Monday, 23 April 2018

Wind Energy, Diseconomies of Scale and Market Cannibalization

How the Irish Wind Industry is Becoming a Loss Making Industry

by Owen Martin

This blog's recent analysis of the financial statements of wind companies showed that most of the newer wind farms around Ireland were making losses. One possible explanation for this is that the wind industry suffers from the opposite of economies of scale - diseconomies of scaleEconomies of scale are defined as the cost advantages that an organization can achieve by expanding it's production in the long run. Diseconomies of scale occur when the long run average costs of the organization increases. It may happen when an organization grows excessively large. In other words, the diseconomies of scale cause larger organizations to produce goods and services at increased costs. 

There are a number of causes of this but the most relevant to the wind industry is Market Cannibalization
Implies a situation when an organization faces competition from its own product. A small organization faces competition from products of other organizations, whereas sometimes large organizations find that their own products are competing with each other.
If we take the wind industry as a whole, each wind farm is competing in the same market and their product is the same (wind energy). Therefore each wind farm unit is competing with each other. This is a particular problem during periods of high wind and low demand, when only a certain percentage of wind can be allowed into the grid. Eirgrid must then decide which wind farms need to shut down or curtail output. It is also a problem at the micro level when turbines are located too close together and each turbine is competing for the same but limited local wind resource (wind wake). 

As more wind farms are built, cannibalization increases at the macro and micro level (among wind farms and individual wind turbines). There must then be an ideal amount of wind capacity, say for example half of average demand which would be around 2,000MW, where cannibalization is very small.  At this point, most if not all wind farms are profitable. Cannibalization increases with each additional wind farm built beyond this point. As all the good locations get used, bigger and more expensive wind turbines are deployed in an effort to increase output, as well as increased numbers of turbines resulting in them being placed ever closer together . However, this increases costs per unit as both the local wind resource and electricity demand remains the same while the cost per turbine increases.  We are now at around 3,000MW of wind and there is evidence that wind farms built since 2010 are making losses so probably the ideal amount of wind is somewhere around that 2,000MW mark.

In the case of, for example IT companies, market cannibalization can be planned or unplanned. Apple plan their market cannibalization so that their latest iPhone out-competes the older versions. In this way, they attract both existing customers looking to upgrade their phone and new customers who are looking for a new phone. The sales of the older models decline but the sales of the newer model outstrip past sales of the older models. However, in the case of wind energy in Ireland, the cannibalization is unplanned. It is as a result of over-saturation in a market with limited market share available for each new wind farm unit. 

This is a problem which nobody has really examined and is most peculiar to Ireland since it has a very small grid. Therefore, it really makes no sense to pursue wind energy any further until a full assessment has been carried out and possible solutions like battery storage are trialled. 


  1. Ireland is very lucky to be an island. It is imposing physical restrictions on the electrical wind generation Ponzi scheme now reaching maturity. Wind farming without subsidies is nothing more than a novelty loss maker, like a steam railway for tourists. There is no generation on a calm day. Add the subsidies and income improves a little. No supernormal profit can ever be made due to inadequate wind speeds but investors don't know that. Build and sell was the model. Developers and bankers evolved doubts which are allayed by offering bigger and bigger turbines. If the same principle applied in the car industry, we would all be driving stretch limousines.
    Without electricity export (which would involve selling below cost using Irish consumer paid subsidies) the demand is stable at an average of 3,300 MW. The wind price is fixed so grid operators must decide whose electricity they buy. As the wind capacity increases year on year (which it is) a smaller proportion of total electricity can be bought. While bigger turbines seem to be a disaster due to their high capital and upkeep costs, not all small turbines are doing well. Gartnaneanne wind farm installed in 2004 uses smaller 65 meter hub height turbines and made a total loss of 4 million Euros over 2015 and 2016. It is highly doubtful if any wind farm can make a profit after paying interest over its full life. There may be exceptions. Obviously wind farms will have to close down as happened in California which might end the hype, but several thousand MW of new capacity is planned.
    It will take too long to get any workable export system up and running. Government is trying a NAMA for wind Mills using Greencoat, but private investors are not that foolish. Wind farms probably will cannibalize each other and fossil fuel plants are not immune either. There will never be a viable mature wind energy sector, there probably will be a rapid exchange in ownership of wind farms as fools buy in, check the books and sell in a panic. The Canadian investor Brookfield Renewables has just done that with Knockacummer and Killhills wind farm. It must be remembered the Bord Na Mona and Coilte the semi state peat and forestry firms have a lot of land and they are sharpening their knives in a bid to stay afloat. Government will protect its own.

