Price of wind drops to fully competitive level

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Wind energy prices have fallen to a new low under Ireland's latest renewable energy competition with bids accepted for projects to supply electricity for no more than a little over two pence a kilowatt hour ($0.031/kWh). Contract prices range from I£0.0221/kWh to I£0.0279/kWh for large wind projects, and from I£0.0275 to I£0.032 for small projects.

Results of Ireland's third Alternative Energy Requirement (AER III), announced on April 8, revealed that 17 wind plants projects had won power purchase contracts. Their combined installed capacity totals 137 MW, giving them an 86% share of all contracted capacity in AER III. The original target for the competition was 100 MW of new renewables. Joe Jacob, state minister at the Department of Public Enterprise, claims he revised the requirement upwards to 159 MW in the light of the level of interest in the competition and the keen pricing.

Wind projects were divided into two categories. Nine contracts totalling 100 MW were awarded to large schemes of over 5 MW and eight contracts, totalling 36 MW, went to smaller schemes. Yet very small projects of only one or two turbines are notably absent from the list, the smallest being 3.75 MW. As well as wind, contracts were awarded to two waste to energy projects amounting to 14 MW, one 3 MW landfill gas scheme and ten small hydro schemes totalling 4.4 MW.

AER III is worth up to I£160 million -- the single biggest portfolio of investment in renewable energy in Ireland ever, says Jacob. He expects the projects to create a revenue stream of over I£270 million. They should generate 650 million units of electricity annually -- enough for some 300,000 people, saving 150,000 tonnes of CO2 emissions a year, he says.

Contract winners are up against a deadline to complete their projects, described by one developer as "spectacularly tight." All the winners now have to submit a performance bond pledging that they will complete their projects by the end of 1999 -- the commissioning deadline for all AER III contracts. But in the government's final selection, bid price appears to have outweighed the ability of developers to complete a project. The contracted schemes are at a variety of stages in the permitting process, but only one has planning permission already in the bag.

Grants and tax breaks

Wind emerges from the competition as the cheapest clean energy technology, although downward pressure on prices is evident in every renewable category, with an average price for all the selected renewables of just I£0.02748/ kWh. This compares with prices of I£0.04 per kWh in 1995 under AER I -- the only previous round of contracts to include wind. The low wind prices are thanks mainly to high wind speeds in the south and west of Ireland of up to 9.5 metres a second. But EU grant aid and tax breaks mean that developers were able to bid their projects at prices lower than would otherwise have been realistic. Some industry sources put the true price of projects at around I£0.034 per kWh ($0.048).

The capital grant being awarded under the EU's Operational programme for Economic Infrastructure is worth some ECU 80,000 ECU (I£65,000) per megawatt installed, but is only available for 100 MW of projects. This means that some of the schemes that won power purchase contracts have been placed on a reserve list and will only be eligible to apply for grant aid in the event of some developers defaulting on their projects.

Access to cheaper finance for projects is another important contributory factor to the unprecedentedly low prices. In December, Irish finance minister Charlie McCreevy introduced tax relief for corporate equity investment in wind energy and biomass projects. The relief is available on up to half the cost of a project, subject to an overall cap per project of I£7.5 million and an annual limit of I£10 million on the amount that any one company can invest. McCreevy's budget announcement came shortly before AER III applicants had to submit their commercial bids, occasioning a flurry of activity to take advantage of the new incentive.

Despite European Union financial support and the tax breaks, there was widespread surprise among the wind industry -- and some dismay -- at the lowest prices. "That price is way too low; it cannot be made to work. I do not expect the performance bond to be posted," was a typical comment.

Many disappointed

Unlike AER I, when overseas interests scooped all but one of the wind contracts, most in AER III have been secured by Irish companies (see next story). The year-long AER competition -- launched in March 1997 -- attracted widespread interest and inevitably left many bidders disappointed. From an initial 280 expressions of interest in the competition, 188 progressed to bids in Part I of the competition. Around half of these then either fell by the wayside or were weeded out, leaving 92 commercial bids with 618 MW.

Cork appears to be the county most favoured by wind energy developers this time round, with nine projects located there. Kerry is next with three, Sligo has two, as does Donegal, where most wind development to date is sited, and one project is in Roscommon. Most of the schemes appear not to have secured planning consent yet. With the December 1999 completion deadline, development timescales are particularly tight and do not allow time for a lengthy planning process.

AER III was the last competition to be open to a range of technologies, including wind. One further competition (AER IV) is underway, but it is dedicated exclusively to combined heat and power plant. Before deciding a mechanism to succeed the AER, Jacob is now seeking views on the future of sustainable energy in Ireland. This will result in a Green (discussion) Paper later this year.

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