Monday, 26 March 2018

The Energy Bubble is Clearly Unsustainable

by Owen Martin

The Energy Regulator has reported that there is currently a backlog of 36,000MW of renewable and conventional generation connection applications (See above graph). This would increase the current capacity of 10,500MW to a staggering 46,500MW if all of these applications were accepted. As the regulator points out we only have an electricity demand for about 7,000MW. 

Under normal circumstances, only capacity that replaced existing capacity or was required to meet additional demand or reserve requirements would be accepted. Now, because of the rush to meet EU targets, thousands of megawatts of inefficient and intermittent renewable generation are being added. Renewable generation, mostly wind and solar, make up about 70% of the planned generation figure. 

This will lead to a low capacity factor across the board, with all generators operating inefficiently and intermittently. As this blog reported recently, many wind farm companies are making losses. As more generation is added, the market share for all generators will be eroded and we will see more loss making generators. Which will require yet more government intervention to keep the lights on (and possibly another NAMA to be set up).

And it gets worse. The Grid will require a large upgrade as most of these solar and wind farms will be in remote and dispersed regions far away from centres of demand. The costs will simply keep rising exponentially. 

In particular, the CRU notes that the existing backlog of connection applications amounting to 36,000MW is already significantly in excess of the all-island total electricity requirement. Keeping the non-GPA process open to further applications during the consultation period would only increase this volume. This would potentially add to consumer costs with no discernible benefit. 

 For example, with this much renewable generation, it will become increasingly difficult to stabilize and manage the grid frequency. That is why more conventional generation is required to maintain stability and of course this adds to the costs. The Regulator refers to these generators as DS3 providers and has proposed giving them priority over renewable generation :
DS3 system services are required by the system in order to accommodate increasing volumes of non-synchronous renewable generation. The CRU decided in CER/16/284 that providers of those services will be prioritised for a connection offer under the non-GPA process, and requested the system operators to develop a process for this prioritisation. 

The regulator also plans on suspending some of the renewable generation which would of course be a wise decision and be in the interests of all consumers.  Naturally, the renewable lobby groups are not happy and have somehow managed to spin this as a decision that will "result in higher electricity prices." It's difficult to understand why they are lobbying for more supply in an already over-saturated market which will erode the market share of existing renewable generators. 

The energy regulator should stick to the facts and figures as presented in her document. That way she can defend her actions later. It could be the first time an energy regulator has stood up to the green lobby and protected consumer's rights. The Energy Bubble is clearly unsustainable. I for one am hoping that for the first time in recent Irish history, an Irish regulator does the right thing before it's too late.


  1. I suspect there is an error in Figure 1. The quantities are not for an All Island scenario, but Ireland only one.

    I commend this blog for checking financial accounts of so many wind farms. Shareholders are not getting a dividend and operating losses or profits leave no money to pay the principle on bank loans.

    In a normal business, the fixed assets such as land, buildings and plant retain their value should the business fail. Wind farms cannot be put to other uses, the land is only rented out. Wind farms making permanent losses are a permanent liability. All accounts give a strong value for assets, but they may have only scrap value.

    In plain man's language, shareholders and banks expect to be re-paid from annual losses derived from assets valued as profit makers when in fact they are loss makers. There is no hope of been ever paid. They can push back the repayment periods and hope wind speeds increase, but turbines loose output as they age.

    In a hypothetical situation if a single private (not a limited company) individual managed to buy a 30 mw wind farm for 5 Euros and went on to operate it. Lenders could come after his own assets to recoup their money. They could clean him totally out;
    lands, buildings, livestock, art works. As Judge Peter Kelly told a once wealthy man whose business failed, "you will have to live on benefit, the dole. Watch the sale of Gaelectric phase 2, watch the sale by Coilte. See will they get a (non state) buyer. If they don't it's the end of wind companies, a massive hit for the banks and possibility NANA for wind mills. Google ECP - 1 Commission for Energy Utilities" ECP-1 and read their proposals with what you read hear and there is no other conclusion to come to. If they implement it, and if they with public or private investment it would take the entire old age non contributory pension to pay the Electricity bill.
    The government has dug itself a hole, no less a hole than the Northern cash for Ash. Is their latest plan really a way out? a deterrent? if it were so, they would not be planning for more faster starting fossil fuel capacity. It seems they really are serious. In my view they are between a rock and a hard place. Whether they know it or not? now that is the question.

