Wind power investment with fixed returns

Below are 4 articles re windfarm capacity factors, there are many others all showing a clear but not perfect trend to higher capacity factors with newer technology. By continuing to use this website you accept the use of cookies. High capacity factor wind turbines are really a fiddle. In Germany, wind power is largely generated in the North, while a lot of demand is in the South.

The return on investment, payback time and cost per kilowatt-hour for wind-generated power.

Note: Financial sector development in a given country or region is assessed as the share of private credit to gross domestic product GDP and the share of stock market capitalisation to GDP. Energy investment has a strong link with country-level financial conditions. Deep availability of capital from private institutions, liquid capital markets, and access to wind power investment with fixed returns and foreign sources, complemented by limited public finance, are hallmarks of a supportive enabling environment. Inone-third of energy investment was concentrated in areas with both well-developed financial systems and good access to foreign capital higher- level. This category includes markets such as the United States, a number of European countries. Some large markets, such as China, have relatively well-developed domestic financial systems but lower levels of FDI in the economy.

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No attempt has been made to include the cost of turbines in the power curve database available from the download page because they will vary from country to country and also change with time. So, in order to look at the financial viability of a scheme, it will be necessary to approach wind turbine suppliers to obtain cost estimates. However, if a user of the WindPower program wants to obtain a general idea about a possible wind turbine installation then some general guidance can be given on costs. The figure on the right shows the costs per kilowatt of rated power output for a number of small turbines with rated outputs below 15 kilowatts. They were obtained from suppliers list prices valid for The figure shows that the price per kilowatt falls as the turbine power output increases.

Note: Financial sector development in a given country or region is assessed as the share of private credit to gross domestic product GDP and the share of stock market capitalisation to GDP. Energy investment has a strong link with country-level financial conditions. Deep availability of capital from private institutions, liquid capital markets, and access to domestic and foreign sources, complemented by limited public finance, are hallmarks of a supportive enabling environment.

Inone-third of energy investment was concentrated in areas with both well-developed financial systems and retuurns access to foreign capital higher- level. This category includes markets such as the United States, a number of European countries. Some large markets, such winf China, have relatively well-developed domestic financial systems but lower levels of FDI in the economy. Others, such as Brazil and Mexico, have benefitted from rising shares of FDI in recent years but have relatively constrained domestic finance.

Countries in Southeast Asia are highly mixed. A quarter of spending was in areas with lower levels of development, where state-backed capital plays a stronger role.

This category covers a wide spectrum. In India, the availability of private credit has increased substantially in recent years. In contrast, Indonesia and much of sub-Saharan Africa, outside of South Africa, are more constrained for capital, particularly for early stage project preparation. Looking ahead, investment gaps are largest in areas currently with mixed or lower-level financial conditions, i.

Energy investment decisions are made with an eye towards profitability but also by perceptions of risk and business factors. Recently announced intentions by some actors to shift their capital allocations to a different mix of fuels and technologies merit a look at some of the financial and non-financial drivers.

The two main reasons given for capital reallocation are: 1 to invest more in sectors seen as supporting energy transitions or, 2 to invest less in areas now perceived as investmwnt. For example, a few European oil and gas majors now plan to invest more in power, while many utilities, whose portfolios were previously oriented towards thermal power, have boosted activity in renewables, grids, and end-use services.

A number of financial investors have signalled restrictions on financing coal assets. The SDS includes a modest overall increase in investment but a major capital reallocation towards low-carbon power and grids. So far, oil and gas activity in power has come more from company acquisitions e. Slides illustrate how returns and risks for investments by listed companies in different energy sectors are evolving by comparing two measures: the profitability of investments ROIC and the cost of financing them WACC.

Note: The samples contain the top 25 listed energy companies in by oil and gas production, power companies by ownership of solar and wind capacity and companies involved in investing and supplying smart grid assets, by total revenues. Companies based in China and Russia are excluded from the analysis. Industrial conglomerates, with large business fxed outside of energy are also excluded. Note: The samples contain the top 25 listed energy companies in by oil and gas production and power companies by ownership of solar and wind capacity.

The financial measures show that the oil and gas and power sectors are very different in terms of profitability and financing. Historically, oil and gas has been characterised by higher returns, higher cost of capital, and greater volatility.

