1 I m p l e m e n t i n g O n s h o r e W i n d Pow e r P r o j e c t s 2014/10 88184 A KNOWLEDGE NOTE SERIES FOR THE ENERGY PRACTICE THE BOTTOM LINE Implementing Onshore Wind Power Projects Wind power has grown dramatically in recent years, although it still accounts for What is wind power? Figure 1. Main components of wind turbines and wind farms just 0.3 percent of the world’s Wind power is an attractive—but variable— final energy consumption. Wind renewable energy resource power costs have declined by some 14 percent annually since The kinetic energy in wind is converted into mechanical power in the mid-1980s and are now specialized propeller-driven turbines mounted on towers (figure 1). in the same range as those of A generator inside the turbine converts the mechanical power into fossil fuel in the OECD. Wind electricity. Utility-scale wind turbines range in size from 100 kilowatts projects are relatively quick to to as large as several megawatts. Turbines can be built on land or complete as long as key risks offshore and are grouped into “wind farms” that provide bulk power are mitigated. Risk mitigation to the electrical grid. Smaller turbines are used for homes, telecom- hinges on accurate assessment munications dishes, and water pumping, sometimes in connection of the wind resource, a proven with diesel generators, batteries, and photovoltaic systems. Such turbine technology, and hybrid wind systems are typically used in remote, off-grid locations, Source: US DOE 2013. experienced project developers. where a connection to the utility grid is not available. This note focuses on onshore wind energy, which is more widely model data) is not accurate enough to use as a basis for financing established and has lower risks than offshore wind.1 wind farm projects. However, it can be useful for determining where The economics of wind power are highly dependent on the local it may be worthwhile to do more costly ground-based exploration. wind resource. Wind resources are very unevenly distributed across The Energy Sector Management Assistance Program (ESMAP) at countries and regions and often vary enormously even within wind the World Bank has developed terms of reference for measure- Gabriela Elizondo farms. Air density, local terrain and topography, wind obstacles, and ments that can be used to map wind resources at the country level Azuela is a senior local turbulence characteristics affect annual energy production and (ESMAP 2014). energy specialist in the the type (and price) of turbines suitable for a given site. Resource Because hour-by-hour variations in wind power affect the World Bank’s Energy risk is often a make-or-break economic and technical risk factor demand for balancing power, the variability of wind resources Practice. in building wind farms, particularly in developing countries, where must be carefully considered if wind energy is to be efficiently long-term climate data of high quality are rarely available. integrated into the grid. While difficult to predict several days in Rafael Ben is a So-called mesoscale modeling of local wind resources (based advance, the availability of wind power can—in most climates— renewable energy on satellite topography and land cover data, plus global weather be modeled and forecast fairly accurately several hours in advance. consultant in the Africa Region of the World The extent to which wind power is “load following” can be analyzed Bank. 1 Globally, installed offshore wind capacity in 2012 was 5.4 GW (GWEC 2012), just 2 percent statistically by correlating historical hourly wind data with electricity of installed wind power. demand, which may vary considerably among sites in different 2 I m p l e m e n t i n g O n s h o r e W i n d Pow e r P r o j e c t s microclimates within the same country. The more positive this surrounding regions or countries; and the presence of storage (such correlation, the smaller the need for dispatchable generation—and as pumped storage) in the system. However, as the share of renew- the more attractive the wind site. able energy increases, the operational reserve margin decreases, Typical wind power capacity factors (the ratio of the actual and it may become necessary to add flexible resources or storage energy produced in a given period to the hypothetical maximum capacity to maintain reliable service. In general, the capacity credit “Wind power has when running full time at rated power) fall within the range of 20–40 of wind tends to drop as its share in the