Navigant Research Blog

Wind PPAs Offer Exciting Prospects for Scandinavian Data Centers

— May 31, 2018

Social media conglomerate Facebook signed a 15-year power purchase agreement (PPA) with Norwegian wind farms to power its data centers in Denmark and Sweden. The $470 million Bjerkreim cluster of wind farms is located in southwest Norway (at Gravdal, Skinansfjellet, and Eikeland-Steinsland).

Details on the Wind-Powered Data Centers Deal

As per the agreement, 1,000 GWh per year of wind-powered electricity will be delivered to Facebook’s data centers from wind farms that will start commercial operations in 2019. Powering the project are 70 units of Siemens Gamesa turbines—each with 4.2 MW capacity—which will be developed by Norsk Vind Energi. The operational plants will be owned by German renewables investor and asset manager Luxcara GmbH. Facebook has partnered with Vattenfall to manage its grid integration and deliver its 100% renewable power requirement in the region.

Momentum Growing for Renewable PPAs

Sustainability strategies and clean energy targets have led to new utility business models, with corporations queueing up to sign long-term PPAs. Long-term agreements provide financial stability and resilience to clean energy projects. These are exciting developments for the Scandinavian wind power market, and they will encourage more project developers to flock to the region.

Key market dynamics driving corporate PPAs in the region include:

  • Low energy prices: Electricity prices are on an upward trend in Europe. According to Eurostat, average values of non-household energy varied significantly across the European Union in 2017. They ranged as high as €0.19 ($0.22) per kWh in Germany and €0.25 ($0.29) per kWh in Denmark. Non-household electricity prices across Norway and Sweden have remained low, at €0.08 ($0.09) per kWh, compared to the rest of continental Europe. Norway is also one of the largest generators of clean energy.
  • Data center market growth: Unprecedented growth in power requirements across data centers has given a boost to investments in Scandinavia. Since data centers are an energy-intensive application segment, the availability of large open spaces and a cool climate make the region attractive for investors. Norway is now receiving new interests from project developers in China as part of its One Belt One Road initiative. Cisco forecasts around 30 data centers across Europe by 2020.
  • Nuclear capacity closures: Sweden’s 2020 plans to divest its nuclear capacity have created an opening for new capacity investments. Two nuclear reactors, Ringhals-1 and Ringhals-2, will stop operations by 2020. A third, Forsmark-1, will reach the end of its designed lifetime by 2040, reducing Sweden’s power generation capacity by a combined 2.7 GW. This creates an acute need for new capacity investments in the country.
  • RE100 pledge encourages corporate PPAs: Facebook’s announcement has not come as a surprise, considering other investments in corporate PPAs. Google and Apple, for example, have invested in energy procurement models to keep their data centers running. This activity resulted from the recent sustainability initiative where over 130 companies signed the RE100 pledge to run their operations on 100% renewable energy.
  • Supportive legislation: Reductions in energy tax and the introduction of license awards for renewable energy development are key policy drivers across Sweden and Norway. Authorities have awarded a high number of licenses to developers in recent years, and the trend is likely to continue.

Wind Power Has a Future in Corporate PPAs

Wind power will continue to strengthen its position as a mainstream energy source across utility-scale and distributed energy generation. While mature markets will remain attractive for new wind capacity installations, investments across emerging markets are on the rise. Digital innovations, long-term operations and maintenance contractual agreements, and investments in predictive analytics will contribute to the operational efficiency of corporate PPAs for renewable power capacity.

 

Making More with Less: Maximizing Generation in Lower Wind Resources Regions

— September 26, 2017

Wind turbine manufacturers are constantly evolving their turbines to maximize power output in areas of lower wind speeds, which opens much more geography for wind projects. A simple metric for quantifying wind resource areas for turbines is specific rating (or specific power). Specific power is the ratio of a turbine’s rated power output in watts to its swept area in square meters. A turbine with a higher specific power is designed for areas with high wind resources and vice versa. Higher specific power indicates that a turbine can generate more power with less swept area (i.e., a smaller rotor diameter). These turbines need high winds to adequately perform. Otherwise, capacity factors and associated power output are too low to make the turbine cost-effective. If the average winds are not sufficient for high specific power turbines, a turbine with a lower specific rating will be used. For developers and owners looking to find the right turbine for their location, it’s all about finding the right balance based on wind resources. For example, a 2 MW turbine with a 90-meter rotor might produce 6 GWh with an average annual wind speed of 7 m/s. A 120-meter rotor turbine with the same rating would produce 8.5 GWh in the same conditions. The 120-meter rotor turbine will be more expensive to manufacture, transport, and install, so the higher power output comes at a price—but the tradeoff can be worth it.