More capital-intensive power has shown lower profitability but with lower cost of finance and a degree of market volatility that is more balanced with regulated assets. This was followed retutns a recovery in the wind power investment with fixed returns three years, thanks to higher prices, cost reductions and careful project selection. Industry funding costs, which reflect a strong share of equity, were stable until when market data showed a rising return on equity required by investors.

This stemmed, in part, from an increase in volatility, or systematic risk, associated with company stock prices, as expressed by a higher beta. Returns on investment for top power companies, ranked by current ownership of solar PV and wind, declined over the past decade, with weaker profitability for thermal generation exposed to lower wholesale prices. Returns improved somewhat in the past three years, benefitting from investments in assets with more contracted revenues e.

Declining funding costs partly cushioned lower returns in power, where debt plays a bigger role. Debt became less costly with lower interest rates but also from the improved maturity and risk profile of renewables. With increases in US rates indebt financing costs rose. But required equity returns fell over time from reduced investmejt, indicated by a declining industry beta.

Smart grid companies illustrating another part of the power supply regurns have seen more consistent, positive performance, buoyed by sustained demand for new equipment and regulatory support for networks. Funding costs reflect a high influence of equity given a focus on technology development. Putting the pieces together, the recent movement in financial invdstment suggest better performance, on average in terms of average shareholder value creation, by power industries focused retugns energy transitions than by oil and gas companies.

This may help to explain the interest by some oil companies in cross-sector investment, retugns potential benefits from diversification and new business development. However, investment decisions in the energy sector are shaped by complex factors that are difficult to quantify, including demand expectations, human capital and supply chain issues, business synergies, as well as the financial and reputational risks from potentially stronger climate policies.

So far, many oil and gas companies e. Supportive policy frameworks have been instrumental in encouraging investment in renewables, but there are questions over how these policies will evolve and what this might mean for risk allocation between public and private actors see Key theme on Financial risk- management for renewables.

In sum, current market signals are not incentivising the major reallocation of capital needed to reach the goals of the SDS. This also suggests a need for better understanding of the evolution of the risks, returns, financing sources, and other factors that would accelerate energy transitions. Note: Free cash flow is cash from operating activities less capital expenditure. It excludes change in working capital.

The dividend yield and annual total return by sector are the averages weighted with market capitalisation in each year. The total return refers to the sum of the share price change and dividend during a given year divided by the share price at the beginning of the year. Since mid, the majors have enhanced their financial conditions due to a combination of higher oil prices, improvements in operational efficiency, and cost reductions.

Infree cash flow reached almost USD 90 billion, a level not seen since The improvement in financial conditions has also allowed the majors to reduce the high leverage levels reached during the downturn period while returning value to shareholders. After having increased their debt by more than USD wity duringin the last two years, companies have decreased their debt exposure by around half of this. During the period the majors maintained high dividend levels, compared to other industries, distributing nearly USD 50 billion per year on average to shareholders.

They also re-introduced share buybacks; in thethese reached the highest level since Nevertheless, on a total return basis, qith oil majors underperformed the market benchmark during this period, with relatively high dividends partly offset by bouts of weaker share prices.

Independent US shale companies have typically relied on new debt, selling assets or issuing new equity for financing their operations. But their call on external financing has been reduced sincethanks to efficiency in their activities, cost reductions, and a more disciplined approach to balancing the investment and cash flow generated by their own activities.

While shale companies in aggregate overspent also inthe ratio between capex and cash flow has constantly declined from almost 2 in to just over 1 in Furthermore, shale companies have paid back debt and began to return cash to their shareholders via share repurchases. In mid, we anticipated that the shale industry was on the verge of finally achieving a positive free cash flow for the entire year. Ultimately, the shale industry as a whole did not turn a profit in Two main factors during the second half of led to this result:.

Note: Project finance data wifh based on disclosed deals and transaction values are adjusted to an actual spending basis. Note: Data reflect the latest available year for the cost recovery ratio. Cost recovery is measured as the ratio returs total operating revenues to total operating costs including depreciation plus net financing costs for reference utilities and excluding explicit subsidy payments. Source: IEA analysis with calculations for cost recovery based on financial statements inbestment reference utilities in each market.

