NWF - NZ Windfarms

[Snoopy]

I have done some back of envelope calculations...

Each WTL 0.5MW turbine (and connection to grid) costs about a million dollars to install not including any carbon credits.

With 45% wind factor & then 97% power factor the turbines should operate for over 3800 hours per year so

3800hr x 0.5MW = 1900 MWh

at 10c/kwh = $190,000 per year for each turbine, a gross profit of 19% pa. (average spot price 9.7c/kwh)

End of stage 3, 65 turbines = $12.35 mill income pa

Because of NZ energy situation (gas prices and peak oil etc) this could increase very quickly. The running time is very conservative because in the last statement the turbines had been running 86% of the time!

With money in the bank equaling the share price how can this not be a good investment? I am holding a few but want to build up more before they pay a dividend and the stampede starts!

You might need to use a larger envelope Financially Dependent.

First of all those turbines may be rated at 0.5MW. But that doesn't mean they develop 0.5MW or nothing. The actual energy being delivered will be proportional to the wind speed (not linearly proportional), and that is a function of the wind profile of the site. Of course you would have to include the time of the wind speed being too high causing the wind turbines to shut down. Any particular wind farm is designed around a site's wind profile principally in accordance with the direction of the prevailing wind. However, when the wind swings round to a different direction, then this will likely affect the performance of the windfarm in a negative way. As you might imagine there is quite a bit of science in all of this. I believe that NWF were advertising not long ago for a full time specialist on this subject. I can guarantee that person will not be doing their calculations on the back of an envelope.

Also the 'average spot price' may be indicative when there is, overall, little variation in the spot price, and spot prices cluster around some kind of mean. However, I don't think that is true of the NZ power market. That means that 'when' you sell your power is actually very important. As the owner of a solely wind powered power generating power unit, NWF has no choice *when* they sell their power to the grid. A small operator will have to take whatever the spot price is. And that price might be consistently below the total cost of generation (which includes of course a charge against the capital costs of the structures) for months. Larger competitors, by bringing existing plant out of mothballs or choosing to close down a plant for maintenance, have the power to manipulate spot prices to do maximum damage to small competitors, like NWF.

Then you have the 'single site risk'. The power grid could be damaged locally precluding NWF selling any power at all, through no fault of their own. Alternatively a rogue hurricane might wipe out a large percentage of NWF's turbines. Sure these events are unlikely. But they are nevertheless part of the overall 'business case', and have to be priced in to any profitability probability model.

In summary, I like what you have tried to do in estimating a generation cost Financially Dependent. I recognise as do you I think that the costs and prices you have estimated are simplifications. I understand that you can build a business case around simplifying assumptions, if ou build a suitable 'safety factor' into your analysis. The safety factor you have built in Financially Dependent, does not convince me of the business case for NWF.

SNOOPY

discl: hold CEN

[Financially dependant]

You might need to use a larger envelope Financially Dependent.

First of all those turbines may be rated at 0.5MW. But that doesn't mean they develop 0.5MW or nothing. The actual energy being delivered will be proportional to the wind speed (not linearly proportional), and that is a function of the wind profile of the site. Of course you would have to include the time of the wind speed being too high causing the wind turbines to shut down. Any particular wind farm is designed around a site's wind profile principally in accordance with the direction of the prevailing wind. However, when the wind swings round to a different direction, then this will likely affect the performance of the windfarm in a negative way. As you might imagine there is quite a bit of science in all of this. I believe that NWF were advertising not long ago for a full time specialist on this subject. I can guarantee that person will not be doing their calculations on the back of an envelope.

Also the 'average spot price' may be indicative when there is, overall, little variation in the spot price, and spot prices cluster around some kind of mean. However, I don't think that is true of the NZ power market. That means that 'when' you sell your power is actually very important. As the owner of a solely wind powered power generating power unit, NWF has no choice *when* they sell their power to the grid. A small operator will have to take whatever the spot price is. And that price might be consistently below the total cost of generation (which includes of course a charge against the capital costs of the structures) for months. Larger competitors, by bringing existing plant out of mothballs or choosing to close down a plant for maintenance, have the power to manipulate spot prices to do maximum damage to small competitors, like NWF.

Then you have the 'single site risk'. The power grid could be damaged locally precluding NWF selling any power at all, through no fault of their own. Alternatively a rogue hurricane might wipe out a large percentage of NWF's turbines. Sure these events are unlikely. But they are nevertheless part of the overall 'business case', and have to be priced in to any profitability probability model.

In summary, I like what you have tried to do in estimating a generation cost Financially Dependent. I recognise as do you I think that the costs and prices you have estimated are simplifications. I understand that you can build a business case around simplifying assumptions, if ou build a suitable 'safety factor' into your analysis. The safety factor you have built in Financially Dependent, does not convince me of the business case for NWF.

SNOOPY

discl: hold CEN

Thanks for the detailed reply Snoopy, this is exactly how I will learn.


With all elements like wind we can only estimate averages to obtain output, so I used used figures from wind associations (45% wind factor & 97 % power factor) but on reflection they might be a little high. I calc'ed total average output of finished wind farm at 184 GWh pa but NWF estimated it to 160 GWh per year so might have to reduce % factors.

I will continue the research....

wind capacity factor http://www.awea.org/faq/basicen.html

[Snoopy]

With all elements like wind we can only estimate averages to obtain output,

I think the above comment is unnecessarily limiting. I doubt if NWF would use averages. They would complile a histogram of wind speeds over time and work out the power output something like this.

