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A whirlwind of power potential

March 23, 2010
Micon wind turbine, Dithmarschen.
Image via Wikipedia

An introduction to the investment potential of wind energy Wind, like solar, has the potential to produce a multiple of the world’s total energy needs. Wind power facilities are being built at a rapid pace in many parts of the world, making wind one of the fastest growing alternative energy sources.

Completely clean, wind energy is effectively free once the facilities are constructed. And yet, that limitless free energy is currently too expensive to utilize on a broad commercial basis without some form of subsidy. Like solar and other alternative energy forms, wind energy in general is viable only to the extent that financial assistance in some manner is provided – feed-in tariffs, government subsidies or some other incentive.

Over time, the cost of electricity produced from wind is coming down. Wind turbines are getting bigger and more efficient. Parity with conventional energy in the coming decade is a realistic expectation as refinements continue.

Wind energy is most effective in areas with the strongest and most sustained wind speeds. Wind facilities also require large open areas. Sites that meet those criteria rarely occur in close proximity to locations where power is most urgently needed.

Offshore development is growing quickly. Facilities built on the ocean benefit from sustained winds and can be spread over large areas without upsetting too many people. Denmark now derives more than 20% of its electricity needs from wind energy, with much of that coming from offshore installations. Other areas are also seeing rapid development of wind energy facilities.

The following overview of wind power will provide readers with a short history of the technology, a description of the technology, some insights into the challenges that the wind power industry faces and most importantly, a better understanding of the tremendous potential that wind holds as a renewable power resource and the opportunities available to investors.

Wind has provided power for millennia

Capturing wind energy to perform useful work has a long history. Windmills in Persia have provided mechanical energy since at least 200 B.C. China was probably the first area to utilize windmills on a broad scale, with the earliest actual documentation of a Chinese windmill in 1219 A.D.

Beginning in the early 1600s, progressively better designs led to improved efficiencies. Wind power was an important source of energy for over three centuries in north-western Europe. Windmills were typically horizontal axis machines, considered to be an independent invention of Northern Europeans.

Windmills were like the “electrical motor” of pre-industrial Europe and powered a number of applications. They provided an emerging middle class with an important energy resource. Water power, the other major energy source of that era, was confined to nobility and clergy who took control of the water courses.

The U.S. plains exploited wind energy extensively during the late nineteenth century, with more than 6 million mechanical wind machines installed at one time. Those machines were used mostly to pump water for stock watering and other domestic needs. Large windmills were used to pump water to supply steam locomotives.

Late in the 1800s, multi-blade windmills designed in the US were being used to generate electricity, with a significant share of rural North American electricity being generated by wind on isolated farms for decades, until electric grids spread into rural areas.

Wind power was replaced during the twentieth century by much more reliable and cheaper coal-based electricity delivered by new transmission lines and state-spanning electrical grids. It wasn’t until the post-1973 oil embargo period that interest in developing better wind machines was rekindled, with the aim to turn them into efficient and competitive producers of electricity for grids.

A brief period of construction in the early 1980s saw the world’s largest wind facility at the time completed at the Altamont Pass in California. Many readers will have seen that facility on the drive between Los Angeles and Palm Springs. That facility has 637 megawatts (MW) of installed capacity.

The big impetus for wind energy came in the 1990s, propelled by the movement to lessen dependence on carbon-based fuels. Technical enhancements, originating largely in Europe, saw improved efficiencies in every aspect, including blade design, tower height and generator designs. The size of the units increased dramatically, resulting in improved cost to performance ratios. Greatly expanded demand for wind turbines brought down manufacturing costs. Increased efficiencies in combination with reduced costs has brought parity with conventional power within sight.

Technical aspects of wind power

At the simplest level, wind power is a process of converting the wind’s kinetic energy to mechanical energy and then to electricity. Wind turbines are mounted on a tower to capture the free-flowing air above the ground. Generally speaking, the higher the tower, the more power the wind system can produce. Towers now are typically between 80 and 100 meters in height. Doubling the tower height from 50 meters to 100 meters leads to 33% more power in the same location.

Most people who have seen modern wind turbines have seen them from some distance. It is not until you get up close that you realize the tower is the height of a 30 story building. That little gizmo (the nacelle) on the top of the tower is actually the size of a small school bus. It is remarkably sophisticated, complex and expensive.

At the utility scale, larger turbines providing power to the electrical grid are grouped together in wind farms ranging in size from several megawatts up to several hundred megawatts. The world’s largest wind farm was completed in late September in Roscoe Texas, with the capability of producing 780 MW.

The most important of the technical advancements that took place in the early 1990s were better turbine and blade designs (optimizing them for low speeds), and larger sizes for the units. The average turbine size grew from 40-50 kW in the early 1980s to 1000 kW (1 MW) by the late 1990s. Turbine technology has now reached the point where 6 MW turbines are in production. The larger generating capacity is significant as the larger turbine optimizes the cost of the tower and the other fixed site costs.