The use of project finance for financing new projects has grown invetment recent years, with its largest contribution now in the utility-scale renewable power sector. The average debt-to-equity ratio in project finance has generally been around Project finance plays a significant role in the United States where recent tax code changes have not undermined the availability of tax equity for solar PV and wind.

In Europe, while project financing for onshore wind has been stable, that for offshore wind has grown as the maturity of the technology has increased and the risks have fallen, thanks to competitive bidding for long-term contracts and, in some markets, system operators ;ower grid connection risks.

Renewable project finance has also spread into Australia, Japan and Latin America, boosted by policies to help manage the risks. In many countries with competitive wholesale markets, short-term price signals alone remain too low to trigger investments in the most capital-intensive assets Returna, c. These are mostly government schemes — such as auctions, which play an increased role in Europe, India and have started in China, among others — but include other arrangements, such as corporate procurement, which is growing rapidly see.

Grids investment depends on planning and regulation; on a per capita basis, it is highest in those markets with cost reflective tariff setting and utilities who can adequately recover their fixed costs. Cash investmnt certainty is critical for renewable projects to manage risks and facilitate finance. Nearly all utility-scale investments to date benefit from long-term pricing under policy schemes — e. Looking ahead, most investments benefit from such policies IEA, b, c.

However, governments face trade-offs in addressing investor risks, affordability concerns and system-friendly development.

For example, European market design efforts seek greater integration of variable renewables into markets, and there has been a policy shift from feed-in tariffs to auctions for market premia and contracts-for-differences, which provide revenue certainty, but can increase marketing risks. Developers can also face risks in the context of existing policy schemes.

These may occur when there are mismatches in project capture prices and reference prices used to determine remuneration which can arise under a contract-for-differences ; in project operations extending beyond the horizon of support some incentives are available for only years ; as well as unexpected regulatory changes.

In competitive power markets, industry and finance players are increasingly required to have strategies, beyond subsidies, for solar PV and wind projects to manage potential revenue exposure to short-term market pricing over their lifetime. At the same time, there is a growing trend among non-energy corporations to procure renewable power directly, independent of government plans IEA, Slides illustrate structures and mechanisms that investors are adopting in response to these trends and assess implications for financing renewables.

Successful use of these options depends strongly on the underlying regulatory framework, electricity market design and financial. Physical PPAs are common in both competitive and regulated market structures though the terms and rules can differ greatly with the duration of feturns for solar PV and wind plants typically ranging from years.

Generators sell into wholesale markets and the difference between the reference market price and agreed fixed price is reconciled between parties.

Financial PPAs are used in the United States, Europe and other power systems where third-parties transact and are often coupled with the sale of renewable certificates or guarantees of origin. Bank hedges of up to years have been used in the United States. Where available, electricity forward contracts are traded liquidly usually only years ahead, but other commodities e. Note: Credit ratings in the graph on the right correspond to the entire outstanding corporate debt market the United States and Europe.

Note: Open interest describes the liquidity and activity level for a given product in the market. It is measured by the number of contracts or commitments outstanding in futures and options trading on an retudns exchange at any dind time. Accounting for investments based on risk allocation among private and public actors is challenging.

But understanding potential risks and availability of tools to manage them is key to financing. While few projects have proceeded based on wholesale pricing alone, there is growing interest in finance and technology arrangements to manage risks in competitive markets. These options can act as a complement to policy-based remuneration and provide investment opportunities when availability of physical PPAs may be limited.

Turbine and installation costs

However, nuclear is a lower cost option than renewables plus expensive hydro storage. The bonds pay a fixed-rate return of 7. They have been around for some time. Find out. A renewable energy co-operative building wind turbines in Derbyshire and Yorkshire has a scheme expected to give its investors 7. A spokesman for Abundance says: «Investors don’t want their money used in supporting the arms trade, fossil-fuel extraction, or even bonus-hungry bankers. But then cherry picking data fools few people. The Germans even had to reopen a coal plant in the south to help the French out…. They do produce more electricity! Nuclear stations around the world are ageing and not being replaced affecting availability in some mature markets. The most influential factor in the analysis is the rate of wind power expansion. A lot of expensive grid extension is required to avoid grid congestion and the associated curtailment and redispatch costs in the North during times of strong winds.