  2. Technically wind turbines are not scalable beyond 300 kilowatts to thereabouts.The first wind turbine recorded in the Danish Data , now not to be found on the internet, was a 22 kilowatt manufacturer unknown commissioned on Dec 15th 1977 and decommissioned on November 30, 2002. This was the longest aged wind turbine recorded in, the now not available, Danish Data. However 4200 kilowatt wind turbine manufactured by NEC Micon was commissioned on November 1st 2003 and decommissioned November 21st 2007. This proves that as wind turbines increased in size their performance decreases. It is interesting that in Ireland wind farms built since 2010 are making significant losses. I estimate that losses will be €5m per annum per 100 megawatts installed. In 2011 a paper produced by Johns Hopkins University and the Catholic University Louvain recommended that wind turbines with 300 ft hub diameters be spaced 15 times the hub diameter apart. As the reason for the study was the observation that these large wind turbines output was low. In Ireland the wind industry dreamt up a standard called the Irish Standard . Which states allegedly , because I cannot get a written down copy, that 500 meter separation is sufficient regardless. Output losses at 500 meters separation for these large wind turbines is in the region of 40% Other indication that wind turbines are not scalable is the research that has identified premature bearing failure in wind turbines larger than 1000 kilowatts.
    Added to that are Transitional Torque Reversals which reck transmissions in wind turbines with 100 meter or greater hub diameters and with Wind Over Power Ratios of 9.00. To get the W.O.P.R. down to the recommended ratio,4.6, the range between the nominal power and the cut out speed must be significantly narrowed . This significantly reduces wind turbine output and restricts its economic range . So there is significant evidence in the wind turbine research literature of significant performance declines as wind turbines increase in size. The boundary between acceptable performance and rapidly declining performance appears to 1000 kilowatts. So much for Danish and German engineering. Austen Powers type engineering. The mini me's are best.

  3. Premature bearing failure in wind turbines larger than 1000 kilowatts mainly is caused by high frequency shaft voltage. This creates EDM pitting and fluting in the bearings and could be avoided by using a shaft grounding system suitable for high frequency current. AEGIS WTG Shaft Grounding Rings are proven in many installations for 2 MW or even larger wind turbines. This will make wind turbines more reliable and reduce repair costs significantly. More see

    1. No success getting into I assume by shaft you mean the central driving shaft of the alternator around which the stater is fixed. Why would there be a voltage in this shaft. Are you referring to a wound rotor, an induction rotor or a permanent magnet rotor?

    2. You had a typo. Its
      Or go direct to

      Best would be copy and paste the link/AEGIS_WTG_Best_Practices.pdf

    3. Looks like Martin is trying to sell a product. The video refer to motors not alternators. I know of 3 phase bearings which have been running for 20 years as they left the factory.

  4. A 2014 paper by the IWEA Chief Executive Dr. David Connolly (International Journal of Sustainable Energy Planning and Management Vol. 01 2014 7-28) outlines how an existing energy system can be transformed into a 100% renewable energy system.

    The transition is divided into a number of key stages which reflect key radical technological changes on the supply side of the energy system. Ireland is used as a case study, but in reality this reflects many typical energy systems today which use power plants for electricity, individual boilers for heat, and oil for transport.

    The seven stages analysed are
    1) reference;
    2) introduction of district heating;
    3) installation of small and large-scale heat pumps;
    4) reducing grid regulation requirements;
    5) adding flexible electricity demands and electric vehicles;
    6) producing synthetic methanol/DME for transport;
    7) using synthetic gas to replace the remaining fossil fuels.

    For each stage, the technical and economic performance of the energy system is calculated. The results indicate that a 100% renewable energy system can provide the same end-user energy demands as today’s energy system and at the same price. Electricity will be the backbone of the energy system, but the flexibility in today’s electricity sector will be transferred from the supply side of the demand side in the future.

    The paper predicts that this scenario will result in the creation of 100,000 additional jobs in Ireland compared to an energy system like today’s. These results are significant since they indicate that the transition to a 100% renewable energy system can begin today, without increasing the cost of energy in the short- or long-term, if the costs currently forecasted for 2050 become a reality.

    Deputy Eamon Ryan TD in articulating the Green Party’s ‘Just Transition’ plan points out that funding, currently used to keep the Midlands peat-fired power plants on life support should be diverted to retooling existing plant infrastructure, re-training workers, providing job transition supports, social protection and attracting new industry in renewables, peatland restoration, or retro-fitting. Renewables will be the major job creation opportunity in Ireland as the country becomes the world leader in this emerging field.

    This is underscored by Kevin O'Sullivan writing in the Irish Times last month that Dr. Connolly proposes that the Government should set an ambitious target for Ireland of producing 70 per cent renewable electricity by 2030, which would help transform the energy sector and benefit consumers, as based on the findings of a study it commissioned which shows such a target was technically possible and, if achieved, would be cost neutral for consumers.

    Wind energy is green, provides sustainable jobs into the future and best of all, the electricity that is generated is free. Ireland can, and must, embrace the opportunities that are within our reach.

    1. We have already seen lots of demand side units, about 300+ mw. They are a fancy name for diesel generators which are dirtier than gas. So not very green.

