Wind Power - Sustainable Energy or Political Choice?

Noiembrie 2010

INTERNET SECURITIES ROMANIA S.R.L.

 

Summary

The local wind power association AREE estimates that the installed capacity of wind farms will sky-rocket from 14 MW at the beginning of this year to 600 MW by the end of 2011 and 2,000 MW within another three years. Under the most optimistic scenario, the country's wind power installed capacity would be 3,300 MW at the end of the five-year projection period. Transelectrica said on November 11th that grid connection permits for 143 projects with a total installed capacity of 4,100 MW were issued so far. In the latest three months only, ten projects with installed capacity of 500 MW received connection permits, the daily says. The local media evaluates that the projects having received connection permits stand high chances of being eventually completed. Nonetheless, we remain particularly sceptical with regard to the completion of all the projects registered so far. Even the 3,300 MW installed capacity might look impressive, but the average load factor for wind farms is around 25% at the best compared to 95% for nuclear plants so the EUR 5.6 bn of investments would generate in the end only 20% more electricity per year than one single 720 MW reactor of Cernavoda nuke; furthermore, the wind electricity is generated only when the wind blows – therefore under an irregular pattern, prompting high grid management costs (related to balancing the supply/demand) and also requiring a certain amount of costly (gas fired) peak capacities running at a low utilization rate. All the costs attached to the green electricity will end on the user's bill under a Tradable Green Certificates (TGC) system. For the predictable future, the TGC system practically guarantees EUR 110 per MWh produced until 2014, possibly 2015 – in addition to the market price of electricity sold by the wind farm; afterwards, the wind farms will receive only one TGC per MWh as compared to two before. Starting 2015, the maximal price of a TGC will be revised by the market regulator ANRE in line with the market circumstances. But at least until 2020 we expect the green certificates supply from power generators to remain below the quotas set by ANRE for electricity distribution firms so that the price of one Green Certificate would remain at the upper limit set under relevant regulations – namely EUR 55 until 2014 subject to revision afterwards. This creates significant incentives for investors, which have already registered planned capacities with the power grid operator or regional electricity distribution firms.

Please note that electricity distribution firms have to hold the TGC quota, as % of electricity distributed, which is not equal to the share of RES-E generated because 1 MWh of green energy brings different amounts of TGCs. As the number of TGCs per MWh of wind power halves from 2015 to 2016, the supply of TGCs on the market will predictably drop keeping the price at the upper limit set by the market regulator ANRE. The TGC price can vary between EUR 27 and EUR 55 until 2014 and further regulations will be issued afterwards. If demand for TGCs exceeds supply, state will issue TGCs at the maximum price.

 

Basics of wind power

Irrespective of the highly debatable issue of the climate change, exploring alternative energy resources remains a necessity simply because the traditional resources as they are now defined are rather limited and will eventually deplete. But which exactly will be the substitute for what was once the coal, then the oil and more recently the uranium – in one word the fuel of choice for the industrial development, is still unclear; there is already a range of options to choose from, out of which the hydro power reached already maturity. Other options are to tap wind, solar or geothermal resources and convert them into electricity (and heat). Advances in theoretical physics might also inspire new technologies based on fusion that would dwarf all the alternatives now on the shelf. But at this moment, the wind power seems to be the winning card.

Investors, strongly stimulated by governments, have picked so far the wind energy card, spent hundreds of billions globally on it already and earmarked even more for large wind farms to populate vast windy areas in the future. However, there is a natural limitation to the wind power generation [the limited windy areas, quantified in the physical and economical potential of a defined area] and there is also a technological limitation to the use of wind power caused by the fact that the wind does not blow all the time. There is a general consensus on a 15% share of the power generated/used that would be optimal for the current technologies employed.

Somehow separately from the renewable energy (RE) technologies used for power generation, the development of bio-fuels reached the stage of second generation products after the first generation products proved a rather disappointing option once the subsidies were phased out. The development of economically-efficient alternative fuels would reduce the potential use of electricity in transportation. Similarly, economically feasible generation of heating technologies would also reduce the use of electricity in heating.

In terms of regulations and targets, the EU carried a one-decade program aimed at increasing the use of renewable electricity resources Sectors(RES-E) and recently it expanded its vision to include all the renewable energy resources. EU set under Directive 2001/77/EC RES-E individual targets for each country and an overall 21% target for whole EU to be met by 2010. Later in 2008, the EC enlarged the vision and set under Directive 2009/28/EC RES individual targets for each country to be met by 2020. Within the individual RES target, the individual countries were supposed to set up by June 2010 National Action Plans. Romania has drafted such a National Action Plan in July but it is still under public debate. Furthermore, the government enacted the Law 220/2008 revised August 2010 aimed at meeting RES-E targets consistent (to be discussed) with the National Action Plan for RES.

 

Local market: prospects, targets

The wind power industry has expanded hastily within developed OECD countries and large emerging economies like China over the past decade and it eventually reached Romania. This is of certain importance in the logic of the structure and size of incentives because the investors pay only for to use and not for developing the technology.

The wind power association AREE estimates that the installed capacity of wind farms will increase from 14 MW at the beginning of this year to 600 MW by the end of 2011 and 2,000 MW within another three years. CEZ, Electrica de Portugal and Enel will commission wind farms this year while other foreign investors are expected for the coming years: Verbund, Martifer, Iberdola and Ep Global Energy.

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