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  3. Complete and utter insanity. Volumes of recent research says that too get a decent amount of output from these greater than 90 meter hub diameter multi megawatt wind turbines you need to space them further apart. Typically 15 times the hub diameter. Mount Lucas has 28 3 megawatt Siemens Direct drives commissioned on it. To get maximum output per turbine there should 9 wind turbines on that site. Cloncreen which BNM intend to build , some time, is too close to Mount Lucas. As Mount Lucas will have used up a high percentage of the wind energy.Leaving Cloncreen with less wind energy to convert into electricity. Its output will be reduced but its capital costs will be the same. Companies with wind farms in County Offaly should be objecting to the over saturation that is now happening there . As they will see significant output drops in their own plant after these new wind farms start operating. In their research titled " Two methods of estimating limits to large-scale wind power generation" published by The U.S. National Academy for Science, Lee M.Miller et al conclude that as wind turbine density increases the expected energy available for conversion into electricity. Drops from 7 watts per square meter to less than 1 watt per square . A near 100% drop.. So as was said by a certain EU official defending their crazy wind program "You would not object to 150 meter high statutes of Mickey Mouse."When all this capacity is installed. These wind turbines will be as useful as 150 meter high statues of Mickey Mouse. But then again the Irish layout standard is 500 meters separation regardless allegedly. If any body finds it written down in a scientific document publish it please..
    Finally to add to this insanity wind turbines are machines to which the Machinery Directive applies. Two Swedish Reports published last year says that wind turbines do NOT COMPLY with the Machinery Directive. Ireland is not currently travelling in the parallel universe.This is reality you are living in.

  4. One thing coming out of these accounts is that the costs of running a wind farm are quite high. They get a fixed capacity payment, a small payment for curtailed output and about 70 Euros per Mega Watt hour. Curtailed payments are very small. Therefore the main earner is payments for output, which is variable according to location.

    We know from the accounts, that a 25% factor is not enough to break even. We also know that one large wind farm in North Donegal is not making a profit with a 27% factor. Therefore it looks like on average, a factor of 26% might just bring most of them into operating profit.

    A 1% factor yields 6,332 euros annually per MW installed. A %% will yield 31,660 euros.

    One MW of wind costs about 1.3 million and 5% above break even would take 41 years to pay that principle off. 26% plus 5% = 31%. Add in the observation above by Anonymous and it is clear there is no way out.

    If the new payment scheme goes ahead there will be no curtailments at all and an auction system of the survival of the fittest. A wind farm cannot afford to lose 2 days production, let alone a week or even a month's loss. If 2,900 MW cannot repay its cost, how can double that and solar also do it?

  5. (Membership journal for the Danish Windmill Association, nov -15)
    "Wind Energy Denmark tries to regulate itself from the pressure on the settlement price by introducing a method so that about 400 MW of its 2,500 MW wind turbines can be centrally stopped entirely or partly by prospects of imbalance and very low prices. However, in the same situation German mills often sends electricity to the North because of their permanent settlement of approximately 70 øre/ kWh continue to flow northward, even when the electricity market is negative. It has in some cases forced Wind Energy Denmark to stop Danish turbines without there being an isolated Danish needed. Niels Dupont had, he said, hard to see how the situation should improve. On the contrary, the gloomy view of the time the record volume of water in the Nordic magazines and what Niels Dupont called wind power "cannibalization", i.e. that more and more wind turbines are erected and produce more and more in both Denmark and Germany and is pushing electricity and the settlement price further down."
    The financial implosion of the Danish wind industry has already commenced. Is it not about time we learned from the mistakes of others. Rather than repeat them.

  6. "Jul 6, 2009 Apr 9, 2013 850 52 54 Vestas V 52-850 657 Herning LAND." Danish Vestas V52-850's .Already decommissioned in Denmark 5 years ago After operating for just under 4 years . Valued at €29.308m in the Derrybrien / Gort Wind Farm Accounts 31 December 2016

  7. I am not sure if this link will work, Search under Spiegel On-Line - "Weak Returns Cripple Renewable Returns".

    The financial reporting systems in Britain and Ireland is strictly regulated using the double entry system. The two countries use a common financial reporting Standard which is adjusted periodically to cater for the changing environment. It is impossible to regulate everything. Sales, expenses, wages etc can be assessed and valued accurately, but some judgement has to be allowed in valuing intangible and tangible fixed assets.

    In a machine shop for example, machines like lathes, milling machines, work benches etc last a long time. Like wise stills in a distillery often last a hundred years. On the other hand, vacuum cleaners, hand held drills, grinders, polishers etc burn out in a year or two. Vehicles last about 7 - 12 years.
    In a long established industry, there is a benchmark to assist assessing asset values and expected life span. In a new industry there is no guide and its not as easy. Wind turbines operate in a harsh environment, the working parts are high above ground and costly to repair. The blade rotor revolves at 20 revolutions per minute while the alternator (often called a generator) must revolve at at least 17,750 RPM. A step up gear box is required and this operates under great stress. It is a design fault. Just like cars, some turbines seem to be relatively resilient and other not. Britain's off shore turbines require a multi billion pound re-conditioning to the blades after just a dew years. The posts by Anonymous reflect this internationally and I see company directors refer to early turbine break down and costly repairs in their account reports. If the assets of Irish wind farms are overstated and their life span is assessed over a longer period than it actually is, it means that the depreciation charge to the Profit and loss account is too low and the profit too high. Profits are overstated. If the value of wind farm is given in the balance sheet is too high, it means the capital cost and the loans to fund them exceed the residual value of the assets. Sales of wind farm companies will determine the real value over time, however there is hidden hand. Some investors such as ABO from Europe and Greencoat in Ireland are still buying wind farms in the midst of great hype. Greencoat are getting public money to buy wind farms. Allied Irish Bank is lending directly and acting as a clearing house for money from the European Central Bank which is pouring money into green projects. In a roundabout way, the electricity industry used to be 100% state owned and run in Ireland. Next it was de-regulated and partly privatized. The wheel has turned full circle as EU and Irish public money becomes the main investment source. The private sector are still involved, but they are not making money, they cannot pay off their loans, the industry is relying on public money. There are as many new applications from solar and wind as there is existing capacity, how government will select winners will be interesting. It has all the hallmarks of a ponzi scheme. Where it will end is another question. .