power system increases percent, averaging 28 percent globally in 2012. Capacity factors vary (Madrigal 2013). grown dramatically in widely from region to region but are generally increasing with the Further information on the technology and economics of wind recent years, showing a rapid development of high-quality sites. There is also an increased power can be obtained from the sources listed in the box at the end compound annual growth emphasis on developing new turbines for locations with poorer wind of this note (box 2). rate of 25 percent over the resources (and thus lower capacity factors) that may be closer to period 1990–2010.” load centers. Even so, a capacity factor of 20 percent is still usually How has wind power evolved? considered a minimum threshold for economic feasibility.2 One way of capturing the variability of the wind resource is Wind power has grown dramatically but remains through the concept of the “capacity credit,” which is the amount of relatively small conventional capacity that can be displaced by wind power without Wind power has grown dramatically in recent years, showing a com- compromising system security. For wind, the credit is estimated to pound annual growth rate of 25 percent over the period 1990–2010. range from 5 to 25 percent (Sims 2011). Thus, investments in wind Among middle-income countries, Brazil, China, India, and Turkey generation avoid fuel expenses but may only partially decrease the sustained compound annual growth rates of wind energy in excess need to invest in firm capacity. Experience has shown that a small amount of variable generation (<10 percent) usually can be integrated successfully into the grid with Figure 2. Growth of wind power, share of wind in total electricity consumption, and size minor changes in operational and man- of wind market in selected countries, 1990–2010 agement practices. Even medium levels Share of wind in (<20 percent) can be handled when certain total electricity consumption other conditions are favorable (among them 25% HICs UMICs the geographic distribution of the variable LMICs 20% Denmark Portugal resources); the size and distribution of load; the flexibility of the other components of the 15% Spain Ireland energy mix to reduce or increase genera- 10% Germany USA tion; the existence of interconnections with Greece Italy 5% Turkey Australia India UK Brazil France 0% China 2 The relationship between wind speeds and wind Japan Canada turbine capacity factors is not a direct one. Developers can –5% Compound annual growth rate, 1990–2010 increase capacity factors at a given site—at a cost—by 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% ordering turbines with a higher rotor area per unit of rated turbine power. Authorities can encourage high capacity Source: World Bank 2013. factors (which result in more efficient transfers of power to Note: Size of bubbles indicates amount of wind energy produced in 2010 (in GWh). HICs = high-income countries; UMICs = the grid) through procurement and pricing rules. upper-middle-income countries; LMICs = lower-middle-income countries. 3 I m p l e m e n t i n g O n s h o r e W i n d Pow e r P r o j e c t s Figure 3. Cumulative capacity in 2012 and annual market forecast by region, 2012–17 Rest of the world 60 14% China 50 Capacity added (GW) Portugal 2% 27% 40 Canada 2% “At the end of 2012 global 30 France 3% wind power capacity Italy 3% 20 added up to almost 300 UK 3% 10 GW (equivalent to the 0 India 6% generation capacity, from 2012 2013 2014 2015 2016 2017 all sources, of Japan). China Asia Middle East and Africa Latin America Spain 8% North America Europe Pacific and the United States alone USA 21% accounted for almost half Germany 11% of installed wind capacity.” Source: GWEC 2013. of 60 percent over the period 1990–2010 (figure 2). But growth has come from a very small base, and wind power still makes up a Box 1. Defining the levelized cost of energy very small share of the globe’s total final energy consumption—0.3 The levelized cost of energy (LCOE) is the price of electricity required percent in 2010 (World Bank 2013). In 2010, only three countries— for a project to make the net present value of all revenues and costs Denmark, Portugal, and Spain—had managed to generate more than equal to zero at a discount rate equivalent to the required rate of return. It provides a convenient way of summarizing all relevant 15 percent of their electricity from wind. By 2012, Denmark’s wind costs of energy in a single measure