The Case for Wind as a safe Investment

I am not alone in believing the current safest investment would be in wind energy. The wind will keep blowing and people will keep needing electricity, although the amount will depend on the overall state of the economy amongst other things.

And, in Ireland, wind energy will always have a market because of the way the Irish market works. Since all generators must sell their electricity into a pool from which suppliers buy the electricity to sell to their customers. Wind energy will always be a price taker because it is always better to sell, regardless of how low the price. For a gas powered station, the cost of the gas gives a bottom to the price at which it is worth selling. (The calculation is actually more complex because of the cost of shutting down and restarting plant.) So your wind power will be sold ahead of other non-renewables.

Ireland desperately needs wind energy. We import nearly 90% of our energy and will be vulnerable to chaotic price changes in oil, which sets the price for gas, until we change that. There are many new renewable technologies coming on stream that may be appropriate for Ireland, but none that have over 20 years of experience of use. So wind it is in the short term, and we have plenty of wind. Ireland has set the target of 40% of electricity production from wind by 2020. If this target is to be reached that would mean building one 1MW wind turbine every day! See article in Greenmonk for the numbers.

So how might you wrap this product to make a good investment? I suggest a government backed bond with tax free returns for the first 10 years. In return no returns would be paid until the end of year 2 to allow time for construction and connection to the grid (see comment later as this is currently 5+ years). The product would be managed by a bank or financial services company who would operate the scheme on a 1% commission basis. This should not be problematical as there would be low management costs unlike other financial products.

Returns will depend on electricity prices, which in turn are a function of demand and oil price, both of which are currently uncertain. SEI projected returns before tax of 5.5% here.

So what are the risks? The main risk is that the grid will not be updated quickly enough to take an increase in wind, that demand response will not be implemented quickly ensuring that wind farms are not curtailed (turned off) when supply exceeds demand, and that longer term, high bandwidth interconnectors to europe are not built to ensure best price of electricity generated. This is why government support for this investment product to ensure that infrastructure was implemented in a timely fashion.


More about wind energy and the need for demand response here: http://pbjots.blogspot.com/2008/08/no-demand-repsonse-no-progress.html

No Demand Response, no progress

Interesting day yesterday attending a meeting of the DR (Demand Response) group in Dublin. Jerry Sweeny has talked in detail on his blog about the importance of getting Demand Response in Ireland in order to be significantly increase the amount of wind on the grid.

What became clear to me at this meeting, was that without DR it is going to be hard to make progress on a number of fronts in reducing our dependance on imported energy.

Wind is great if it blows at times of high demand but is a problem if it blows when demand is low. On the grid supply must equal demand and while supply can be increased or decreased by bringing power stations on line, demand is more difficult. When supply is predictable, the high tarriffs for periods of high demand and low tarriffs for periods of low demand help to reduce the peaks and fill in the toughs. But when supply is unpredictable, such as wind or wave, there is currently no way of increase or decreasing demand in real time. This will lead to the situation where wind farms have to be turned off if there is not enough demand.

But if we could make electricity behave more like the financial markets by decreasing the price when supply was plentiful (summer nights) and increasing the price when supply was tight (cold windless evenings) then we could start choosing when to buy electricity depending on price. We all have electricity loads that we can't move. Shops need the lights on when the shop is open, the dinner needs to be cooked before dinner time. But there are also loads we can moved, chilling of food in the supermarket and the time we run the dishwasher.

But having real time pricing is just the first step, the next part of the puzzle is to respond to price changes and this has to be automated in order to move substantial loads.

Real time pricing requires the electricity suppliers to supply a price, for that price to be delivered to the customer and for meter readings to be supplied at short intervals so that the customer is charged the correct amount, we need smart meters. Smart meters come in many flavours but all are currently costly - estimated prices for european installation are over €200. For a householder to want to install a smart meter, it must deliver them a saving, so without real-time pricing and DR, the smart meter delivers no benefit for the customer.

Once we have real time pricing, smart meters and DR, the next step is net metering. This creates the opportunity for arbitrage of electricity - you buy the electricity when it's cheap, store it and sell it when the price goes up again. Now the grid could take substantial amounts of wind with market traders ready to suck up any bargains.

Another long term solution to making use of plentiful wind is to build high capacity interconnectors to UK, making it possible to sell electricity to the highest bidders in Europe. But this also depends on having DR across Europe in order for there to be customers able to take maximum advantage of our wind.

It seems to me that DR is a prerequisite for increasing intermittant renewables and for making most efficient use of electricity thereby decreasing carbon emissions. As these items are high on the governments agenda, why is there so little awareness of, let alone committment to, DR?

More on the Electric Vehicle Theme

Two items today on this theme:

A great article at this new blog Next Generation of Energy Ideas on electric cars and how the future is going to be hybrid electric plugins and the commenters make some good points, including the idea of utility companies owning the batteries and leasing them to car owners, and the idea of standardising on batteries to we can hot swap them.

An taking the opposite view, Boone Pickens youtube video on how the US can replace the power stations that are using imported natural gas with windmills and use the natural gas in cars instead (because cars must run on liquid fuels).  I think he needs to consider the big picture of electricity supply and the need to balance wind with quick start (gas) fueled power stations and also the electric car concept.  But nevertheless, great to see a businessman with a vision and sharing it with us.