With regards to turbine designs, two competing horizontal axis approaches are now in use. Both processes involve 2-3 large blades rotating as the wind blows past them. The most common horizontal axis process involves the slowly spinning blades turning a drive shaft connected to a gearbox, which in turn is connected to a large electricity generator housed in the bus-sized “nacelle.” Large turbine manufacturers such as the Danish Vestas (number one worldwide) and American GE (NYSE: GE, Stock Forum) , which is number two, use this method and it accounts for nearly 90% of installed wind turbines around the world.

A direct-drive method has been developed by the large private German manufacturer Enercon. That company is currently the fourth-largest manufacturer with a 10% market share.

Rather than using a gearbox, Enercon uses a direct drive system in concert with a circular generator. A slowly rotating rotor connected to the blades moves inside a stationary stator that employs electromagnets, rather than permanent magnets. This approach eliminates the need for a large number of bearing points. Instead, this system has only two slow-moving roller bearings. Overall, a direct drive system eliminates the need for expensive rare earth metals, and results in less friction, lower noise levels from the generator, and less wear and tear on system components. These advantages are partially offset by higher initial manufacturing and installation costs.

Due to a patent dispute, Enercon was unable to enter the US wind turbine market. This will change in 2010, after it was determined that Kenetech Windpower Inc., a now bankrupt US wind turbine manufacturer, had stolen Enercon’s intellectual property in the early 90s (with the alleged help of the US National Security Agency’s ECHELON intelligence network) in order to patent the technology in the US prior to Enercon. GE is planning to introduce a less-advanced direct drive variant (with permanent magnets) to the US market by 2012, after purchasing the Norwegian wind turbine company ScanWind in September.

Regardless of the technologies employed, all wind turbines must be kept perpendicular to the wind. In order to remain perpendicular to the wind and achieve optimal power generation, a wind turbine’s nacelle must have yaw control, or the ability to rotate as the wind changes direction. With present turbines, this is achieved through forced yawing: a mechanism using electric motors and gearboxes keeps the turbine facing directly into the wind.

Wind turbines getting bigger

Currently, manufacturers of the utility-scale wind turbines mentioned above, such as Vestas, GE and Enercon, build machines in a range from 650 kW to 6000 kW (6 MW). Enercon, the builder of the world’s largest turbine at 6 MW, are working toward a 7 MW model. In Europe, there is interest in building the largest machines possible due to space constraints. That isn’t the case in North America, where GE’s 1.5 MW turbine dominates the market.

The average size of installed machines in 2008 grew to roughly 1.7 MW, which would typically produce enough electricity to power 1,000 European homes or 350 North American homes. These machines have become quite large. The 6 MW Enercon unit has a hub/nacelle height of 135 m (450 ft), and a rotor diameter of 126 m (413 ft). In practical terms, the hub sits at the height of a 45 story building, with the blades spanning one and a third football fields. That one machine is capable of producing 20 million kWh per year, enough to power 5000 European homes, or roughly 1700 North American homes.

At the 5kW to 100 kW small turbine scale, the machines are typically used at the single home or building level. They are useful in isolated and rural areas, especially for those not attached to the grid. They have yet to make inroads into the urban or suburban market, largely due to technical and economic issues. Technically, turbines need stable, constant winds, something which is in short supply at low altitudes in built-up areas, with various obstacles including other buildings to dampen the wind speed.

Wind turbines don’t make economic sense at this time in built up areas. However, technology is improving, and there is a growing interest among businesses and consumers in taking direct action toward greener energy. Units on top of downtown high rises, for example, may become a feature of cityscapes in the not too distant future.

Capacity factor – the Achilles heel of wind

If the wind blew constantly at between 10 and 15 meters per second (22 to 34 mph), generally the range within which turbines achieve maximum power, electricity output would equate to the nominal power rating. Wind obviously does not blow constantly, so the industry uses a capacity factor to convert the nominal capacity to expected production.

The general range of capacity factors for wind turbines is 20-40%, with only the most favourable wind locations achieving the upper end of that range. The capacity factor should not be confused with reliability rates or run time, with wind turbines typically achieving better than 98% reliability rates. Blades are typically turning between 65-90% of the time, even if not at optimal speed.

To compare, most fossil-fuel power plants have capacity (or load) factors of 50-70%, while nuclear facilities generally achieve load factors of between 80-90%. These load factors are generally impacted by fuel costs and maintenance, with coal and natural gas power plants being cycled up and down over the course of a day to match generation with the load demanded.

Wind turbines could theoretically achieve higher capacity factors by increasing the size of their rotors and decreasing the size of the generators, leading to a capacity factor in the 60-80% range. However, that would produce less electricity. Wind turbine manufacturers have found that the most electricity per dollar of capital cost is gained by using a larger generator, thus accepting a lower capacity factor as a result.

Penetration percentage

With this capacity factor in mind, people often question wind power’s potential for contributing substantial electricity production. Clearly, a power grid could not rely exclusively on wind power. However, a grid with a mix of power sources can benefit from wind energy.

