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The article surveys the pros and cons of the results of the third round of the Non Fossil Fuel Obligation. It lists the companies and sites chosen for the greatest areas of activity, Scotland and Wales. Most of the remaining capacity is to be mainly concentrated in just three other regions -- Cumbria in the northwest, Durham in the northeast and Cornwall in the southwest. The lower contract prices of this round will help wind power shake off the undeserved reputation of being an expensive energy source. The negative side to this is that the bid prices may have been made too tight to hold. The overall trend is that most contracts went to either large utilities or subsidiaries of blue chip companies. Out of the 31 large wind farm schemes that gained contracts it is believed that only about 20 will be commissioned once the planning permission process is complete.

As the dust clears in Britain following the announcement of the country's third order for renewables capacity since 1990, a clearer picture is emerging of the future shape of UK wind energy development. The greatest areas of activity are likely to be Scotland, with 106 MW of projects selected for contracts, and Wales, with a huge 239 MW of projects. Most of the remaining capacity is to be mainly concentrated in just three other regions -- Cumbria in the northwest, Durham in the northeast and Cornwall in the southwest. Seeking planning permits for so many projects in such a limited number of regions in Britain is likely to bring many a disappointment to prospective developers.

In the meantime, a clearer picture is also emerging of the winners and losers in this most fiercely competitive market for wind energy in the world. While lottery fever has been gripping much of the nation -- which has only recently had its first taste of a national lottery -- the results of the third order of the Non-Fossil Fuel Obligation (NFFO-3) has had much the same effect on Britain's wind energy developers.

The size of the latest round of the UK's programme of support for renewable energy -- and details of Scotland's first Renewables Obligation, the SRO -- were announced on the last day of parliamentary proceedings before the Christmas break. Since then the wind industry grapevine has been hard at work to determine which bidders have been successful in gaining a share of the 492 MW of contracts awarded.

Outright winner by a large margin is National Wind Power (NWP) which scooped ten of the 31 NFFO-3 contracts for larger schemes. On the strength of the competitiveness of its bids, the company could have won more contracts, but the government limited its share to ten to increase diversity in the wind band. Nevertheless, NWP has two further contracts in the smaller wind project category and five of the 12 Scottish wind energy contracts. In addition, it claims to be a consultant to a further 11 NFFO-3 and SRO projects, although it is believed to be setting up joint venture agreements for at least some of these. This brings the total number of schemes in which the company has an involvement to 28 and accounts for nearly half of the capacity of both orders.

Many within the industry argue that NWP's domination of NFFO-3 highlights one of the failings of the first past the post system of awarding subsidies. "Because of the way NFFO works, National Wind Power has squeezed out its competitors in this tranche, which means there will be fewer bidding next time round. That's not particularly healthy for the future of the wind industry," says one developer, voicing a widely held view. A wind turbine manufacturer is even more outspoken. "I have heard that NWP has played games which could kill the wind industry altogether in Britain. They can apply financial tools which the independent developer cannot," says Michel Ardoullie of Dutch-Belgian company, WindMaster.

Economies of scale appear to have been working for NWP. The company's David Lindley claims no other developer bid such a large number of sites into the NFFO. "We had the largest portfolio of projects and bid in 50-odd schemes with a spread of prices." He says its success comes down to good quality sites with high wind speeds, lower development costs and financial engineering. He believes this last factor is of crucial importance when the difference between winning or losing comes down to only fractions of pennies.

Doubts about pricing

With contract prices for larger wind projects averaging a mere £0.0432/kWh in England and Wales and £0.0399/kWh in Scotland, speculation is rife among industry commentators on how NWP and other companies have been able to bring their bids so low. Rumours that NWP has access to cheap financing from its large parent company, National Power, are strongly denied by the utility. "There is absolutely no question at all that any finance we make available is done on anything other than a purely commercial basis," says a utility spokesman. Nonetheless, it is understood that NWP prepared its NFFO pricing bids based on National Power's terms and conditions of finance.