  8. For a long time it has been widely known but not discussed that investing for the long haul was a loss making adventure. The truth about Denmark is that more capacity being added cannibalises the income of existing investors. German investors got the badly burned experience for investing longterm in wind farms earlier. They lost most of their money. The recent discoveries of major design faults in these large wide hub diameter wind turbines will just rub salt into the wounds of these badly burned investors. Another issue added as a consequence of these technology problems is wind turbine durability.Denmark has almost decommissioned as many wind turbines as are now operating in Denmark. Even though the Danes have long decommissioned many of the same model wind turbines are currently operating with large losses in Ireland. Begs the question as to why Irish Wind farms accounts have high asset valuations. When in reality they should have residualised a large part of these assets by now. The only people who make money in wind farm development are the flippers. Who sell on in many cases before the wind farm is commissioned. After that to is losses for the vast majority who invested.

    1. The value-add is the flip of the unencumbered planning grant. All subsequent transactions yield diminishing returns which the Government and the IWEA intend to sell to the consumer in the name of community participation. Have the lessons of the Telecom Eireann flotation been lost in the wind? Or perhaps there are always suckers ready for fleecing . . .

  9. I was informed by a long term Shell employee that the UK invited Sheel to tender for offshore wind field as firstly they were in the energy business and secondly they had extensive experience in the offshore structures business. After due diligence Shell believed the the model could not be profitable without subsidy ( which was being offered ) Shell do not become involved in subsidy supported business believing that all business must wipe its own face. Hiddendepths

  10. Unknown's post is interesting. Off - shore wind is facing a huge bill for repair of damage to blades from the harsh environment.
    Meanwhile at 7am on the 2nd April, Ireland was exporting 280 mW to the UK via the EW interconnector. Wind was @ 60% at the time.

    The price paid to wind companies for wind electricity supplied was 70 euros per mWh wholesale. That amounts to 7 cent per unit. 7 (700) X 60% = 4.20 (420) . There was still 40% fossil component @ 5.7 euros (540 cents) X 40% = 2.16 (216).

    2.16 + 4.20 = 6.36 or (636 cents) per mWh.

    7 Euros = 700 cents / 54 cents = 13 times. The grid received 13 times less for the product than it paid the supplier. So where does the balance come from? The entire fossil back - up, additional cabling, human resource, capital investment and administration expense is loaded on to consumers and taxpayers. The co2 for the fossil fuel componant was added on to Irish emissions, not Britain's.

    Even with all of this largess, wind still can't pay its capital debt and will need more public money to survive.

    Mean while British consumers were enjoying near free electricity from Ireland whose consumers are paying 25 cent per kWh for the same product.

  11. Under current arrangements the negative price over the EWIC can be as low as-€100.00 per megawatt hour. That is we subsidise the U.K. consumer to the tune of €100.00 for each megawatt hour that is exported through the EWIC. We , the Irish taxpayer, paid 100% of the construction costs of the EWIC.

  12. For the benefit of readers outside Ireland, we have a hierarchy of business viz: full state control i.e. the police, military, courts service Health and local authorities etc.

    Next are the Semi State bodies such as, the ESB, Bord Gais (gas) Bord Na Mona (peat extraction) and Coilte (forestry) . Next are private companies limited liability and sole traders.

    Energy was deregulated from the ESB and Semi States are allowed get involved in anything they wish. So the Gas board could theoretically get involved in information technology industries. This is unfair trading and should be illegal, but for now it the done thing.

    The ESB see their position threatened by new entrants to the energy market, Bord Na Mona have no future because the peat is gone and no longer seen as green. They have vast tracts of useless land Coilte have vast tracts of land and not much income as trees are slow growers.

    They are all moving to wind energy in a big way and want a market created through interconnection with the UK. Strangly the ESB are buying wind farms from private operators and building their own while at the same time, Coilte are trying to sell off a part of their wind portfolio. Meanwhile Greencoat are also buying foreign owned irish wind farms. This begs the question, why don't the ESB buy Coilte's wind farms. Strange: and why don't Greencoat buy Coilte's wind portfolio and why is Coilte trying to sell at all. They own the facilities, they claim they are great income earners, they still want to run them, so why not do that. The clue lies in the fact that they still want to run them. They want the work but not the losses. That is why people prefer to work as employee's without the problems of being management.
    Remember what the American said when the Celtic Tiger collapsed: "They were selling the same property over and over again to themselves".