Barriers and incentives to wind energy development - unido

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Barriers and incentives to wind energy development - unido

• Despite abundant wind resources may be foundthroughout Latin America and the Caribbean,wind energy has not become a significant sourceof electricity and the region lags well behindother regions in the world.• After decades of massive financial, political andstructural support to conventional technologies,wind power remains at a competitivedisadvantage.PowerREUNIÓN MINISTERIAL IBEROAMERICANA, Uruguay, 26-27 de Septiembre de 2006


Barriers to wind developmentPowerREUNIÓN MINISTERIAL IBEROAMERICANA, Uruguay, 26-27 de Septiembre de 2006


Institutional Barriers• Unfair competition. Compared with wind energy, nuclearand fossil fuel technologies enjoy a considerable advantage ingovernment subsidies for research and development.• Internalization of generating costs. Wind energy will beunable to compete on a level playing field with conventionalgeneration until new policies are adopted to internalize thepublic costs of these fossil and nuclear fuel sources.• Lack of knowledge. Local electricity companies may beunfamiliar with wind energy. Most utilities have not studiedhow renewable resources could fit into their systems. Forexample, few have investigated how the output of windtechnologies matches their system peak load.PowerREUNIÓN MINISTERIAL IBEROAMERICANA, Uruguay, 26-27 de Septiembre de 2006


Regulatory Barriers• Interconnection Standards. There is a lack of uniforminterconnection standards for wind technologies. Theresponsibilities of utilities and generators with respect tointerconnection have not been clearly defined, and as a result,the cost (or even feasibility) of interconnection to the grid oftenbecomes a significant barrier to smaller projects.• Licensing requirements. Stringent licensing requirementscould also pose a barrier if for example, a small cooperativeselling power only to its members were required to be licensedas an energy service provider. Similarly, the licensing ofgeneration facilities could be particularly onerous for smalldevelopers.• Unfair competitive disadvantage. Wind often face an unfaircompetitive disadvantage because public policies do notgenerally fully account for the environmental and social costs of oconventional electricity supply technologies.PowerREUNIÓN MINISTERIAL IBEROAMERICANA, Uruguay, 26-27 de Septiembre de 2006


Investment Barriers• Lack of a model. Since there are few wind project in theregion, project developers are understandably unfamiliar withwind power, and even less comfortable with the risksinvolved.• Difficulty raising local equity. Local developers havelimited investment capacity, and there are many projectscompeting for investment capital. As an unfamiliar andpotentially risky investment with uncertain returns, windpower does not immediately emerge as a clear winner.• Obtaining capital resources. Proper risk allocation andmitigation are fundamental concerns for wind developersseeking to secure project funding. In a typical wind project,there are common barriers to accessing capital resources,such as the availability of “financeable” offtaker agreements,construction cost over-runs,runs, longterm reliability of turbines,and the risk of wind-bearing ability.PowerREUNIÓN MINISTERIAL IBEROAMERICANA, Uruguay, 26-27 de Septiembre de 2006


Technical Barriers• Wind resource assessment. The wind maps developed bysome countries (OLADE/SWERA) are not enough for projectdevelopers. High resolution wind maps are needed.• Intermittency. Because the wind blows intermittently, windpower can only supply a portion of a consumer’s, s, community’s,or region’s s electricity needs. In grid-connected applications,owners of wind capacity must negotiate supply contracts thataccount for wind’s s intermittent nature.• Wind in rural areas. Rural small grids would requireupgrading to three-phase before interconnecting wind turbineslarger than 20-25 25 kW. Without standard agreementsconcerning each party’s s responsibilities in paying for necessaryupgrades, this weakness in the grid is a significant barrier towind development in rural areas.PowerREUNIÓN MINISTERIAL IBEROAMERICANA, Uruguay, 26-27 de Septiembre de 2006


Commercialization Barriers• Infrastructure. Developing new wind sites requires largeinitial investments to build infrastructure. These investmentsincrease the cost of providing wind electricity, especially duringearly years.• Prospecting. Developers must find publicly acceptable siteswith good resources and with access to transmission lines.Potential wind sites can require several years of monitoring todetermine whether they are suitable.• Permitting. Planning permission issues for conventionalenergy technologies are generally well understood, and theprocess and standards for review are well defined. In contrast,wind energy often involve new types of issues.• Marketing. Individuals have no choices about the sources oftheir electricity. But electricity deregulation could open themarket so that customers have a variety of choices.PowerREUNIÓN MINISTERIAL IBEROAMERICANA, Uruguay, 26-27 de Septiembre de 2006


Market Barriers• Small Size. Renewables projects and companies aregenerally small. Thus they have fewer resources thanlarge generation companies or integrated utilities.They will have less clout negotiating favorable termswith larger market players. And they are less able toparticipate in regulatory or legislative proceedings, orin industry forums defining new electricity marketrules.• High Transaction Costs. . Small projects have hightransaction costs at many stages of the developmentcycle. For example, it costs more for financialinstitutions to evaluate the credit-worthiness of manysmall projects than of one large project.PowerREUNIÓN MINISTERIAL IBEROAMERICANA, Uruguay, 26-27 de Septiembre de 2006


