perhaps defeats the “green” aspect of wind generation by manufacture of the batteries.
    c. Research is being carried out to explore alternative storage but these are not likely, if at all, to be developed within the next 10 years. 
  11. If we do nothing, and rely on wind power to replace new gas, coal, nuclear and other traditional generation, will widespread blackouts occur? Yes.
  12. Wind power is not economical - it is approximately double the cost of solar and 5 times the cost of traditional thermal generation. And that is not including its exorbitant manufacturing costs!
  13. Evidence is mounting that wind turbines create many health hazards and many consider them to visually pollute as well.
  14. Time Magazine and other media have extolled the virtues of Wind power. Journalists and media are not known worldwide for publishing the truth and unbiased information, nor do they, except in a few cases, have the technical or expert qualifications to report accurately and with balance. It is incorrect to advocate or insinuate wind can be relied upon to provide a reliable energy source 24/7 as suggested by Time magazine recently. Just because massive investments in Wind power have occurred does not prove it will replace traditional generation with or without subsidies....it certainly will not continue without subsidies!

Of interest is that solar generation, for domestic use in particular, can and is so often able to be located on the consumer’s roof or house, removing the cost of delivery. Further, Suntech (the world’s largest manufacturer of PV cells and using UNSW technology originally developed by Prof. Martin Green,) now claims efficiencies in its commercial production of greater than 19%. Suntech’s manufacturing costs are falling rapidly and product is sold in the retail market with a guarantee of a cost per kW hour at or less than 12 cents. Suntech’s publicly stated expectation is for price parity with the grid by 2015. Suntech has competitors with similar expectations. Wind power does not make any claims of grid parity in its process. 

Written by Suelen McCallum - Director of dVT Consulting