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New Zealand

Commission report on rising costs -- New Zealand looks at viability

New Zealand's Electricity Commission, concerned about the rising cost of developing the country's wind energy resource, has taken a closer look at the numbers. It concludes that rising world demand for wind turbines and for the raw materials they are made of, coupled with a falling New Zealand dollar, have driven up wind farm costs by 30% compared with price levels in 2004/2005. It cites average turbines prices of around NZ$2000/kW (EUR 992/MW); average wind farm capital costs of around NZ$2600/kW (EUR 1290/MW) and a total operating cost average over the life of a project of around NZ$15/MWh.

Cost can vary significantly depending on the size of the project. Smaller scale projects are vulnerable to infrastructure costs and resource consenting costs and delays. For 80-150 MW projects, almost half the total cost sensitivity comes from exchange rate movements, making timing a critical factor. Delays based on the consenting process can also play an important role in project viability.

The best areas for development in the near future have a break-even power price of around NZ$85/MWh (EUR 42/MWh), says the commission. Given New Zealand's difficult hilly terrain and isolated site locations, geography can play a major role, with sites with less desirable wind resources being more economic to develop if they come with lower construction costs due to their easier access and proximity to transmission lines.

One investigation into two sites with good potential for more than 50 MW of generation indicated that more than ten bridges or culverts would need strengthening or upgrading on the access route, at NZ$1-2 million a bridge. A typical 70 MW development needs 20 kilometres of internal roads at NZ$200-500 a metre for associated earthworks and around NZ$7-10 million is needed for construction of a grid connection point and substation to get the output to the connection voltage, states the commission's report. Grid costs are expected to rise as the level of wind penetration increases and tighter requirements are put in place.

Despite the rising costs, New Zealand is not likely to be importing turbines from new Chinese ventures, says the report, citing reliability issues and manufacturing capability. "Developers will typically opt for turbines that have international certification and a strong track record of successful operation internationally to provide confidence that the turbines will survive for the design life of the project and that maintenance costs will be reasonable. This suggests the uptake of turbines from countries such as China and South Korea for New Zealand projects may be slow," the report concludes.

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