Changing of the Times

There are four different classes of wind turbines based on average annual wind speed, among other parameters: I, II, III, and IV. Two decades ago when wind energy costs were high, typically only wind farms in high wind resources regions with Class I turbines made economic sense. As wind costs continue dropping, wind turbine OEMs are prioritizing Class II and Class III turbines. According to the US Department of Energy’s 2016 Wind Technologies Market Report, the average wind class for turbines in the United States shifted from 1.2 in 2000 to 2.7 in 2016. As noted in the figure below, the average specific power of installed turbines in the United States has plummeted in the last 20 years, dropping from almost 400 W/m2 to 230 W/m2. Typically, a Class I turbine has a specific power of 400 W/m2 or higher. Class II turbines will be between 300 W/m2 and 400 W/m2 and Class III between 200 W/m2 and 300 W/m2. Class III turbines are the popular choice around the globe and have been for several years now.

Average Specific Power, United States: 1998-2016

(Source: Office of Energy Efficiency and Renewable Energy)

Navigant Research’s Wind Turbine Order Tracker follows the average specific power for turbines to be used in upcoming projects. Major turbine OEMs like Vestas and Siemens (now Siemens Gamesa Renewable Energy, or SGRE) have seen dropping specific powers. The average specific power for Vestas turbines dropped from 297.3 W/m2 in 1H 2016 to 250.9 W/m2 in 1H 2017. In the latest version of the Tracker to be published next month, Vestas, SGRE, Nordex, Senvion, and GE have specific ratings between 240 W/m2 and 270 W/m2. Class III turbines account for over 90% of the turbine capacity awarded between January and June 2017, and less than 2% went to Class I turbines. Clearly, the times have changed in the wind industry and low wind resources are no longer a deal breaker for potential wind sites. As costs continue to drop and technology improves, project developers and owners will continue to gain what they didn’t have much of 20 years ago: options.

 

For the First Time, Solar Surpasses Wind

— June 20, 2017

2016 was a record year for solar with 76.6 GW installed—50% year-over-year growth from the 51.2 GW installed the year before. This brings solar to over 300 GW installed globally, just after exceeding the 200 GW mark in 2015, according to SolarPower Europe. This is great news for the broader renewables industries and for anyone concerned about climate change. However, it may raise some concerns within the wind energy industry, which for many years has vastly exceeded the installation rates of solar.

Since wind installed 54.3 GW (cumulative wind capacity stands at 484 GW), 2016 marks a turning point: the first time solar has exceeded wind energy’s annual installation rates. Solar only recently has been considered a serious competitor to wind, as solar PV module prices have fallen and installation rates have skyrocketed. This has led some notable developers (such as US-based Pattern Energy and Tri Global) to diversify from wind into solar, and turbine manufacturers Gamesa (now Siemens Gamesa Renewable Energy [SGRE]) and Suzlon to diversify into solar. SGRE landed a deal to build 130 GW of solar projects in India using inverters manufactured by Gamesa from factory capacity previously intended only for wind turbine power converters. Pattern is involved in a number of solar projects, including its first solar foray with 120 MW in Chile.

Wind continues to attack costs. It has decreased its cost of energy by 66% over the past 7 years (while solar decreased 85%), and its higher capacity factor of around 40% versus solar means wind will continue to maintain an edge in total megawatt-hours produced with the same nameplate capacity as solar. However, there are some key detractions to wind power that can’t easily be overcome. Two major impediments stand out: resource constraints and aesthetic impact.

Resource Constraints

Wind power is increasingly cost competitive in areas where there are good wind resources. In the United States, for example, the clear majority of wind capacity is installed in the vast central interior corridor spanning through Texas, Kansas, Oklahoma, Colorado, Iowa, Nebraska, Iowa, Minnesota, and the Dakotas. The consistent, low turbulence wind makes new wind plants cheaper than fossil fuel generation in those parts of the country.