For 1% of the time the wind speed is greater than 70knots (a pure guess figure) so the turbine will be shut down and deliver no power. For 3% of the time the wind will be between 60 and 70 knots so the power produced will be (blah1)kW. For 5% of the time the wind will be between 50 to 60 knots and will produce (blah2)kW. You then carry on through the speed range all the way down to '0 to 5 knots', the case for 10% of the time where no power will be generated. By doing this, you will get an answer quite different to using an 'average' figure that might be more appropriate if the wind had a normal distribution and the power generated did not depend on a 'cubic power law'.

I will continue the research....

wind capacity factor http://www.awea.org/faq/basicen.html

The above looks like a good source of information.

SNOOPY

[Financially dependant]

Statement
NZ Windfarms Ltd
July 4 2008

Update on Te Rere Hau Project

Work has commenced on the erection of the 28 turbine towers, which represent
Stage 2 of the Te Rere Hau wind farm in the hills above Palmerston North.

This next batch of turbines will rest on innovative foundations that go into
the soil much like a tree root and require 40 per cent less concrete than
traditional gravity pad designs.

"The foundations are smaller and smarter and reduce earthworks by about 60
per cent," says NZ Windfarms' CEO Chris Freear. "The plan is to get seven
towers up and ready to go before we start bringing the turbines onto site."

The turbines - Windflow 500 machines designed and manufactured in New Zealand
- will begin arriving at Te Rere Hau later in the month.

Cabling is also well underway with Te Rere Hau reticulation completed, and
the new high-grade cabling to connect the wind farm to the national grid
being laid at present.

Mr Freear said it was expected that by the end of August, 12 turbines - seven
Stage 2 and the five Stage 1 turbines - would be connected and exporting some
6 MW to the national grid.

He also reports that over the past few months roads have been completed
throughout the Te Rere Hau development to access the Stage 3 and Stage 4
turbine sites, while preparation of the Stage 3 turbine crane pads has also
commenced.

Added to this preliminary work for the Te Rere Hau site building is underway.
The building will house the wind-smiths responsible for the smooth running of
the wind farm and comprises an office, a workshop and the wind farm's control
room.

In keeping with its objective to be a successful developer and operator of
small to medium wind farms primarily generating for regional consumption, NZ
Windfarms is researching and evaluating other sites around the country. The
company has a 50-50 joint venture with NP and Babcock and Brown Wind Power
for the Te Rere Hau wind farm.

For further information about NZ Windfarms visit www.nzwindfarms.co.nz

[Snoopy]

What if the windfarm only sold electricity at peak time?

No I don't mean become a weather god - what I mean is using the electricty generated when the wind is blowing to store the energy in a lake ...

Thus a combined wind and hydro operator could choose when they sold their electrons ...

Exactly right Belgarian. So where is NWF's hydro operation that will enable them to dovetail in behind their existing windfarm and do this?

Likewise it woudl be an excellent strategy for Contact Energy to build a few windfarms so that they can offset their extensive hydro generation in this way. But hang on, that is what Contact are doing! From the 2007 annual report p7:

"Wind: Contact is also making good progress in the field of wind generation. The company is working on four potential wind farm sites across the country, which together will have the potential togenerate up to 950MW."

Now can you see why I am a CEN shareholder and not a NWF shareholder?

SNOOPY

[Footsie]

what about WTL snoopy

are CEN likely to buy these 2 blade turbines?

seems Mighty river are keen

[Snoopy]

what about WTL snoopy

are CEN likely to buy these 2 blade turbines?

seems Mighty river are keen

Mighty River are more than keen. They've all but got their Windflow turbines in the production queue, have they not?

Since Contact don't have a windfarm up and running yet, I am sure they will have Windflow turbines on their evaluation list. It does strike me that Contact are quite a conservative company though. They may go for the longer established overseas makers and their bigger turbines. The turbine deal might even come down to factory space availability and delivery dates. But I'm really just guessing. No inside information I'm afraid!

SNOOPY

[Footsie]

So therefore is the preferred wind play WTL then over NWF?

Seems better to own the technology than just 1 wind farm....

I mean like you saw snoopy if you want to buy an electricty play better to stick to CEN.

[manxman]

What if the windfarm only sold electricity at peak time?

No I don't mean become a weather god - what I mean is using the electricty generated when the wind is blowing to store the energy in a lake ...

Thus a combined wind and hydro operator could choose when they sold their electrons ...

Agreed the synergies between wind and hydro are impressive, but a brand new windfarm operator has to get the site and the capital and the consents to build both simultaneously, which is a big ask. So...

The total hydro resource in New Zealand is about 14,000 MWh per year. Set up an auction system for the water rights and sell the water off in tranches.
This would allow the windfarmer to puchase stored water to back the wind turbines, and thus allow the sale of windpower at top dollar, instead of the present system where the windfarmer at times gets screwed because his availability may not match the load.

This would also overcome our perenial power shortage problem, because the present system encourages the generators to create a wee shortage to get the price up. Every third year or so, they and nature, conspire to create a real big shortage. If large consumers (Comalco, NZR, pulp mills) could buy water at auction, then they would provide an important extra intelligence to the market. By husbanding their water they could force the timely start of thermal capacity so that we didn't spend so much time looking at lakebeds.

The owner of the water would choose when to use it, and simply pay a toll to the power station operator at the time of use. We have a lot of peaking capacity already built in to the hydro system (except at Manapouri), so we are ideally set up for wind/water cooperation, and almost all the storage belongs to Meridian and Mighty River, so it belongs to us.

Mx

[upside_umop]

This sort of talk starts to remind me of Enron and how they were manipulating the California energy markets to make 'greater profits.'

Its not in the consumers interests to be charged higher prices, which would inevitably happen if supply was stored and used to be charged out at higher spot prices?

I suppose it could be argued two ways...

1) Its costing the consumer more

2) Its for the benefit of NZ as its carbon neutral and the stored energy could be used to reduce those peak times using gas/coal based products..

Interesting all the same.