Wind power offers price stability (as well as sustainability)

19 August 2003

The recent retail price rises by the state-owned generator-retailer, Meridian Energy Ltd, to underwrite its proposed hydro project on the Lower Waitaki, highlight an advantage of wind power: it will reduce price hikes over the long term, and especially during dry years, according to Geoff Henderson, Chief Executive, Windflow Technology Ltd.

"We are driving international investors away," Mr Henderson said. "There is growing international concern regarding the uncertainty of New Zealand's energy supply, while the price of industrial power has climbed higher than in Australia.

"Wind power can meet both of these concerns; it is reliable, offering stability of supply and price, compared with hydropower which is affected by unpredictable lake levels," he said.
"The recent panic over low lake levels and high wholesale prices shows we are relying too much on hydro-power. And at the same time the early depletion of the Maui gas field highlights the folly of increasing our dependence on gas-fired power in recent years."

The Windflow venture has captured the imagination of environmentally-minded investors by bringing together sustainable energy and local manufacturing. "Now it can also point to clear price advantages, five years ahead of schedule!" said Mr Henderson.

Windflow Technology Ltd is presently raising $5.5 million through a renounceable rights issue to its shareholders. Windflow's business plan includes an assumption of 4-5 c/kWh as the prevailing wholesale electricity price a few years from now. By contrast year-ahead contract prices reached that level last year, and spot market prices have exceeded it for most of this year.

"Through investment in wind energy New Zealanders can be confident of an alternative, sustainable source of energy to complement and support the existing hydropower. This will translate to lower wholesale prices in dry years."

"Wind power is the least-cost form of renewable energy," he said, "It is cheaper than building new coal-fired or hydro-stations and eminently more sensible; we have so much hydro already and don't want to increase our dry-year vulnerability. Windpower can also be installed quickly and in much smaller increments than coal or hydro projects. This reduces financing costs and over-supply risks."

1. The Global Scene - wind energy is the fastest growing form of generation worldwide:
   a. compound growth rates have exceeded 30% p.a. in recent years
   b. installed wind power capacity grew from about 2,000 MW in 1990 to over 32,000 MW in 2002
   c. the global business was worth about US$7 billion (NZ$13 billion) last year.



2. The NZ Resource - the wind resource in NZ is the best in the world:
   a. mean wind speeds exceed 10 m/s at sites near major population centres (including Wellington, Palmerston North, Christchurch, Dunedin, Invercargill and Blenheim)
   b. some international comparisons:
   i. Germany has the most wind power installed in the world, but few sites with mean wind speeds above 6 m/s (which yield one-third of the electricity that 10 m/s sites yield)
   ii. Denmark leads the world in wind turbine manufacturing, but has few sites above 7 m/s (which yield one-half of the electricity that 10 m/s sites yield)
   iii. California used to have the most wind power installed in the world, and similarly has few sites above 7 m/s
   iv. the "standard" site used for wind energy design purposes by the US Department of Energy has a mean wind speed of 5.6 m/s (13 mph).



3. 3. The NZ Potential is at least 30% of our generation (technical potential many times this):
   a. the technical potential: - assume only 1% of NZ land used for wind farming, of which only 3% - i.e. 0.03% of NZ land - would be taken out of production. This would yield three times our present generation
   b. the commercial potential: - 6000 windmills of 0.5 MW each would generate about 30% of our present generation. This would involve about 200-300 square km of wind farms (0.1% of NZ land) and less than 10 square km of windy hill-top land taken out of production. For comparison Lake Dunstan took 26 square km of fertile valley floor out of production.
   c. some international comparisons:
   i. Denmark has 5 million people and about the land area of Canterbury. It already generates 20% of its electricity from wind power and intends to increase this to 50% by 2030
   ii. California has 30 million people and 50% more land area than NZ. Three regions in California, each about 200 square km, each have about 5000 windmills installed. By contrast NZ wind farms would be much more dispersed.



4. 4. The Cost of Wind Energy - 6 c/kWh at 10 m/s sites, the least-cost renewable option:
   a. viable if the wholesale energy price is 4-5 c/kWh (plus 1-2 c/kWh avoided transmission and distribution costs). Present wholesale energy price is about 8 c/kWh whereas Infratil's forecast (last year, when it was about 3 c) was 4-5 c in five years' time.
   b. true cost of power from Clyde Dam is about 15-20 c/kWh (most of which has been written off by taxpayers in the 1980's). Similarly other hydro has historically been expensive (10-15 c/kWh) but taxpayer subsidised
   c. gas-fired power is the only major source which has been able to undercut wind power in the last 10 years (about 3 c/kWh for the capital and zero to 2 c for the gas depending on how it is costed). But gas-fired power does not yet pay the costs of climate change. And the cheap gas (from Maui) has run out
   d. cost of wind energy is inherently stable because it is capital-intensive so it is generally sold under long-term contracts. Also its "run-of-the-river" nature means it does not normally make sense to play games on the spot market.



5. Wind Energy will Reduce Price Hikes during Dry Years:
   a. the wind is more reliable than the rain. A 1 in 20 calm year yields 10% less wind energy than average - a 1 in 20 dry year yields 20% less hydro energy than average
   b. the wind is not correlated with hydro-lake inflows - dry years do not normally coincide with calm years
   c. at elevated sites the wind is usefully correlated with seasonal demand. See graph below from NZERDC report 140. This shows the difference between lowland areas where most of us live (calmer in winter), and elevated areas where most wind turbines would be sited (windier in winter)
   d. even without this correlation, wind energy year-round will reduce the draw-down on the lakes. Wind perfectly complements the hydro-resource, which provides storage on a time-scale of several months. (The wind varies from day to day, but when the wind is blowing water can be held back in the lakes. When the wind dies the hydro-lakes can be drawn down.)