Hello and my name is Tom Cronin and in this session on the economics of wind energy, we're going to be looking at energy production and revenue. The learning objectives for this particular session are that we should be able to make a simple calculation of a very approximate energy production figure. We're going to look at four of the most commonly used electricity tariffs for wind energy. And lastly, we should be able to explain the importance of revenue in the economics of a wind farm. So let's look at revenue. What is it? It's got two components, production and price. The economic revenue of a wind farm is, of course, related to how much energy it produces. So that means how much energy actually goes through the meter and into the public grid. And of course, how much their energy is actually sold for. So we have these two components, the energy in Megawatt hours, and the price in Euros per Megawatt hours. Let's take a look at each of these in turn, the production side of things, the key figure here is the annual energy production. We need the net AEP as measured at the electricity meter. And this means we can't use anything information-like from the wind turbines themselves, because we have the losses that go through the cables, and through the transformers, and the switch gear. Before we actually get to the public grid. So we need to take it as a net one at the meter. Now for a proposed project, this AEP is going to have to be estimated, because we don't actually have a wind farm to give us the real figure. Now, there are many software tools out there that, with the correct expertise, can give us a very good idea of our annual energy production. But, I must point out here that what we're looking at is an average over the whole lifetime of the wind farm because we all know that wind is a variable resource and so our production will go up and down from year to year. And for our economic analysis what we need is an average over that whole lifetime. Now here we're just going to look at a very simple approximation for this AEP calculation. And what we need for this is the capacity of the wind farm, which in our case now is let's just say is 50 Megawatts. And we're going to use a capacity factor of 25%, and this means that, on average, the wind farm will be producing at full capacity for 25% of the time. Of course this is, again, a very average figure. And if we use these then this will give approximately 110 Gigawatt hours of electricity generated in a year. How did we get there? Well, we used the capacity of the wind farm, the 50 Megawatts. We multiplied by the number of hours in a year and that's 8,760. And we multiply it again by this capacity factor. And this gives 110,000 Megawatt hours or 110 Gigawatt hours. Looking at the other half of the revenue and that's the price. Now electrical energy from wind turbines is a commodity, just like any other commodity, it can be bought and sold. And the price of this commodity can vary from right down from how much it actually costs to produce up to anything that somebody is prepared to pay for it on the open market. And as a wind farm operator, we can of course sell into this sort of electricity market, but the challenge is, is that we are always receiving a varying price for our wind energy. And in many countries, supporting the investment in renewable energy is a very important thing to do because it reduces the CO2 output of a country. And also goes towards making it less dependant on fossil fuels. So politically, that is a good idea to try to support the investment. And how do we do that? Most commonly, we use different types of tariff on the electricity price. What sorts are there? We're going to just take a quick look at four of them. This first one is the feed-in tariff. It's very simple, it's been used a lot and what it means is that we get a guaranteed support for each Kilowatt hour or Megawatt hour of electricity that we put into the grid. This gives investors a good certainty of the future revenue from a wind farm and means that they can make economic calculations with a good degree of certainty. The slight problem with it is, that actually setting this level of support is a little bit tricky. And almost always, from a national prospective, we will get more than we wanted or less than we wanted, depending on exactly where we place this. Another mechanism is the price premium tariff. And here we can see that we sell into the market and we get a varying price per Kilowatt hour for our electricity. But to help us along, we get a guaranteed fixed support on top of that. And what that means is that as an operator, we are a little bit exposed to the variations of the market, but we have this buffer here to help us. And this also gives a bit more certainty to the investor. What it also means as an operator, it means we can concentrate more on trying to focus on when the electricity price is highest, and get the best revenue. Two more simple mechanisms. This one here is called tendering. And what this means is that an individual developer will bid for a specific project. And they will bid saying that we need a certain number of Euros per Megawatt hour for this project, in order to be able to make it feasible for our business case. Then an authority will take a look at the various bids they've received and make a choice, depending on certain criteria. It could well be that it was just on price. And then they will award the contract to a developer to build the wind farm. And that developer, when the wind farm is operating, will get this guaranteed support level. So, it's a little bit like the feed in tariff, but it has this very large element of competition right at the start. Finally, here we have the green certificate scheme. This is a little bit more complex. We sell the electricity into the market as usual. But for each Megawatt hour of electricity that we produced, we get green certificates. On the other hand, users of electricity are obliged to buy a certain percentage of their electricity from renewable sources. If they don't, then they can buy these green certificates as some kind of makeup. And in this way we have a market of buying and selling these green certificates. It is, in fact, quite a complex scheme to administer and for that reason, this is not proven to be quite so popular. So moving on to where the revenue fits in to the economic analysis of a wind farm. Here we have the different components of our cost. We have the development cost, the implementation cost, the operation costs and he decommissioning costs. And revenue comes in here, with our sale of the electricity, and any green benefits that we might get, too. As a rule of thumb, five to ten euro cents per Kilowatt hour is quite common. In summary then, what we've looked at, is that the revenue from a wind farm has two very important components, the actual energy production, and the price for the energy that we receive. We can make an approximate energy calculation. For rough purposes, using the installed capacity of the wind farm and this thing called the estimated capacity factor. And finally, there are some great common tariff mechanisms for the supported wind energy that has been used. The feed-in tarrif, the price premium, the tendering scheme and the green certificates.
