Key Factors Influencing the Competitiveness of Wind Energy in the Electricity Market
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Freiberg University of Mining and Technology Faculty of Business Administration and Economics KEY FACTORS INFLUENCING THE COMPETITIVENESS OF WIND ENERGY IN THE ELECTRICITY MARKET (Master Thesis) Felicia Elena Kurniadi International Management of Resources and Environment December 2002 Key Factors influencing the Competitiveness of Wind Energy in the Electricity Market “The Mill” by Rembrandt (1650) “This paper is dedicated to my beloved parents.” Key Factors influencing the Competitiveness of Wind Energy in the Electricity Market Table of Contents Table of Contents.............................................................................................................. i List of Figures ................................................................................................................. iii List of Tables................................................................................................................... iv Glossary............................................................................................................................ v Conversions.....................................................................................................................vi Preface ............................................................................................................................ vii Acknowledgement ........................................................................................................ viii Chapter 1 Introduction................................................................................................. 1 Chapter 2 Wind Resource Potential ............................................................................ 5 2.1 Wind Resource Characteristics and Potential..................................................... 5 2.2 Wind Resource Assessment ................................................................................... 6 Chapter 3 Wind Turbine Technology ....................................................................... 10 3.1 A Brief History of Wind Energy Utilization ...................................................... 10 3.2 Modern Wind Turbine Technology.................................................................... 14 3.2.1 How Do Wind Turbines Generate Electricity? ................................................. 15 3.2.2 Main Components of A Wind Turbine............................................................... 15 3.2.3 Fundamental Principles of Wind Turbine Power Generation......................... 18 3.3 Wind Turbine Applications................................................................................. 21 3.4 Technological Trend............................................................................................. 22 3.5 Offshore Wind Turbines...................................................................................... 26 3.6 Grid Connection Issues of Wind Turbines......................................................... 28 Chapter 4 Market Assessment and Future Outlook ................................................ 31 4.1 Market Development – Demand Side................................................................. 31 i Key Factors influencing the Competitiveness of Wind Energy in the Electricity Market 4.1.1 Germany................................................................................................................ 32 4.1.2 The United States.................................................................................................. 34 4.2 Wind Energy Industry – Supply Side................................................................. 35 4.3 Future Market Outlook ....................................................................................... 38 Chapter 5 Economics of Wind Energy...................................................................... 41 5.1 Capital Cost and Efficiency Trends.................................................................... 42 5.2 Operation and Maintenance Costs ..................................................................... 45 5.3 Financing Costs..................................................................................................... 46 5.4 Availability............................................................................................................ 47 5.5 Turbine Design Lifetime ..................................................................................... 47 5.6 Electricity Production/Average Wind Speed..................................................... 48 5.7 Overall Cost Effectiveness ................................................................................... 49 5.8 Offshore Wind Turbines...................................................................................... 51 5.9 Comparison with The Cost of Conventional Power.......................................... 52 Chapter 6 Environmental and Social Considerations.............................................. 55 6.1 Environmental Impacts ....................................................................................... 55 6.2 Social Considerations........................................................................................... 57 Chapter 7 Incentive Mechanisms to Promote Wind Energy Development ........... 59 7.1 Incentive Mechanisms: An Overview................................................................. 59 7.2 Germany’s and the United States’ Renewable Energy Policies ....................... 62 7.2.1 Germany................................................................................................................ 62 7.2.2 The United States.................................................................................................. 65 Chapter 8 Conclusion.................................................................................................... 69 References ......................................................................................................................71 ii Key Factors influencing the Competitiveness of Wind Energy in the Electricity Market List of Figures Figure 2.1 Input and output data of the WAsP program ................................................. 8 Figure 3.1 The Persian windmill ................................................................................... 10 Figure 3.2 Post windmill ............................................................................................... 11 Figure 3.3 Smock windmill........................................................................................... 12 Figure 3.4 Multiple-blades windmill............................................................................. 13 Figure 3.5 Two- and three-bladed modern HAWT....................................................... 15 Figure 3.6 Main components of the wind turbine ......................................................... 17 Figure 3.7 Power performance curve for a 1.5 MW wind turbine ................................ 19 Figure 3.8 Representative size, height, and diameter of wind turbines......................... 22 Figure 3.9 The lightweight turbine designed by Wind Turbine of Bellevue................. 23 Figure 3.10 Middelgrunden offshore wind farm ............................................................. 27 Figure 4.1 Germany Installed capacity (MW) – end of June 2002 ............................... 32 Figure 4.2 United States Installed Capacity (MW) - end of December 2001 ............... 35 Figure 5.1 Cost (1998) of Danish wind turbines ........................................................... 42 Figure 5.2 Wind turbine capital costs (ex works) and auxiliary costs (US$/kW in constant 1997 $); investment costs divided by efficiency (index 1990 = 1.0)........ 44 Figure 5.3 Cost of energy and wind speed .................................................................... 48 Figure 5.4 Total wind energy costs per unit of electricity produced, by turbine size, based on hub height of 50 meters (US cents/kWh, constant 1997 prices) .............. 50 Figure 5.5 Prices for different generating technologies ................................................ 53 iii Key Factors influencing the Competitiveness of Wind Energy in the Electricity Market List of Tables Table 3.1 The Various R&D focuses of major wind turbine manufacturers................... 24 Table 4.1 World market growth rates: 1996-2001 .......................................................... 31 Table 4.2 World’s top ten wind turbine suppliers (ranked by MW sold in 2001) .......... 36 Table 5.1 Cost structure for a 600 kW wind turbine (1997 US$) ................................... 43 Table 5.2 Comparison of total O&M costs based on size & age of turbine.................... 46 Table 5.3 Investment costs of the Tuno Knøb in Denmark (1997 prices) ...................... 51 Table 5.4 Stack emissions of coal, gas, and wind power plants (kg/MWh) ................... 53 Table 6.1 Environmental externalities values of wind-generated electricity .................. 56 iv Key Factors influencing the Competitiveness of Wind Energy in the Electricity Market Glossary AWEA American Wind Energy Association BOOT Build, Own, Operate and Transfer BWE Bundesverband Wind Energie e.V CO2 Carbon Dioxide DtA Deutsche Ausgleichsbank (DtA) EEG Erneuerbare Energien Gesetz EFL Electricity Feed Law EPRI Electric Power Research Institute ERP European Recovery Programme EWEA European Wind Energy Association FERC Federal Energy Regulatory Commission GHG Green House Gases HAWT Horizontal Axis Wind Turbine IEA International