Liebreich: March of the Giants – Records Shattered Anew in Surge for Scale

By Michael Liebreich
Chairman & CEO
New Energy Finance

In the world of evolutionary biology, Cope’s Rule states that a species’ body size tends to increase over time, absenting a good reason to the contrary. You can see Cope’s Rule at work not only in the animal world: it happens with cars, it happens with Olympic athletes.

Cope’s Rule is at work in the wind industry too. In 2000 the average wind turbine had a capacity of 860kW. Last week Germany’s Enercon announced the first commercial sales of its E-126 model – 6MW monsters that will soon be sitting atop 135 metre-towers in Belgium’s Hainault region. A number of manufacturers are working to a technology development map that should see 10MW turbines hitting the market within a decade, supported by research funding in the US and Europe.

But Cope’s Rule is not just working at the level of the individual turbine. The average size of a newly-announced wind farm is now 122MW, up 85% from the average announced wind farm size in 2005. As recently as 2005, there had been only four announced wind farm plans over 1GW anywhere in the world – three of them offshore. Since then there have been a further 17 such announcements, and only three of these have been offshore, with the rest onshore.

Why the sudden surge in project size? The underlying driver, of course, is that larger wind-farms produce lower-cost electricity. Until now, however, they have been held back by three factors: slow planning processes, lack of capital and weaknesses in the transmission grids. All of these are now being addressed. And policy-makers around the world have started to appreciate that dramatic action is going to be needed if they are to get close to the ambitious targets for renewable energy they have set. Large-scale projects are going to have to be conceived, approved, built and connected at an unprecedented pace.

The European Union has targeted 20% by 2020; many US states have introduced renewable portfolio standards stipulating renewable generation percentages such as 25% by 2025. These sorts of figures will not be achieved by a smattering of 50-100MW wind farms and 10MW solar PV plants.

Policy-makers are realising, therefore, that they will have to facilitate the construction of large-scale clean energy generation projects, whatever that takes. For their part, investors and developers are recognising that there are benefits for them in putting forward bigger projects, such as negotiating clout with turbine makers, utilities and grids, and political access.

In Europe, the latest government proposals on offshore wind concessions have put into play large swathes of the North Sea and identified objectives of achieving multi-gigawatt capacity. The latest German plans identified five areas of the Baltic and North Seas where the government believes 25GW can be built by 2030. Germany has also proposed a rise of some 66% in offshore wind tariffs in an attempt to clinch the commercial case for developers.

The UK “third round” of offshore concessions, announced by the Crown Estate in June, presented zones in national waters where it estimated 25GW could be built, and promised to underwrite half the cost of bringing projects to consent. Construction is scheduled to start in 2014-15, with commissioning from 2018.

In Scotland, the Scottish National Party made distinctly unfriendly noises to onshore wind before it was elected to power in summer 2007. And it turned down a proposed 650MW wind farm on the island of Lewis in April this year on the grounds that it was incompatible with EU law. However the SNP now seems to be changing its mood on large-scale onshore wind. In July, the Scottish government approved a 456MW project in the Upper Clyde Valley that could become Europe’s largest onshore wind farm, and the chances of approval look good for the mooted 600MW Viking project on the Shetland Isles.

In Australia, once a renewable energy laggard, approval in principle was given in February by the New South Wales government for a 1GW wind farm at Silverton; in Chile, Spanish firm Enhol says it will build a 500MW project, the biggest to date in Latin America. In China in 2007, the largest commissioned wind farms were in the 100MW-200MW range, but the largest planned were in the 500MW-1GW range.

But it is in the US, the land of “bigger is better”, where the race to scale is running hottest. Clean energy advocates have long argued that the country’s wide open plains should make it the “Saudi Arabia of wind”. Now some of the country’s biggest tycoons are jostling for leadership with plans for giant wind farms.

The man who has grabbed the most headlines in recent weeks is T Boone Pickens, the oil billionaire, who is planning a 2GW west Texas wind farm. Now he has embarked on a $58m advertising campaign to convince policymakers and voters of the importance of natural gas and renewable energy in weaning the US off imported oil. Pickens is a right wing Texan, not known for tree-hugging tendencies. In the past, he has funded attacks on John Kerry’s Presidential campaign and supported other conservative causes, so his conversion is just what US renewables needed to continue its tack into the mainstream. In May, when he called to order the first 667 turbines for his Pampas project, I suspect General Electric’s sales department was pretty quick to answer the phone.

At the same end of the political spectrum, but keeping a decidedly lower profile, is the reclusive Denver-based billionaire Philip Anschutz. His Anschutz Corporation is looking to erect a 2GW wind project in Wyoming, then build the transmission to deliver its power along 900 miles of wire to Las Vegas and, eventually, on to Los Angeles. Like Pickens, Anschutz made his first millions in oil and gas and has credibility within the broader energy sector and the business world.

Seeking to top them both, BP and Clipper joined forces last month to announce plans for a massive 5GW Titan wind farm in the Dakotas. This “project” actually represents a portfolio of sizeable wind farms, but the fanfare and marketing around its announcement is indicative of the current pressure to be the very biggest in the US. A further sign of how quickly things are scaling: a 909MW Oregon wind farm secured a construction permit last month and received almost no media attention.

Very large-scale renewable energy projects – not just in wind, because we are now seeing proposals for solar thermal plants in the hundreds of megawatts range from Namibia to Nevada via Navarra – present their own difficulties.

In these days of cautious bank credit committees, arranging debt finance totalling billions of dollars is more complex than finding debt finance in the tens of millions. Many banks need to be involved, and as we know from the persistently high spreads between Libor and central bank rates, banks are still wary of increasing their exposure to each other.

Looking longer term, however, the scale-up challenge will have less to do with generation than with transmission. Sure, energy can be extracted from the winds in the Dakotas just as it can from the ground in Saudi Arabia, but what about delivering it to Minneapolis?

Property rights issues inevitably arise whenever power lines have to be built across multiple jurisdictions and hundreds of kilometres. Anschutz has come up with one solution, taking matters into his own hands with an independent transmission plan. But this is a burden project developers should not generally be expected to bear. There are occasions when the strong hand of government must be prepared to make decisions that benefit society broadly, even if they offend locally. Texas officials deserve praise for the progress they have made toward creating a “Clean Renewable Energy Zone” to facilitate further wind development in the Lone Star State.

Politicians throughout the developed world need to understand that the grid required to deliver 20 or 25% renewable energy is not the same as the grid designed to serve a small number of central, fossil fuel and nuclear power stations. Regulations will have to change; money will have to be found; vested interests will have to be challenged.

The current structure of transmission systems represents a huge incumbent’s advantage for dirty energy, a hangover from past subsidies which will cast a long shadow unless it is systematically and courageously addressed.

Cope’s Rule does not apply in every situation. The age of ever-bigger dinosaurs eventually came to an end. Mammalian mega-fauna were almost completely wiped out by the spread of humans; even the American SUV is looking like it will give way to its smaller, overseas cousins. Work is needed to make sure that these huge new project plans do not remain just that – plans.

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