that is easily comparable across share had climbed as high as 27 percent (World Bank 2013).3 different types of technologies. As a result, it has become the primary At the end of 2012 global wind power capacity was almost metric for describing and comparing the underlying economics of 300 GW (equivalent to the generation capacity, from all sources, of power projects. Simple LCOE calculators—such as the NREL online calculator (http://www.nrel.gov/analysis/tech_lcoe.html)—are useful Japan). China and the United States alone accounted for almost half for estimating LCOEs and exploring their sensitivity to different of installed wind capacity. Annual installations of around 45 GW are assumptions. projected to occur over the next few years (GWEC 2013). The largest Owing to the capital intensity of wind projects, the LCOE is very numbers of wind energy generators are located in China, the United sensitive to the choice of discount rate. Although it does take into States, and Germany (figure 3), Asia has been the primary destination account the capacity factor of the technology, it does not provide a way of fully reflecting differences in the variability of energy supply for new wind capacity in recent years, and new growth has occurred under different kinds of renewable energy technologies. in other developing regions as well. 3 In Denmark, offshore installed power represents 28 percent of total wind capacity, much higher than the global average of 2 percent. 4 I m p l e m e n t i n g O n s h o r e W i n d Pow e r P r o j e c t s Figure 4. LCOE and weighted averages of commissioned and Figure 5. Average LCOE of onshore wind, 1984–2011 (euros/MWh) proposed large wind farms (>5MW) in non-OECD countries and regions, 2009–12 500 0.20 Denmark and Germany 2011 US$/kWh “Since the mid-1980s, the 0.15 LCOE for wind power has 100 Global 2011 US$/kWh declined by some 14 50 0.10 percent annually (figure 5) 14% and is now in the same 0.05 1984 1990 2000 2004 2011 range as that from fossil 10 100 China 1,000 10,000 100,000 1,000,000 fuel in the OECD and about MW 0.00 China Africa Eastern Other India Latin one-third that of diesel- Europe and Asia America Source: BNEF 2012. Central Asia fired electricity.” Note: Learning curve (purple) is least-square regression: R2 = 0.88 and 14 percent learning rate. CAPEX, OPEX, and capacity factor evolution are included in this LCOE analysis; financing Source: IRENA 2013. assumptions are kept constant. of 10 percent (table 1). The cost range is largely a reflection of the How costly is wind energy? tariffs deemed acceptable in the various countries, which determines The costs of wind energy have fallen significantly which wind resources are commercially exploitable. It generally is not a reflection of the quantity or quality of the available wind resource. In 2010, installation costs ranged from $1,300/kW in China and India The LCOE is similar in China and the United States, because to more than $2,000/kW in the United States. The levelized cost higher capacity costs in the latter country are offset by higher of energy (LCOE, defined in box 1) for wind power varies between capacity factors. The higher capacity factors in the United States to $0.06/kWh and $0.14/kWh, assuming a cost of capital (discount rate) some extent reflect the fact that U.S. developers have an incentive to achieve them, as they are generally required to bear the costs of grid reinforcement Table 1. Typical new wind farm costs and performance in 2010 and extension. Wind energy costs are also relatively competitive in Africa and Latin Installation costs Capacity factor O&M America (figure 4). (2010 US$/kW) (percent) (US$/kWh) LCOE (US$/kWh) Since the mid-1980s, the LCOE for wind China/India 1,300–1,450 20–30 — 0.06–0.11 power has declined by some 14 percent Europe 1,850–2,100 25–35 0.0013–0.025 0.08–0.14 annually (figure 5) and is now in the same North America 2,000–2,200 30–45 0.005–0.015 0.07–0.11 range as that from fossil fuel in the OECD and about one-third that of diesel-fired Source: IRENA 2012 electricity (World Bank 2013). IRENA (2012) Note: LCOE assumes 10 percent cost of capital. — = data not available. estimates that the LCOE of onshore wind 5 I m p l e m e n t i n g O n s h o r e W i n d Pow e r P r o j e c t s Figure 6. Capital cost breakdown for a typical onshore wind power system and turbine take place as close as possible to the site at which the turbines will be used. Until devel- Generator 2% oping countries can build their manufactur- Grid connection 8% Transformer 2% ing capacity, however, turbines will still have Power converter 3% Gearbox 8% to be imported. A major challenge for wind Planning & turbine manufacturers is the international- “A major challenge for wind miscellaneous Rotor blades 14% 7% Wind turbines ization of the supply chain stemming from turbine manufacturers is 64% Tower 17% growing global demand accompanied by the internationalization of pressure for the use of local manufacturing, Other 18% the supply chain stemming Foundation particularly in new markets. 