Wind economics more compelling than ever

Wind power, not shale gas, was the biggest single cause of the fall in US carbon emissions from coal use. The European Union also highlights why wind is becoming an increasingly smarter energy option over “cheaper” sources.

Justin Wilkes, deputy chief executive officer of the European Wind Energy Association has said that renewables are regularly denigrated for being too expensive and a drain on the taxpayer. “Not only does the Commission's report show the...

By Katherine Steiner-Dicks

The findings, based on figures by the US Energy Information Administration (EIA), contradict the established narrative that touted shale gas as the biggest single factor in bringing down US emissions in recent years, says Greenpeace.

The new analysis, which was published in part by Greenpeace and Energydesk, comes in the wake of a major international study recently published illustrating a global shale boom will not reduce emissions, and may lead to an increase in emissions of up to 11 per cent by 2050.

The US shale industry has been widely credited for reducing the country’s reliance on coal and slashing carbon pollution from the power sector. But research by Greenpeace energy and climate analyst Lauri Myllyvirta suggests that shale gas played a much smaller role than previously thought.

Between 2007 and 2013 the US saw the largest fall in coal usage ever experienced by any country, with renewables, energy efficiency and shale gas together picking up the slack. Switching away from coal led to lower emissions from the power sector, which has largely been attributed to fracking.

Surge in renewables

The Energydesk analysis shows instead that most of the power vacuum left by coal (56%) was filled by a big surge in renewables and efficiency over the same period, with the rest being covered by gas-fired generation.

But a closer look shows that the reduction of CO2 emissions that the contribution of fracking is overshadowed by that of clean technologies and efficiency measures. Of the 16 per cent fall in US carbon emissions since 2007, only around a third (30%) came from switching from coal to gas, for the simple reason that natural gas still emits CO2.

By contrast, 40 per cent came from the switch from coal to renewables and the remaining 30 per cent from improved efficiency. Increased generation from wind power plants alone was responsible for 32 per cent of the drop - a slightly larger contribution than that made by gas, according to the reports.

The Greenpeace analysis only looks at emissions from burning the fuel to generate electricity and does not take account for the methane leakage from shale gas, which would further diminish shale gas’ contribution to emissions reduction, according to media reports.

A recent analysis by Bernstein research suggests US coal use will fall by a further 25 per cent by 2020, again partially driven by renewables growth.

The steady decrease of US emissions, however, has been reversed in these last 18 months following a price-driven increase in coal burn, and also a resurgence in crude oil production (up 31% in last two years). But with a significant number of coal plants due to retire in 2015, this return to rising emissions may turn out to be short-lived.

Fracking v. clean energy

Commenting on the findings, Greenpeace energy analyst Lauri Myllyvirta said: “The supposed climate benefits of fracking have been a big selling point for the shale lobby, but this myth has now been cut down to size by compelling new evidence.

“Our analysis shows that it was the clean tech boom, not the fracking rush, that slashed the bulk of carbon emissions from the US power sector. And this even before considering the impact of fugitive methane emissions, one the most dangerous greenhouse gases on the planet.

“Ahead of a crunch year for global negotiations on a new climate deal, all the evidence points to clean technologies and smarter energy use as the most effective solutions to tackle climate change. Our political leaders will do well to remember this.”

Wind: comparatively a lower cost energy

Separate analysis reports are also highlighting how wind energy is one of the lowest cost options for reducing carbon emissions, but some have attempted to take another analysis out of context to argue that this is not the case, said a news brief by the American Wind Energy Association (AWEA).

The recent positive news about wind energy includes a from Wall Street investment firm Lazard, which confirms that wind energy’s recent cost declines have made it the lowest cost option for reducing emissions.

In fact, said the AWEA report, Lazard’s results indicate that wind’s cost is lower than all other new generation options, making wind a win-win for consumers and the environment by giving wind a negative cost of reducing emissions. Additional positive news comes from a draft EU report (source: The Guardian) that shows that wind is the lowest cost energy source once the public health and environmental costs of other energy sources are accounted for.

A recent report from the U.S. Department of Energy confirms that wind’s costs, as reflected in signed utility wind purchase contracts, have fallen by more than half over the last five years. Moreover, the report finds that over the life of a project, wind is by far the lowest cost option once expected increases in the price of fossil fuels are taken into account.

“Undeterred by these findings, some have misrepresented a rough estimate prepared by the Midwest grid operator (MISO) of the potential costs of complying with EPA’s pending Clean Power Plan to limit emissions of carbon dioxide from existing power plants,” said AWEA.

“Some anti-wind groups have taken the results out of context, ignoring important caveats in the draft in an effort to attack wind energy. MISO has acknowledged the limitations of its initial analysis and has stopped presenting those results because others have taken the numbers out of context, but that has not stopped some anti-wind groups from continuing to misrepresent the results.”

As a result, AWEA has expressed that it is “compelled to set the record straight” by correcting the cost estimate to account for a number of critical limitations in the estimation method, including several that MISO has acknowledged have a significant impact on the estimate.

“These corrections bring wind’s calculated cost of emissions reductions down by a factor of 5 from the initial estimate. MISO has not yet released the full details of its methodology, so there would likely be additional corrections to the estimate if those details were known,” said AWEA.

The fact that utilities in MISO are signing wind purchase contracts at costs below the cost of competing generation proves that wind actually has a very low or even negative cost of reducing emissions, the AWEA has expressed.