While some of those states boast significant populations, the majority of the US population is located along the coasts where much less wind power is being developed because the resources are not as good (except for offshore—an entirely different topic). Solar doesn’t have the same challenge, as areas with strong solar resources are more likely to be colocated with population centers.

The Aesthetic Challenge

Wind turbines have increased their efficiency by evolving taller towers and longer blades. While this results in fewer turbines needed at a given project, it still results in a major visual change to the horizon. There are many people around the world that do not welcome such obstructions. Solar is arguably less visually obtrusive, as it takes up space on roofs in the residential setting or large fields in commercial settings.

Wind development has largely plateaued and global installations above 50 GW are expected annually for the next 10 years. Whether solar will begin to consistently eclipse those figures as it maximizes its core strengths is the big question.

Best of Both Worlds?

Regardless, one factor that will help the two technologies remain (to some degree) complementary instead of direct competitors is the different and complementary resource profiles. In most parts of the world, sunny months tend to be less windy and windy months tend to be less sunny. Analysis by the Fraunhofer Institute of Germany’s grid shows greater value and system stability with both wind and solar operating versus only one of the two technologies operating.

 

Will 2015 Be Global Wind Power’s High Water Mark?

— June 9, 2017

Will 2015 be the high water mark for annual global wind installations? Navigant Research compiled its data for 2016 in its annual World Wind Energy Market Update report, and an enormous amount of wind turbine capacity was installed—over 54.3 GW. But this was a 14% annual decrease from the over 63.1 GW installed the year before. The downturn is largely the result of China dropping from 30.2 GW installed in 2015 to 23.3 MW in 2016 due to changing incentive rates in that market. Unless there are further incentive changes that foster another huge annual rush in China, the 63.1 GW installed in 2015 is likely to be the high water mark within Navigant Research’s forecast out to 2026.

The reality is that the global wind energy industry is a huge market that is no longer subject to the high annual growth rates it experienced in its infancy. Rather, it is a mature market seeing steady installations across most country markets and regions. In 2016, stable installation rates occurred in most countries outside of China—from the long established European countries to new markets in Latin America, Asia Pacific, Africa, and elsewhere.

Maturation Evident

Europe installed nearly 14 GW of wind power capacity in 2016, almost the same amount as the year before. This represents 25.7% of global capacity installed in 2016. Europe also had the distinction (for the first time) of having more wind energy installed than coal plant capacity. North, South, and Central America combined installed 12.4 GW in 2016, representing 22.9% of the global market in 2016. This is down from over 14.5 GW of capacity the year before. The downturn was partly due to less capacity added during 2016 in Canada and Brazil.

The United States led all countries besides China in 2016, and the US market is in the middle of wind plant construction boom. A long-term extension of incentives ramping down through 2020 provides much sought after policy stability. It also supports continued capacity expansion that is expected to peak, with over 10 GW of annual wind projected to be brought online in 2020. While there were some concerns at the start of the new presidential administration, having a Republican back in office is not expected to alter this wind build cycle since it is based on a tax credit phaseout deal coded into law prior to 2017.

Wind power capacity continues to surge in Mexico as its policies and energy demand show the foundation for steady growth while energy deregulation secures a windy future. Chile and Uruguay saw strong installation rates to bolster capacity in Latin America.

The combined markets of South and East Asia represented 49.7% of global wind power capacity in 2016, down from 52.6% in 2015. China’s market strength again propelled global growth, with 23.3 GW, followed by India with 3.2 GW. India is experiencing steady and substantial year-over-year growth in installations and should prove to be a stable large market going forward, driven by new policy changes and insatiable energy demand from an enormous population.

Momentum Offshore

Offshore wind continued its successful build cycle of 2.2 GW in 2016, bringing the total cumulative capacity of offshore wind to 13.5 GW. The majority of capacity came from Europe, as expected, led by the Netherlands and Germany. China ramped up its offshore wind capacity in 2016 as well, with multiple turbine vendors installing capacity and pushing the country’s cumulative offshore wind online to over 1 GW.

Looking forward, wind installations in 2017 are projected by Navigant Research to increase slightly by 1.7% to around 55.3 GW. Annual installations are expected to average around 51.9 GW between 2017 and 2021. This is a downward revision from 54.2 GW from the 2016 World Wind Energy Market Update report due to lower installation levels expected in China and Germany.

 

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