12% from growing global In addition to locally procured founda- tions, roads, and electrical equipment, there demand accompanied Source: IRENA 2013. are several components (including towers) by pressure for the use that, because of their low entry barriers and of local manufacturing, moderate investment requirements, could particularly in new could decline by 6–9 percent annually over the coming years, be produced locally. Another opportunity to markets.” assuming that capital costs onshore decline by 7–10 percent by 2015 increase local content lies in improving local knowledge of operation and that the costs of operations and maintenance converge with of wind farms with exporting that knowledge to other countries. best practice. Gearboxes, generators, and blades, however, are not likely to be In terms of cost structure, turbines account for 64 to 84 percent produced locally, because of barriers to entry related to capital inten- of the installation costs of wind-farm projects (figure 6). They are siveness, size, the need for specialized manufacturing equipment, bought as a single unit from a manufacturer and are designed to match local site conditions as defined by the IEC 61400 standard for wind turbines. The tower and rotor blades account for most of the turbine’s cost. Figure 7. Top 10 manufacturers in 2012 GE Wind (USA) Who are the leading manufacturers? Others 15.5% 22.6% Wind power manufacturers can be found in a growing number of countries Vestas (Denmark) Mingyang (China) 14.0% The cradle for wind energy was Western Europe, where wind turbine 2.7% manufacturing has been concentrated in Denmark, Spain, and Sinovel (China) 3.2% Germany. With the rising potential of wind power in Asia and North United Power (China) America, Chinese, Indian, and U.S. turbine manufacturers have 4.7% Siemens Wind Power penetrated a market traditionally dominated by European manufac- Goldwind (China) (Germany) 6.0% 9.5% turers (figure 7). In 2012, the world’s top 10 manufacturers captured Gamesa (Spain) 77 percent of the global market. 6.1% Enercon (Germany) Suzlon Group (India) 8.2% High transportation costs (which are often more important than 7.4% labor-cost advantages) make it advantageous for manufacturing to Source: REN21 2013. 6 I m p l e m e n t i n g O n s h o r e W i n d Pow e r P r o j e c t s rigorous quality requirements, and the need for significant regional anticipated electrical power, cause delays during construction and volume before a commitment to local manufacture is warranted. commissioning, and reduce the life of the proposed wind turbine Assembly of the turbine nacelle accounts for less than 2 percent of and related infrastructure. Mitigating this risk requires a thorough the cost of a wind turbine and therefore is generally not worth the resource assessment (2–3 years in the case of large wind farms risk to perform locally. and where long-term local wind data are unavailable, as in many “In a mature market, such developing countries) to support reliable estimation of long-term as Europe, a 50 MW wind What are the key implementation issues? energy production. Monitoring masts with good-quality instruments calibrated to international standards should be used for on-site farm can be built in six Wind projects are relatively quick to complete as long measurement. Masts must be tall enough to provide measurements months.” as key risks are mitigated at the proposed hub height. Steep and complex terrain requires more The typical wind project has seven steps (figure 8), and projects masts than does level ground. Topographical conditions (such as can take between 3 and 7 years. Analysis of the wind resource and access roads, terrain, slope, etc.) that could be logistically challenging appropriate site selection require the most time (3–5 years), with during the construction phase must be taken into account. Road considerable variation depending on the location and scale of the transport studies are needed