This leads to the idea of penetration, or how much energy wind power can contribute as a percentage of a grid’s total required generation capacity. Although there is no currently accepted “maximum” level for wind power, several regions in Europe have achieved 20% wind power penetration with minimal difficulty. Achieving a high penetration requires interconnection to other grids, either regional, or in some cases, international ones. In most areas, the interconnections are already in place.

Denmark receives 20% of its total electricity from wind power, and the north western German state of Lower Saxony currently meets 21% of its power requirements from wind. During strong wind days, the percentage of energy coming from wind has topped 50% of the total needs! As one of the country’s wind power pioneers, that German state is continuing to push the known limits by aiming for wind energy to produce 50% of electricity needs by 2012. On that basis, it would feed excess wind power into the grid. By 2021, they expect to be producing more wind power on an annual basis than the state needs.

Reaching those levels of penetration will require continued grid improvements in the areas of energy demand management, load shedding, storage solutions and improved interconnection with other grids. (We are monitoring developments in these fields.)

Current wind power capacity and future potential

According to the World Wind Energy Association’s (WWEA) latest forecast for the year 2009, “a double digit growth for the wind energy market is expected despite the general economic crisis.” In the depths of the recession, in the first quarter of 2009, newly installed wind capacity reached 5,374 MW, an increase of 23% compared with last year.

The first quarter growth resulted from projects initiated before the financial crisis; however the wind association projects that a new record will be set for the whole of this year, with over 30,000 MW of newly installed capacity, a 25% increase compared to 2008. That will push total worldwide installed capacity to 152,000 MW by the end of 2009, up from 14,500 MW in 2000.

A Harvard University study estimated that wind energy could cover our current global electricity demands 40 times over, or five times the total global energy use (that is, electricity plus transportation and other energy uses).

Considering that the total amount of potentially viable wind power exceeds the current human power needs from all sources, you can start to see why existing power companies are eager to find sites on which to install wind turbines. For now, to give you an idea of how much growth the wind sector may see in the coming decades, the world generates globally only 0.2% of total energy needs from wind power.

Investing in wind power

There are several ways to invest in wind power: one path involves the wind turbine manufacturers while a second way is the companies developing wind farms. Another approach is to look at the companies that are working toward improved technologies.

When it comes to wind turbine manufacturers, the leading companies are all large, well established public and private companies, with multi-billion dollar annual revenues. It is not clear that rapid growth in the wind industry will result in gains for shareholders of the big companies.

Wind turbine manufacturing companies include:

· Publicly listed Danish Vestas Wind Systems A/S (VWS) (Number one worldwide with a 23% market share);

· American GE Wind with a 19% market share and a division of General Electric (GE) the world’s largest company;

· Madrid-listed Spanish Gamesa Corporación Tecnológica S.A. (GAM) with a 12% market share;

· Private German company Enercon, with a 10% market share;

Asia’s largest wind manufacturer, the BSE (Bombay Stock Exchange) listed Indian company Suzlon Energy Limited (SUZLON), is Number five worldwide and holds 9% of the global market.

Others include Siemens Wind (like GE, a division of a huge industrial and consumer products company) and privately owned Chinese company Sinovel with its 5% global market share. As the first Chinese company to produce multi megawatt size wind turbines, Sinovel continues to maintain its leading position in that country by also being the manufacturer of the largest Chinese-built wind turbine, with a 3 MW machine.

Although the projected growth rates for worldwide wind energy are encouraging, that is unlikely to have much of an impact to those manufacturers that are divisions of much larger companies. The companies for which wind turbines are a major component may see substantial growth, but these are well-researched, mature companies. GreenTech Opportunities will remain focused on relatively undiscovered companies that promise new approaches and technologies that provide the basis for rapid growth in value.

Wind farm developers

Another approach available to investors in the wind sector is wind farm development companies. These encompass single-turbine renewable energy co-ops, to developers that aim to build small multi-megawatt wind farms in the 10-30 MW range (many examples exist in Germany) to large, publicly-listed developers aiming for wind farms in the plus 50 MW range. These larger companies scope out their chosen regions around the world and find suitable sites for wind energy development. With projects ranging from 50 MW up to 800 MW per wind farm (and even larger in the future), capital costs are often measured in the billions of dollars. In 2007, the average installed North American wind farm had a capacity of 120 MW, but with a trend to larger sites, that average is likely to grow.

At the most basic level, many investors would consider wind power to be a low risk investment as the costs are effectively fixed once the wind turbines are operational. In other words, once the wind turbines have been paid for and installed, fuel costs are nil, and operation and maintenance costs are marginal compared to the overall investment. A large company incrementally expanding its facilities becomes like a utility company. We are looking for start-up companies in the sector, and/or companies with aggressive expansion plans relative to the size of the currently installed facilities. While more risky than a utility-type investment, such companies offer far greater reward potential.

Copyright 2009 Stockhouse
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright (c) Mochila, Inc.
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