Most within the wind industry agree that the lower than expected prices will help wind power shake off its undeserved reputation in the UK as an expensive form of energy -- largely brought about by the £0.11/kWh contract price awarded to all wind projects in the previous round of support. If the NFFO-3 projects at the lower end of the price band are built, the price of wind energy would be well on its way to converging with the market price of electricity -- one of the government's aims for its NFFO programme. Lindley points out that the NFFO is the most competitive bidding process in Europe. "It is an entirely open market. With contracts awarded on an entirely commercial basis it reveals what the competitive costs of the technology can be," he says. "It ends all the speculation about the true price of wind energy," he claims.

However, some are more sceptical about the prices bid into NFFO-3. "There will be a number of projects not built simply because they are not financially viable," comments one seasoned wind turbine sales director. Ardoullie agrees with him: "If these projects go ahead at the prices quoted, then the technology will have been proven financially and it will be good for us manufacturers. But if it is all a gimmick, it is a bit dramatic for all of us." He adds: "I am more and more of the opinion that it is not practical for developers to build at these prices." Erik Trast from German company Tacke Windtechnik concurs: "Such prices could only be economic with average annual wind speeds of over 9 m/s at 30 metres. It seems to me there was a lot of speculation went on in bidding those figures." And a long-time wind market commentator adds: "I suspect some of the bidders are exceedingly optimistic about their production figures and on their financing." He believes the success of NFFO-3 projects will not be known until at least five years' time. "Meanwhile, in the next round we are likely to see the same level of bidding because developers will be basing their prices on what their competitors bid in this round, not because there is any track record of successful schemes at those prices."

Catherine Mitchell from the University of Sussex Science Policy Research Unit believes developers will need to optimise all the factors in their projects to sustain such low prices. "They need everything going for them," she says. "Those prices are not out of order but they are extremely tight. It is possible to get a 15% equity return on a price around £0.045/kWh provided the wind speed is high and the cost per kilowatt of installed capacity is low. It is, however, extremely hard to get the price down further -- nearer to £0.04/kWh -- with the same factors in place and retain what would be considered as the lower end of the commercial rate of return." She is doubtful that developers with a large number of contracts will have the necessary factors in place for all their schemes. "I can believe they have managed it for a few sites, but I find it difficult to believe they will be able to achieve it for all their projects."

Utility debut

Utility SWALEC, the electricity distribution company for the south of Wales and one of the companies which National Wind Power advises, makes its debut in NFFO-3 as a wind farm developer. It has outperformed most of its longer established rivals. The company picked up eight wind power contracts for some 70 MW installed capacity spread over eight sites. David Williams from SWALEC claims his company has a presence in all other NFFO-3 renewable technology bands. But he says wind energy is its preferred technology. "We pitched each technology against its risk profile. Wind power has no fuel supply risk like some other renewables and it is a fairly well established technology," he says. The company will be investing its own equity in all its renewable energy schemes. According to Williams, the company's achievements were in line with its expectations. "We got everything we thought we would get," he says. "It was a good Christmas for SWALEC."

Two other utilities -- again both new to wind development -- have won contracts. Regional electricity company MANWEB in the north west has four NFFO schemes worth a total 87 MW covering three sites -- all located in its own franchise area of north Wales. Its generation company -- MANWEB Generation Holdings has teamed up with Kenetech Ltd, a division of Kenetech Corp of California, the world's largest wind company, to develop the sites. If the projects go ahead, Kenetech will install its 33 M-VS turbines. One project already has planning permission, another application has been made while the third application has yet to be submitted. Kenetech's Michael Haaf claims the company was not surprised by the competitiveness of the bidding. "Prices were fairly consistent with what we expected. They just demonstrate the success of the NFFO process." Like SWALEC, MANWEB is not a complete newcomer to wind energy since both companies have stakes in existing wind farms. The third utility to enter the NFFO-3 arena is South West Water, which is also advised by NWP. It won a contract for 10 MW at Bears Down reservoir in Cornwall, the only wind farm it bid into NFFO-3. A bid for a hydro project failed.

And disappointment

These successes are not typical of the performance of most other electricity utilities. Many, such as Scottish Power and Northern Electric, which have both been actively prospecting for wind farm sites, came away empty handed. "There is a general disappointment that contracts have not been shared out between a wider number of companies," comments one disgruntled utility spokesman.

