The Levelised Cost of Wind Energy Cardiff Marriott Hotel, 16 th June 2016 Neil Douglas, Director - LCOE 69 GW 4,743,470 9 MtCO 2 320+ 32 project experience (and counting) equivalent (UK) homes powered abated annually renewable experts countries of project experience
The Levelised Cost of Wind Energy What changes have we seen renewables market? The levelised cost of wind energy Where do we need to get to? How do we get there? 2
Natural Power We Some Natural throughout have of our Power s over achievements 20 the years lifetime staff of our operate Clients trusted advice of experience offering independent, 330 projects. out of 12 offices in 5 countries across all renewables sectors 3
Where are we? UK Wind: Last 15 years Now & the future 4
What is the Levelised Cost of Energy? LCOE is the average net present value, over the life time of the plant, expressed as /MWh Life-time costs (DEVEX, CAPEX & OPEX) divided by the life-time energy production Used to compare projects & technologies on an equal footing, taking account of capital expenditure, fuels costs, running costs, life span etc. LCOE allows all opportunities for optimisation to be captured, analysed and implemented 5
p/kwh Haven t we been here before? Price Evolution in the UK Under Auction and Certificate Regimes SRO & NFFO* ROC Auctions* CFD* First RO Projects Price Trend *Data not indexed. For relative comparison only. SRO/NFFO/ROC data sourced from NFPA website 6
Haven t we been here before? Price Evolution in the UK Under Auction and Certificate Regimes ROC Auctions* First RO Projects Source: RenewableUK State of Industry Report 2015 7
/MWh Onshore LCOE: Where do we need to go? LCOE for onshore wind is presently between 70/MWh and 90/MWh By 2020 gas (CCGT) is projected to lie between 65/MWh and 75/MWh 100 90 80 70 60 50 40 30 20 10 0 Oct '15 CFD Strike Prices Onshore Wind LCOE 2016 CCGT LCOE 2020 Low /MWh High /MWh Technology Sources: RUK Onshore Cost Reduction Taskforce; Natural Power internal studies /MWh Onshore 2016 70 90 CCGT 2020 65 75 8
/MWh Onshore LCOE: Where do we need to go? LCOE for onshore wind is presently between 70/MWh and 90/MWh By 2020 gas (CCGT) is projected to lie between 65/MWh and 75/MWh 100 90 80 70 60 50 40 30 20 10 0 Oct '15 CFD Strike Prices Onshore Wind LCOE 2016 CCGT LCOE 2020 IEA 2015: 86/MWh Low /MWh High /MWh Technology Sources: RUK Onshore Cost Reduction Taskforce; Natural Power internal studies /MWh Onshore 2016 70 90 CCGT 2020 65 75 9
/MWh Onshore LCOE: Where do we need to go? LCOE for onshore wind is presently between 70/MWh and 90/MWh By 2020 gas (CCGT) is projected to lie between 65/MWh and 75/MWh 100 90 80 70 60 50 40 30 20 10 0 Oct '15 CFD Strike Prices Onshore Wind LCOE 2016 CCGT LCOE 2020 IEA 2015: 86/MWh Low /MWh High /MWh Technology Sources: RUK Onshore Cost Reduction Taskforce; Natural Power internal studies /MWh Onshore 2016 70 90 CCGT 2020 65 75 10
Onshore LCOE: The Reality and Response This represents a reduction between 15% and 22% The industry is driving down project LCOE to achieve this Pushing on all fronts: There is no one silver bullet Life by a thousand cuts The ambition and potential to deliver new wind capacity is as strong as ever Wider drivers remain: Environmental; Capacity; Energy Security; a Sustainable Industry Onshore wind projected to be cost-competitive on a levelised basis globally by 2020 (Bloomberg New Energy Finance, June 12 2016) < 40/MWh in Europe, China, US by 2040 = 41% reduction in 25 years (Bloomberg 2016) 11
The Opportunities for Cost Reduction 12 Source: renewableuk Onshore Wind Cost Reduction Taskforce Report
Now and Then Onshore Approach Under the RO The Future Never mind the LCOE look at the MWs! Consent now design later Focus on developing MW capacity Sell at consent Value realisation/uplift from secondary market Design risk carried to construction phase Restricted tip-heights Sub-optimal siting to gain consent Focus on optimised design for long-term operation Develop and own Point of value-creation is contract, not consent Front-end de-risking Maximised tip heights and rotor sizes Siting based on LCOE principle 13 Promises, promises Onerous EIA & consent conditions agreed e.g. Surveys, build programme restrictions, noise curtailment Escalating EIA costs & land rents Realistic appraisal of risks and costs from an early stage A refined design at consent LCOE modelling throughout
An Integrated Approach to Reducing LCOE Address LCOE throughout the life-cycle: Reduce costs DEVEX CAPEX - OPEX Increase Energy Output Development Phase Optimised Design: WTG and BoP Wind/CAPEX/OPEX led design Lower uncertainty in wind resource Avoid curtailment (i.e. grid, noise) Site selection (wind speed, permitting, tip-heights) Maximise return from DEVEX Construction Phase Contracting structures CAPEX optimisation Programme optimisation Supply chain competition Cost certainty Operational Phase Total asset management Turbine performance optimisation Reliability studies & predictive maintenance Inspections and engineering Balancing and trading Life-extension 14
Total Asset Management Integration of management processes Use of data and knowledge Real-time control Drive turbine performance 15
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End of Life Considerations Integration of disciplines: Planning Consents Wind and production Health-check & Reliability Studies Due Diligence Design and certification Inspection and asset integrity LCOE Modelling of options Implementation management Up-Power Options: Rotor extension Performance Enhancement WTG control 17
LCOE Toolkit We have developed an LCOE toolkit that is employed from feasibility and development through preconstruction and construction and on to operations, re-powering and life extension: Project and portfolio LCOE audits Strategy workshops & strategic advice Due diligence reviews and cost benchmarking Project specific LCOE modelling and analysis Implementation of specific measures at all project phases 18
Summary The UK wind industry has responded to the market signals to reduce the levelised cost of wind energy Wind energy developers, suppliers, owners and investors are pursuing this vision 15-20% reduction in onshore LCOE by 2020 is feasible Adapt development, investment and operations approach to meet new drivers - not the Lowest Cost of Everything Optimise DEVEX, CAPEX & OPEX - long-term LCOE focussed view 19
Thank You Neil Douglas Director LCOE neild@naturalpower.com