    2. I was present at the launch of the energy green paper in 2013 when David Connolly went on and on about heat pumps.Assuming its the same guy he was based in Denmark at the time. He was unable to intelligently answer any question I asked him. He seems to have an obsession with heat pumps. They don't appear on any government scheme I know of. They are a fraud because they run on mains electricity, they can't work by themselves. If he is now the CEO of IWEA as you say, I like to hear him answer questions on the collapsing financial situation in Irish Renewable. He is hardly independent, is he?

    3. In reply to GoGreen: According to Wikipedia, Kevin O'Sullivan obtained a degree in Science (not engineering) at the age of 21. He then moved to obtain a degree in journalism. Eamon Ryan holds a degree in Commerce and sold bicycles before becoming a politician.Ryan would never stand a chance of getting elected by any political activities other than being green. His party hold (at best) 3% of the vote in the country and he was a member of the Irish government between 2007 and 2011 which destroyed the economy resulting in a bailout. They refused to listen to warnings that the Celtic Tiger was a scam and subsidized the building industry during the boom. They presided over a totally incompetent financial regulator An analysis of the information of the financial activities of Gaelectric, Greencoat and many wind farms reveals that we are repeating exactly the factors which led up to the economic collapse of 2008. No doubt GoGreen would like to put Ryan back in government to accelerate the collapse.

  5. I wrote a piece on the history of Danish Wind Turbines 1977 to 2014. Which proved that wind turbines were a pile of engineering junk. Subsequently proven by 2 agents of Swedish State to be non compliant with The Machinery Directive, The Law. I was dragged back into the Mansion House by a Famous Kildare Woman. Who said that here is someone who knows something about what is happening in Denmark. She said this Dave Connolly .Dave ran away. Enough said.

  6. The Real Cause of premature bearing failure.
    "Wind-turbine bearings are selected to meet a 20-year design life, with a low likelihood of failure. Most manufacturers follow Germanischer Lloyd guidelines for gearbox bearings. GL requires analyzing gearbox bearings for Rolling Contact Fatigue (RCF) resulting in a calculated life of at least 130,000 hours with a likelihood of failure at less than 10%.
    The early stages of multiple axial cracks appear on the inner ring.
    The early stages of multiple axial cracks appear on the inner ring.
    If a gearbox meets these design criteria, how can axial cracking failure rates be so high and often occur within the first or second year of operation? How can it be that a bearing that has been analyzed using well-understood and validated methods likely fail much sooner than predicted? The answer lies in the fact that the axial cracking failure mode differs from the classic RCF failure mode. RCF failures are caused by damage to the bearing material that accumulates over time at well-understood rates. Axial cracking failures are relatively recent phenomena and their failure modes are much less understood."

    1. Martin's theory that its in the alternator shaft can't be right. Its the gears train bearings (not the alternator bearings) which are breaking. They cannot be subject to any electrical charge. Readers can test the problem. Park a manual drive car on a hill. Put it into the highest gear, (5) release the handbrake with the clutch out. The car will turn the engine and move. The rear ratio is about 4:1 between the road wheels and the engine. Next try it again in 1st gear and it will not move the engine. If the car was moving at 20 MPH with the clutch in and it was released, it would burst the gearbox. Grandfather clocks and wind turbines are the only machines I know of to use step up gears. Its is a design fault except that the clock takes its time.

  7. "Press release by Julien Odoul, Member of the National Office

    On 18 April, the Court of Auditors published a report on support for renewable energies, sent to the Senate Finance Committee. Five years after a first report dedicated to "public policies supporting renewable energies", the observation is identical: the policy led generates "significant, long-term and poorly evaluated costs". In other words less convoluted, it is deeply ineffective and extremely expensive.

    The charge of the judges of the Rue Cambon is particularly severe against the green energies supposed to compensate the fall of the share of the nuclear energy, because the capacities of production of electricity resulting from the wind or the solar one are judged particularly insufficient.

    In the case of onshore wind energy in particular, the Court of Auditors recalls that favorable locations are very limited by the very fact of meteorology, their impact on the environment and the respect of the no-fly zones that cover 40% of the territory.

    The report highlights the ecological and economic scam of wind ideology. In fact, wind power contracts will cost 40.7 billion euros over 20 years for 2% of French electricity production.

    Over the 117 pages of his report, it is the essence of the arguments developed by anti-wind associations that the Court of Auditors takes over: lack of profit for French industry, mismanagement and opacity of public aid, derisory electricity production ... We can add risks still poorly assessed on the health of local residents, the concreting of territories, the collapse of tourism and hospitality in the areas of implantation.

    It is high time for the government to open its eyes to this scandal and put an end to the development of wind energy, which poses a serious threat to our environment, the attractiveness of our territories and our public finances."

  8. Re: Anonymous post of the 26th 19.16 hrs. I wonder could you add a little to that post. Its a bit hard to comprehend. Who is Julian Odoul? What National Office is it? I know its hard to post a link on this blog, but are there any search words?

  9. The above report is from France. Julian is a member of the Le Pen party.Which is anti wind energy.