Price stability

Moreover, expected increases and volatility in the price of competing fuels make it even clearer that wind energy is the lowest cost generation option for reducing emissions in the long term, as shown in the chart below from DOE’s report.

President and CEO of Xcel Energy’s Northern States Power David Sparby is seeing the cost competitiveness of wind compared to other energy sources.

When he announced 600 MW of new wind purchase contracts by explaining that “Wind prices are extremely competitive right now, offering lower costs than other possible resources, like natural gas plants. These projects offer a great hedge against rising and often volatile fuel prices.”

According to MidAmerican Energy, the investor-owned utility controlled by Warren Buffett, its plans for a 1,050 MW wind farm in Iowa has its customer benefits: “The expansion is planned to be built at no net cost to the company’s customers and will help stabilize electric rates over the long term by providing a rate reduction totalling $10m per year by 2017, commencing with a $3.3m reduction in 2015.”

Europe wind sector sees steady investor appetite

The total cost of energy production, which factors in externalities such as air quality, climate change and human toxicity among others, shows that coal is more expensive than the highest retail electricity price in the EU. A recent EU report puts the figure of external costs of the EU's energy mix in 2012 at between EUR150bn and EUR310bn.

Justin Wilkes, deputy chief executive officer of the European Wind Energy Association has said that renewables are regularly denigrated for being too expensive and a drain on the taxpayer. “Not only does the Commission's report show the alarming cost of coal but it also presents onshore wind as both cheaper and more environmentally-friendly," said Wilkes.

Onshore and offshore wind technologies also have room for significant cost reduction. Coal on the other hand is a fully mature technology and is unlikely to reduce costs any further.

Wilkes added: "We are heavily subsidising the dirtiest form of electricity generation while proponents use coal’s supposed affordability as a justification for its continued use. The irony is that coal is the most expensive form of energy in the European Union. This report shows that we should use the 2030 climate and energy package as a foundation for increasing the use of wind energy in Europe to improve our competitiveness, security and environment."

Investors agree

Glennmont Partners, one of Europe’s largest fund managers focusing exclusively on investment in clean energy infrastructure, has signed an acquisition agreement with Sorgenia to build two wind farms in one of the strongest wind resource locations in France.

The acquisition comprises of two wind farm sites of 16 MW and 6 MW located in the Haute Normandie and Nord Pas de Calais regions in France respectively. The sites are located in one of the strongest wind resource areas of the country.

The two projects are ready to be built, having obtained all building permits and secured all land leases for 40 years. Power Purchase Agreements with EDF have been signed for both projects, which will benefit from the French Feed-In Tariff for 15 years.

“Long term, non-recourse project financing to fund the construction and operations of the wind farms has also been signed with leading lenders,” said the clean energy investor.

Currently the fund is managing in excess of 115MW of onshore wind farms in France, Ireland and the UK.

Francesco Cacciabue, Partner and Chief Financial Officer of Glennmont, said: “The 22 MW portfolio of new projects is a highly attractive investment opportunity. This investment complements our existing portfolio of wind and solar in France and offers investors access to substantial and visible returns, in line with our investment philosophy.”

“This is the first deal we have announced since closing our fully subscribed second fund last month. We have a strong pipeline of opportunities and we will continue to build on our momentum with other new investments in the coming months,” he added.

Partnering to expand

Partnering in the renewable energy industry is also taking place in Europe. For example, Juwi, a renewable energy project developer based in Wörrstadt, Germany has a new partner: Mannheim-based MVV , which has agreed to acquire a 50.1 percent majority shareholding interest in juwi AG via a capital increase.

The transaction is expected to close no later than December 31, 2014. The two companies agreed to keep the financial and organizational details of the transaction confidential.

For juwi, the new strategic partnership is an important milestone that will strengthen and enhance its core business of project development, construction and operations & maintenance.

Listed energy player MVV Energie AG, which has annual revenues in the region of EUR4bn plans to further expand its commitment in the renewable energy sector through this new investment.

For Fred Jung and Matthias Willenbacher, the co-founders of juwi, the transaction represents a major building block for sustainable growth in the juwi Group: “We are delighted to be teaming up with Mannheim-based MVV Energie AG, which is already extremely active in the field of renewable energies and is now interested in the sustainable and strategic expansion of this commitment together with us.”

For MVV Energie AG, the partnership with juwi represents the systematic evolution of its strategic orientation: “The ongoing transformation of energy supply structures in Germany centers on an efficient and environmentally-friendly combination of renewable and conventional energies as pillars in the energy system of the future”, said Dr. Georg Müller, Chief Executive of MVV.

Stephan Hansen, the juwi Executive Board member responsible for international business said that outside of Europe demand for wind energy remains strong: “In a global context there is enormous potential for the efficient use of renewable energy, particularly wind and solar energy. In light of our outstanding accomplishments as a project development and EPC partner on almost every continent we want to harness these opportunities and continuously expand our international business.”

Apart from the new partner, the stable and profitable core business in Germany is helping the juwi Group with realignment. By the end of September, juwi had already realised over twenty wind projects this year throughout Germany with a total capacity of approximately 200 megawatt.

The company has also reported that several other projects with a total capacity of nearly 100 megawatt are currently at the construction stage leading to the conclusion that wind power is still in demand and showing that its cost effectiveness is increasingly matching its equally attractive low carbon status.