to ensure that heavy equipment project. By contrast, the construction phase can be quite short: A (including turbines) can be brought to the site. turbine takes a week to a month to erect. In a mature market, such Technology risk (turbine performance and reliability). as Europe, a 50 MW wind farm can be built in six months, once Turbines must be appropriate for the site conditions, as defined stages 1–5 have been completed. A more detailed description of by the international standard (IEC 61400-1) that certifies turbines development steps can be found in AWEA (2009). according to site wind speed and pattern. Turbines should have a Critical project risks arise at various stages of the project cycle. demonstrated availability rate of 95 percent, in accordance with the The categories of risk are (i) site and resource risk; (ii) technology risk; applicable international standard (IEC 61400-26) and be compliant (iii) completion risk; and (iv) operating risk. with grid code requirements. The various components of the turbine Site and resource risk. Over- or underestimating the wind must be guaranteed by the manufacturer to deliver the promised resource can affect the capability of the wind farm to generate the generation power at the given wind speed. Figure 8. Typical project cycle of a wind project Project development steps 1 2 3 4 5 6 7 Engineering, Construction, Wind resource Siting: permits, ETA, PPA, Prospecting procurement installation, O&M assessment interconnection financing contracting commissioning 3 months to At least 15 months; Locale specific; Locale specific; Locale specific; Faster than 1 evaluate 2–3 years for Ongoing 6 to 12 months 3 months 3 to 24 months turbine/month multiple sites large wind farms Source: USAID 2011. 7 I m p l e m e n t i n g O n s h o r e W i n d Pow e r P r o j e c t s Completion risk. Selecting a developer with experience on GWEC (Global Wind Energy Council). 2013. Global Wind Report: similar projects will maximize the chances that a project will reach Annual Market Update 2012. Brussels. http://www.gwec.net/ construction milestones on time. The contract strategy (independent wp-content/uploads/2012/06/Annual_report_2012_LowRes.pdf. power producer, build-own-operate, engineering-procurement-con- Madrigal, Marcelino, and Kevin Porter. 2013. Operating and Planning struction, or multi-contract) must be determined. Environmental and Electricity Grids with Variable Renewable Generation: Review of “Selecting a developer social impact assessments should be completed (and related permits Emerging Lessons from Selected Operational Experiences and obtained) before bidding begins. Obligations should be spelled out Desktop Studies. Washington, DC: World Bank. http://elibrary. with experience on similar in the contract that defines the obligation of the entity operating the worldbank.org/doi/book/10.1596/978-0-8213-9734-3. projects will maximize the plant. The environmental impact assessment should include a full IRENA (International Renewable Energy Agency). 2012. “Cost Analysis chances that a project bird study, taking into account both local and migratory birds and Series: Wind Power.” IRENA Working Paper, Abu Dhabi, UAE. will reach construction offering operational recommendations for limiting the wind farm’s June. https://www.irena.org/DocumentDownloads/Publications/ effect on birds (for example, bird corridors or shutdown on demand). RE_Technologies_Cost_Analysis-WIND_POWER.pdf. milestones on time.” The social assessment should cover property rights and resettlement ———. 2013. “Renewable Power Generation Costs measures. The supply chain (from investment to operation and main- in 2012: An Overview.” IRENA Report, Abu tenance) must be set and grid-connection procedures determined. Dhabi, UAE. https://www.irena.org/menu/index. Operating risk. Uncertainties about operating costs and aspx?mnu=Subcat&PriMenuID=36&CatID=141&SubcatID=277. revenues can be minimized by using experienced O&M contractors REN21 (Renewable Energy Policy Network for the 21st Century). 2013. bound by a well-defined contract in which performance targets are Renewables 2013: Global Status Report. Paris: REN21 Secretariat. spelled out. Modern wind turbines are usually maintained by the http://www.ren21.net/ren21activities/globalstatusreport.aspx. manufacturer on long-term service contracts, which often include Sims, R. P. 2011. Integration of Renewable Energy into Present and the cost of spare parts. Future Energy Systems. Cambridge and New York: Cambridge In sum, the three most important measures to mitigate the University Press. foregoing risks are a good assessment of the wind resource, a USAID. 