Market Barriers (2)• High Financing Costs. . Wind developers andcustomers may have difficulty obtaining financing atrates as low as may be available for conventionalenergy facilities.• Lack of Information. . Financial institutions aregenerally unfamiliar with the new technologies andlikely to perceive them as risky, so that they may lendmoney at higher rates.• Transmission Costs. . Wind projects may also becharged higher transmission costs than conventionaltechnologies or may be subject to other discriminatorygrid policies.PowerREUNIÓN MINISTERIAL IBEROAMERICANA, Uruguay, 26-27 de Septiembre de 2006


Instruments to overcome barriers.PowerREUNIÓN MINISTERIAL IBEROAMERICANA, Uruguay, 26-27 de Septiembre de 2006


• Goals and objectives have to be established at aregional level based on the experience that individualcountries have developed up to know.• Having established its goals and objectives, decisionmakers can design policy tools that seek to fulfillthem.• Regulatory reforms should be considered to ensurethat wind energy project could feed into the powergrids. Further, policy makers may elect to adopttargeted measures that address specific barriers towind energy and promote investments in suchsystems.PowerREUNIÓN MINISTERIAL IBEROAMERICANA, Uruguay, 26-27 de Septiembre de 2006


Market Incentives• Wind Energy Targets. The Interconnected System couldguarante minimum percentage of wind energy to be part of theoverall energy supply portfolio. The recently approved PROINFAProgram in Brazil follows this approach by requiring that thegovernment owned utility - Electrobras - purchase a minimumamount of renewables-based based electricity by a certain date.• Specific subsidies for wind energy. This system is basicallya tax collected from all power services, which goes into a fundto support wind energy developments. The U.K has had avariation of this with its competitively bid “Non-Fossil FuelObligation” program. The government imposes a levy on allretail electricity sales to help finance renewable energyprojects.PowerREUNIÓN MINISTERIAL IBEROAMERICANA, Uruguay, 26-27 de Septiembre de 2006


Tax Incentives• Tax-free generation is found primarily in Sweden andDenmark, where each member of a cooperative, commune, orpartnership is not taxed on his or her share of the income fromthe turbine’s s production as long as the income (or the amountof electricity produced) does not exceed that member’s s annualexpenditure on (or consumption of) electricity.• Favorable depreciation. . Businesses are allowed todepreciate the value of a wind turbine by up to 30% each yearusing the declining balance method, and to use thedepreciation expense to offset other forms of business incomeSwedish and Danish farmers have installed one or more windturbines on their property as part of their farming business – todefer taxation on their other farming profits.PowerREUNIÓN MINISTERIAL IBEROAMERICANA, Uruguay, 26-27 de Septiembre de 2006


Standard Interconnection Agreements• Distribution utilities should be required to interconnectwind projects to the grid according to a pre-determined set of rules defining technicalrequirements and division of financial responsibility.• Pre-defining interconnection requirements andresponsibilities (both technical and financial) enables awind project to accurately estimate the cost ofinterconnection in advance.• These factors reduce the project owners’ risk.PowerREUNIÓN MINISTERIAL IBEROAMERICANA, Uruguay, 26-27 de Septiembre de 2006


Wind Turbine Manufacturing Base• World-class wind turbine manufacturing industry has played animportant role in developing wind energy in many countries.The very existence of a domestic wind turbine manufacturingindustry has no doubt influenced politicians in those countriesto favor policies that are friendly towards domestic ownership.• Brazil has followed this path with an incipient but strong windturbine manufacturing industry.PowerREUNIÓN MINISTERIAL IBEROAMERICANA, Uruguay, 26-27 de Septiembre de 2006


Tariff schemes• Voluntary approaches like green tariffs and greenshareholder programmes are based on a highconsumers’ willingness to pay for “green electricity”.• Feed-in tariffs. . It guarantees to all wind energyproducers up to certain level of the current domesticsale price of electricity for every kilowatt hour theygenerate. This is both administratively simple andeffective in practice mechanism for promoting windenergy. It has created a stable, profitable, andessentially unlimited market for wind power, and onethat can be accessed with very low transactions costs.PowerREUNIÓN MINISTERIAL IBEROAMERICANA, Uruguay, 26-27 de Septiembre de 2006


Conclusions• Three key levels of strategic planning– Electricity Market,– Electricity Network– Spatial Planning,They need to be integrated into a plan ledapproach to wind energy deployment.PowerREUNIÓN MINISTERIAL IBEROAMERICANA, Uruguay, 26-27 de Septiembre de 2006


Muchas Gracias!!!Dr. Manuel FuentesManuel.fuentes@itpower.co.ukIT Power, Reino UnidoPowerREUNIÓN MINISTERIAL IBEROAMERICANA, Uruguay, 26-27 de Septiembre de 2006

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