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United Kingdom

Behind the surprise

Not even the most optimistic members of the wind industry had expected that nearly 800 MW would come out of Britain's fourth round of competitive bidding for renewable energy contracts. Yet these were the glad tidings for wind imparted by junior energy minister Richard Page on February 6. By now, a month later, all those who bid projects into the fourth round of the Non Fossil Fuel Obligation (NFFO-4) at less than the startlingly low 3.80 pence for large wind plant, or 4.95 pence for plant under 1.8 MW, will have been offered a power purchase contract.

The unexpectedly large volume of capacity won by wind and the low prices involved are the two key issues to have emerged from NFFO-4. According to Page, the two hang together: it was low prices, he says, which enabled him to increase the total order for renewables from the expected 500 MW of declared net capacity (DNC) to nearly 850 MW DNC. But that does not explain why wind got 40% of the total order, leaving the six other technology bands to share the remainder. Indeed, if the 500 MW cap had been applied -- and contracts had been decided on price alone -- landfill gas and municipal and industrial waste would have swept the board, leaving wind clinging to the edge with just two projects, not 65.

There could be political reasons behind the government's warm treatment of wind. According to public opinion polls in Britain, wind is a preferred technology, despite the torrent of abuse it receives at the hands of some very vociferous minorities. With a general election looming, Page might have been indulging in some green electioneering. Wind, after all, is totally pollution free, unlike gas and waste. If this is so, it was a brave step. He is likely to draw the fire of Britain's well organised group of anti wind farm activists. Yet another possibility is that Page was seeking to make room in the order for projects using British wind turbines. The swamping of the UK wind market with technology from overseas has not been welcomed by Her Majesty's government.

More pessimistically, the likelihood that wind projects will fall at the planning consent hurdle is dismally high. Allowing a good number of developers a chance to get over it could be the government's way of countering the traumas of the British planning process and anti wind farm movement. Perhaps, though, we in the wind business are being unduly sceptical. Could it be that our message about the benefits of wind power has finally been heard and the government's vote of confidence is reflective of just that?

Westminster is clearly cock-a-hoop at the fall in wind prices by as much as 30% (page 21). It remains to be seen, however, if the lowest bids are realistic. Even though the trend in prices is downward and developers have five years to get projects in the ground, it could be a close call. When NFFO-3 was set in 1995, the average project price was over $1600/kW. We surmised that project costs and rates of return would need to fall to around $1200/kW and 9% (real) for the prices to make sense. This is more or less exactly what has happened in the few NFFO-3 projects which have been built. What is more, bid prices are linked to inflation, so the lowest NFFO-3 contract price (£0.0398/kWh) has already crept up to £0.0421/kWh. Remember, too, that sterling exchange rates have improved since NFFO-3. A pound now buys ten Danish crowns instead of nine-and-a-half, making those much-sought-after Danish turbines that much cheaper.

DISCOUNT DANGERS

Indeed, the British obsession with driving down the price of wind power has reached new heights with NFFO-4. At last the five-cents-a-kilowatt-hour barrier has been well and truly cleared. But as this magazine has consistently argued, praising wind for being cheap is missing the point entirely. The environmental benefits of wind power alone (ignoring its other benefits on a power system) are reason enough for its development -- cheap or not. Vintage wine is not sold at discount prices, and neither should wind be. NFFO, however, is hell bent on a course which could well leave the British wind vine trailing in the dust.

It is no coincidence that the venom and ferocity of wind farm opposition in Britain is unmatched anywhere else. NFFO's unrelenting pressure on price forces developers onto exposed and windy sites, often the very areas most jealously guarded by those nature lovers who are more concerned with today's aesthetics than tomorrow's pollution. As a result, the total cost of taking a project through NFFO and the UK planning consent process can top $50,000 and starts at $10,000. No wonder that small projects -- those with probably the greatest future in populated Britain and certainly those most favoured by the public -- are few and far between.

Cut price contracts are also dangerous for the wind industry. Significantly, the price of a kilowatt hour of wind power in Germany (see page 30) is about double that in Britain (a topic we will deal with next month). This begs a question: are the much higher prices paid for wind power on the European continent keeping wind turbine companies afloat which would have sunk long ago had they been forced to sell all their poducts at the prices dictated by NFFO? Profit margins which allow room for investment in growth and product development are vital, especially for wind companies that are often underfinanced. Yet the British government wonders about the country's dearth of wind turbine manufacturers.

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