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Experts warn against cut in rates

Three new reports on the cost of wind energy generation in Germany all conclude that the so-called "premium payments" made by utilities for electricity from wind plant are no premium at all. Furthermore, any reduction of the payments would deal the German wind sector a possibly fatal blow.

Two of the studies were commissioned by wind energy association the Bundesverband WindEnergie (BWE) and the third by the federation of wind power stations Wirtschaftsverband Windkraftwerke (WVW). The WVW warns that a cut in the rates for wind established by the Electricity Feed Law (EFL) would drive many medium sized companies into bankruptcy, strengthen the existing monopolistic structure of electricity generation, and destroy jobs and export potential. Commenting on the BWE's studies, the association's Peter Ahmels warns that a drop in the rate of just one pfennig a kilowatt hour would lead to a collapse of the market.

The two BWE reports were carried out by the Institut für Solare Energieversorgungstechnik (ISET) and the Deutsches Windenergie Institut (DEWI). ISET is responsible for the scientific monitoring of projects developed under the now closed federal 250 MW wind programme. The WVW's report was undertaken by Fichtner Development Engineering in Frankfurt which regularly produces reports for the federal economy ministry.

The studies have highlighted different facets of the costs of power generation but the tenor of all three is that EFL payments are barely sufficient to allow economic operation of wind turbines in Germany. They underline the fragility of the German wind sector, despite its turnover of some DEM 1 billion, at a time when the industry has only just got into the lucrative export market. At the same time, turbine manufacturers are still reeling from a 15% drop in domestic sales in 1996.

Thin margins

The ISET study concedes that in particularly windy sites, turbines can be operated economically at existing EFL rates. But it also states that a substantial proportion of operating turbines cannot produce the necessary amount of energy to ensure a "refinancing" of the plant within the normal write-off period of ten years without financial support, perhaps from Länder governments or tax concessions.

ISET calculates that the operation and financing of a 600 kW turbine over ten years at DEM 0.1713/kWh -- the rate established by the EFL last year after it was reduced from DEM 0.1721 -- requires the wind plant generate 1.33 GWh a year. A 300 kW unit would have to generate 0.68 GWh. But this level of output can only be achieved at winds over 6 m/s measured at a height of 30 metres. This does not take into account costs for unexpected maintenance or repair, taxes, replacement of parts, final dismantling and profits, but allows for operating costs at just 3% of the capital investment. In 1994, reports ISET, only 20% of 500/600 kW turbines generated the required output, dropping to 15% in 1995, while in the low winds of last year a mere 4% broke even. ISET says the yearly fall also reflects the migration of wind development away from the coast to less windy inland areas, a trend which is bound to continue.

Taking the analysis a step further by using a more realistic annual operating cost of 6% of the investment, generation costs on the basis of 1.33 GWh a year are DEM 0.1965/kWh. This is more than DEM 0.02/kWh higher than the EFL premium rate. An output of 1.45 GWh would be needed for the turbine to operate economically now, but not a single 500 kW or 600 kW unit in Germany achieved this figure in 1996. In other words, many turbine owners are operating with extremely thin margins.

The DEWI study largely confirms the ISET findings, setting the break even point for a 600 kW turbine at 6.3 m/s, for a 300 kW unit at 6.8 m/s and for a 150 kW turbine at 7.7 m/s. But it, too, stresses that such wind conditions are generally only to be found in northern German coastal areas. Moreover, machine breakdowns or component replacement could worsen the economics alarmingly. A change of blades on a 600 kW machine -- costing about 20% of the original price of the whole turbine -- would add four years to the write-off period for a coastal turbine.

Alarming contraction

The DEWI report also reveals how swiftly the German market for manufacturers could evaporate if the EFL payments were reduced by just DEM 0.01/kWh, as suggested for windy areas of Lower Saxony. Only 37% of this area would allow economic wind turbine ownership, it calculates, corresponding to a market contraction to just 37% of the existing potential. If the rate dropped by DEM 0.03/kWh, potential would shrink to 6.5% of the original.

The Fichtner report calculates generating costs under different wind conditions. Turbines located at (inland) sites with wind speeds of 5-6 m/s at 30 metres require payment for their output of DEM 0.19-0.27/kWh to operate economically, assuming a ten year write off period, higher than the current EFL rate. At coastal sites with wind speeds of 6-7 m/s, payment of DEM 0.09-0.15/kWh is needed, restricting economic ownership to only the very best wind sites.

If the write-off period is doubled to 20 years, more installations become economic, at least on paper. But, echoing the DEWI conclusions, Fichtner warns of the risks of working with 20 year loans with no experience of wind turbines which have operated this long.

The WVW concludes from the Fichtner study that excellent wind sites where turbines operate economically at current EFL payments are few and far between. Therefore, political commitment to the expansion of renewable energy necessarily means a commitment to maintaining EFL rates at the current level.

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