Ecogen, which with SeaWest of California and Japanese Tomen is represented as a developer under the name Trigen, also lost out completely in NFFO-3. To date the company has built more wind energy capacity in Britain than any other, including Europe's largest wind farm of Japanese Mitsubishi turbines in Wales, but this time it gained no contracts in England and Wales. Notable amongst its losses is the much discussed 80 MW Kielder Forest wind farm, proposed for Humble Hill in Northumberland. For such a large project it had attracted minimal opposition and was agreed by many to be a good example of sensitive siting. Trigen fared better in Scotland, however, winning three contracts -- two for its Hagshaw Hill site in Lanarkshire, which already has planning consent for 30, 500 kW wind turbines, and the other for a 15 MW project at Largie, Kintyre.

Renewable Energy Systems (RES), subsidiary of construction giant Robert McAlpine is disappointed to come away with only two wind farm contracts -- one in Powys, Wales and another in Scotland. In the NFFO-3 band specially reserved for small wind projects, RES also has a contract for its prototype 1 MW machine which is to be built in south Wales.

Earlier fears that this round of NFFO contracts would be dominated by overseas developers -- particularly from the United States -- are shown to have been entirely misplaced. Just one US company has won a contract -- the British subsidiary of California based Zond Systems Inc, Zond UK Ltd, will expand its existing site at Werfa in south Wales, which it has taken over from Windstar Turbines whose NFFO-2 wind farm of unusual vertical axis machines has yet to be completed. New World Power Company -- the British offshoot of New World Power Corporation appears to have no projects at all, although it had bid for a number of contracts for sites in Wales, England and Scotland. Californian rival, Kenetech, may have been more foresighted in teaming up with utility MANWEB, but only time will tell how many of their large projects get the necessary planning consents.

A glance at the list of companies with larger wind farm contracts -- nine in all with just four dominating the group -- reveals that, unlike the previous round of NFFO when most contracts went to small independent companies, the majority in NFFO-3 are either large utilities or subsidiaries of blue chip companies. An exception is an established player which likes to think small. Windcluster, which states its policy is to develop small environmentally acceptable clusters of turbines, has done well out of NFFO-3, winning seven contracts. Four of these fall into the band for larger projects, but none exceed 5.4 MW installed capacity. All are located in Cumbria except for a six turbine site on the Seaforth docks in Liverpool. "We see these awards as a vindication of our policy of seeking environmentally acceptable sites of an appropriate scale for our wind clusters," says the company's Glyn England. "We were in competition with major developers with huge sites and we have demonstrated that smaller sites can deliver clean electricity at the right price." Nevertheless, Windcluster is not operating totally alone. It will be developing its sites in collaboration with partners Triodos Bank of the Netherlands and Energy Connection, a Dutch wind engineering consultancy.

Planning stumbling blocks

Like many of the developers who have gained contracts, Windcluster now has to seek planning permission for all its sites. Only a handful of schemes with NFFO-3 and SRO contracts have already overcome this hurdle. The government expects planning consent to be a major stumbling block for a sizeable proportion of projects. It built a considerable margin for error in the capacity it allocated to renewable energy schemes, expecting no more than 300-400 MW to result eventually from 627 MW of contracted capacity for all renewables. Out of the 31 large wind farm schemes that gained contracts, Charles Wardle, Parliamentary Under Secretary of State for Industry and Energy, predicts that only 20 or so will be commissioned. Indeed, the planning issue looks set to prove a problem for a number of wind projects -- particularly in some parts of Wales where several larger developers are chasing planning consent in the same area.

The separate band for wind schemes of less than 1.6 MW declared net capacity (DNC), amounting to some 3.7 MW installed capacity, provides 24 contracts for smaller projects. Most would not have been able to compete against their larger rivals on price alone. Without the special protection of this band, bids for which averaged £0.053/kWh, it looks likely that small developers would not have been represented at all in the current tranche of contracts.

Wind energy consultants Farm Power acted as advisers to six recipients of NFFO-3 contracts. The company's clients include Micon Wind Turbines UK Ltd which also gained a contract for a 12 MW site in Scotland and for whom it acts as agents. According to director Bruce Woodman, Farm Power submitted a total of 33 bids on behalf of small developers. Although pleased to have won seven contracts he is disappointed at the size of the band for small-scale projects. "We would be happier if some of our smaller clients had come away with contracts. With less than 20 MW allocated to small schemes, it's a joke, but we have to live with it."

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