Over the last few months I have had the opportunity to take a fresh look at the wind energy sector, through undertaking due diligence work on some Australian, Indonesian and UK wind farms. There has certainly been a lot of change in what has now been nearly seven years since I left the NZ Wind Energy Association (NZWEA), and this is most telling in the numbers - a modern wind turbine is bigger, more efficient, lower cost and delivers a lower cost of energy than its predecessors. As we start to think more deeply about what a ‘net zero’ emissions economy and energy system might look like, it is timely to think about what role wind might play with some of these new numbers to support it.
Global growth has spurred rapid technology evolution
Historically, and with very good reason, wind energy development in NZ to-date has focused on the very highest wind speed sites. The combination of our location in the Pacific and our terrain has given us sites with high average wind speeds – often better than the winds the Europeans are trying to capture offshore (at much higher cost). These consistently high wind speeds provide high yields and with this a competitive cost of energy. They also require relatively sturdy turbines to accommodate the associated stresses and loads.
The situation globally is quite different. Faced with a need to decarbonise their electricity supply and increase energy independence, and few other options, wind energy has seen rapid and significant growth. At just under 540 GW, the global total installed capacity at the end of 2017 was more than 11 times higher than in 2004. Growth in New Zealand’s installed capacity over that same period was just over 400%.1
As they are not blessed with the high-quality wind resources we have here, the rest of the world has also been working hard to get as much value as it can from the resources they’ve got. The turbines have become taller, as wind speeds typically increase with height, and the blades have become longer to capture as much of the available energy as possible. These technology advances, including improved design and materials, pushed along by intense competition within the industry and with other technologies such as solar and the need to meet customer requirements, have resulted in sites with relatively low wind speeds being able to deliver performance and a cost of energy that is competitive with New Zealand's high wind speed sites.
As an example, consider the project in Tasmania where Advisian has been acting as the lender’s independent technical advisor, and will now continue to support through construction and commissioning. The Granville Harbour Wind Farm is using the Vestas V126 3.6 MW turbine. This machine has 63m long blades and a 137m high tower – it will be 200 m to the tip of the blade at the top of the rotation. The tower alone is taller than the West Wind turbines that I can see from my street here in Wellington. The generating capacity of 3.6 MW is 20% higher than the biggest existing machines in NZ.
The average wind speeds at the site are around 15% lower than a site like West Wind or Tararua, but the expected capacity factor of about 43% is in the same ballpark. And that is just one example. I had a look at another site in South Australia with even lower wind speeds that has an expected capacity factor of around 45%. While capacity factor is not a great way of comparing between sites, the significant performance gains can be seen when comparing these sites to existing sites in the UK and Australia with similar wind speeds. Sites with earlier generation turbines are only achieving capacity factors of 20%-35%.
Another factor facilitating this increased performance (and lower cost) has been the development of turbine model “platforms”, where a range of tower heights, blade lengths and generator outputs are available for the same underlying machine. This enables the optimum configuration to be selected for an individual site.
…and lower cost…
The size and performance numbers aren’t the only ones to have moved. Costs have also come down from the peaks seen around 2007/2008, as competition has intensified and through addressing the supply chain issues that occurred as wind’s rapid growth built up steam. Global data shows turbine costs falling on a $ per MW basis, bringing total project costs down with it. For example, US Department of Energy data for 2016 (the most recent dataset) shows average turbine prices of US$0.8-1.1m per MW, a reduction of 40-50% since the 2008 peak, with further falls expected.2
These lower costs are not limited to the capital cost, with operations and maintenance costs also falling as designs are improved and manufacturing quality has increased, and new tools such as data analytics enable a more predictive and proactive approach to maintenance. The O&M market has been as ‘hot’ as the turbine supply market, with OEMs and specialist service providers offering all inclusive, long-term agreements.
…means a lower cost of energy
As wind has become a core part of new electricity supply it has drawn in investors and operators that expect it to perform with the control, reliability and availability of traditional generation sources, as well as the traditional power sector OEMs such as GE and Siemens. The dynamic has changed even further as investors have become comfortable with wind farm performance and its inherent variability. Developers can now offer projects with long term power purchase agreements (PPAs) and fixed operating costs that offer investors low-risk, stable returns for 10-25 years.
The generation for the Granville project has been purchased at a fixed price on a long term PPA. I can’t tell you what the price is, but you could happily plot it on a graph of NZ long-dated electricity futures prices (i.e. the price being contracted years ahead) without having to change the scale. It is interesting to compare this to the economics of wind power report, which was one of the last things that I published for NZWEA back in 2011. Back then we were expecting projects to have an LRMC of $78-$105 per MWh.3 The lower end of that band is probably starting to look more like the middle or top today.
Technology advances create new opportunities for New Zealand
So, what might all this mean for NZ? The most recent forecast of future electricity demand is Transpower’s Te Mauri Hiko white paper, which estimates total electricity demand will increase by 50% by 2030 and more than double by 2050 on the back of transport and process heat electrification. Most of this growth is expected to come from wind, geothermal and solar. You can debate the merits of this scenario to your heart’s content, but it is evident that there will be a material increase from the just under 700 MW of wind we have in operation today.
The cost-effectiveness of these new machines should enable opportunities can be explored at sites that do not have the very high wind speeds that we have built and consented to-date. The consented high wind speed sites still have potential, but will not have benefited from wind turbine technology developments to the same degree (as an example, a new site I recently looked at in the UK is using essentially the same Vestas V90 technology that was used at Tararua). These sites should still benefit from some of the manufacturing cost savings and potentially also a wider range of major component options.
Extending development into these lower wind speed sites should increase the range of viable options available to us. It should also provide diversity benefits through having sites with different wind regimes to those experienced by the core of existing sites in the lower North Island. Perhaps they might even offer simpler terrain, simplifying construction. They may also be closer to existing transmission capacity, avoiding the challenge faced by the consented Castle Hill and Puketoi projects that require significant transmission investment in order to be developed.
Wind’s inherent variability will still be a factor in where and how it is developed, but there are a range of factors that may also support the increased penetration of wind on our power system. Increased wind location diversity, the ability to capture more energy at lower wind speeds, the diversity of New Zealand’s generation sources, the flexibility of the existing hydro assets, and the expected emergence of increased demand response and storage technologies such as batteries should also facilitate increased wind utilisation.