2011. “Wind Energy Basics and Project Cycle.” Presentation proven turbine technology that meets international standards, and given in Colombo, Sri Lanka, January 26–27, 2011. http://www. the participation of experienced project developers. sari-energy.org/PageFiles/What_We_Do/activities/Wind_Project_ Appraisal_Training_Jan_11.asp U.S. Department of Energy. 2013. “What Is Wind Power?” Energy References Efficiency and Renewable Energy website, http://www.windpow- eringamerica.gov/what_is_wind.asp. AWEA (American Wind Energy Association). 2009. “10 Steps World Bank. 2013. Global Tracking Framework. Sustainable to Developing a Wind Farm.” Washington, DC. http://prod- Energy for All. Washington, DC. http://documents. http-80-800498448.us-east-1.elb.amazonaws.com/w/images/d/ worldbank.org/curated/en/2013/05/17765643/ d8/Ten_Steps.pdf. global-tracking-framework-vol-3-3-main-report. BNEF (Bloomberg New Energy Finance). 2012. “Global Wind Market Overview Q1 2012.” Presentation by Amy Grace to the World The peer reviewers for this note were Karen Bazex, a specialist in the Latin Bank, Washington, DC, March 13. America and Caribbean section of the World Bank’s Energy Practice, and ESMAP (Energy Sector Management Assistance Program). Soren Krohn, an independent consultant on wind power. 2014. “TOR Wind Resource Mapping (Phases 1-3).” World Bank, Washington, DC. https://energypedia.info/wiki/ TOR_Wind_Resource_Mapping_(Phases_1-3). 8 I m p l e m e n t i n g O n s h o r e W i n d Pow e r P r o j e c t s MAKE FURTHER Box 2. Wind energy resources CONNECTIONS Leading technical handbooks, guidelines, and standards Leading conferences Live Wire 2014/3. “Transmitting • Tony Burton, David Sharpe, Nick Jenkins, and Ervin Bossanyi. 2011. • American Wind Energy Association WindPower Conference and Wind Energy Handbook. Second edition. New York: Wiley. Exhibition 2014, http://www.windpowerexpo.org/ Renewable Energy to the • The Economics of Wind Energy, http://www.ewea.org/fileadmin/ • European Wind Energy Association annual conference, Grid: The Case of Mexico,” ewea_documents/documents/00_POLICY_document/Economics_of_ http://www.ewea.org/events/ by Marcelino Madrigal, with Wind_Energy__March_2009_.pdf Rhonda Lenai Jordan. • Energypedia Wind Portal, https://energypedia.info/wiki/Portal:Wind Leading organizations, agencies, and research organizations • IEC (International Electrotechnical Commission). 2014. • AMDEE (Asociación Méxicana de Desarrollo de la Energía Eolica), “61400-SER ed1.0, Wind turbine generator systems—All parts.” http://www.amdee.org/Inicio.html April 8. http://webstore.iec.ch/webstore/webstore.nsf/artnum/033548 • AWEA (American Wind Energy Association), www.awea.org • George Ledec, Kenneth Rapp, and Robert Aiello, R. 2011. Greening the Wind: Environmental and Social Considerations for Wind • EWEA (European Wind Energy Association), www.ewea.org Power Development. Washington, DC: World Bank. http://elibrary. • GWEC (Global Wind Energy Council), www.gwec.net worldbank.org/doi/abs/10.1596/978-0-8213-8926-3 • International Energy Agency Implementing Agreement for Co-operation • OpenEI Wind Power, http://en.openei.org/wiki/Gateway:Wind in the Research, Development, and Deployment of Wind Energy Systems, www.ieawind.org Leading databases (costs, prices, global trends) • NREL (National Renewable Energy Laboratory), a national laboratory of the U.S. Department of Energy, http://www.nrel.gov/wind/ • Bloomberg New Energy Finance, http://about.bnef.com/ • Risø National Laboratory for Sustainable Energy, Technical University • Cleantech Investor, http://www.cleantechinvestor.com/portal/ of Denmark, http://orbit.dtu.dk/en/organisations/risoe-national- • GWEC (Global Wind Energy Council). 2013. Global Wind Report: laboratory-for-sustainable-energy(69f3623e-9f3f-48aa-8b46- Annual Market Update 2012. Brussels. http://www.gwec.net/ 4b4fb2abab7f).html wp-content/uploads/2012/06/Annual_report_2012_LowRes.pdf. • Sandia National Laboratories, http://www.sandia.gov/ • IHS Emerging Energy Research, http://www.emerging-energy.com/ • U.S. Department of Energy, Office of Energy Efficiency and Renewable • Make, http://www.consultmake.com/ Energy, Wind Program, http://energy.gov/eere/wind/wind-program • Navigant Research, http://www.navigantresearch.com/ • UVIG (Utility Variable-Generation Integration Group), http://variablegen.org