Four Tips to Consider Before Investing in an Onshore Wind Farm

Four Tips to Consider Before Investing in an Onshore Wind Farm

These are exciting times to consider investing in onshore wind power in any market due to two promising macroeconomic trends. First, onshore turbines have become a lot better at transforming kinetic energy into electricity at higher hub heights, larger swept area, and better aerodynamic design of turbine blades. This is mainly due to continuous turbine innovation that has been supported by research and testing. As a result of this innovation, we see an increase in energy output from 32 MW in 2016 to 72 MW in 2020, which translates to better economic sense for larger onshore wind farms.

Second, since 2009 we’ve seen a 60% drop in the levelized energy (LCOE) for onshore wind projects due to higher yields from turbines and better economies of scale. This trend is expected to continue reaching even lower costs. As a result, onshore wind power will become more bankable, offering clear competitive advantages over fossil-based power. It’s really no surprise that developers and investors are keeping a keen eye on plans worldwide for onshore wind.

Of course, not all onshore wind farms are created equal. Wind farm development is a complex process that can take anywhere between 3 to 5 years for onshore projects and 5 to 10 years for offshore projects. Causes of delay can vary, with government indecision, lack of good data, local opposition, and inaccurate resource assessments among the main causes.

Onshore wind farms make a strong case for investment on fundamentals, so what are the best ways to ensure that projects stay on schedule and to budget? Having a robust due diligence program that helps identify and mitigate project risks with strategic decision-making is a must. Below we highlight four tips to consider to successfully navigate some of the hurdles of onshore wind power projects.

Tip #1: Include legal risks in early-stage feasibility study to avoid costly mistakes and project abandonment

The project lifecycle of an onshore wind project involves various stages and project participants connected through contractual obligations from preliminary siting to commissioning and eventual decommissioning. The interrelation of the different stages and participants involves different levels of risk that should be carefully assessed during the feasibility study. Among the many technical risks that determine the risk-reward profile of a project, legal risks can often catch the project partners off guard.

wind-farm1 Overview of contractual relationships during the project life cycle of an onshore wind energy project Source: Bani

Legal factors are cross-cutting— they affect the technical, financial, and economic feasibility of an onshore wind energy project. Every stage of an onshore wind power plant’s development has its legal and contractual obligations, including permitting and financing. To minimize the risks that accompany legal factors, a fatal flaw analysis should be included in the feasibility study's early stages. A fatal flaw analysis can help to address planning and permitting process realities, accounting for all the specific legal and regulatory frameworks that influence a project’s success. Fatal flaw analysis of legal risks early on will contribute to developing a robust business plan that will, in turn, provide the basis for all investment decisions throughout the project’s lifecycle.

wind-farm2 Project lifecycle of onshore wind farm Source: Deloitte

The planning and permitting phase alone for a commercial- or industrial-scale wind farm can take anywhere between 4-8 years in some countries. In other cases, the timeframe can be uncertain if a sudden change in legislation fails to define the governing body that should issue a particular permit or cause the suspension of support schemes. Delays caused by land leasing agreements, environmental permits, unclear construction requirements, and other legal rigmaroles are examples of where legal factors can lead to significant delays and compound risks. Performing the necessary due diligence to assess the reliability of the regulatory framework, transparency of the grid connection process, and legal conditions for curtailment can considerably reduce risks. Also the effect of permits on the design and output of wind energy projects is another factors to consider to strengthen the fatal flaw analysis during the feasibility study.

Tip #2: Think holistically to assess all factors that will impact energy production and costs

Wind power projects are subject to site and project-specific requirements defined by the legal and regulatory frameworks of each country. A holistic approach that considers the multidisciplinary nature of the project will help decision-makers to better understand costs and project uncertainties. Here are some holistic ways of understanding all aspects of the project from a risk management point of view:

  • Wind assessment studies: The quality of the wind all year round directly affects the power generated on the wind farm and its profits to repay loans and maintenance costs. Wind intensity also determines the loads on the turbine and eventual maintenance frequency. Power is proportional to the cube of the velocity, so a small change in wind velocity can have a notable impact on the energy generated. Studies of the wind resource at a particular site can be done using high-resolution wind maps, assessing the wind speeds and direction while varying the height off the ground, and using weather forecasting to model wind data. Essentially, whether modeled, measured, or compiled by using both approaches, the wind resource study should consider temporal and spatial variation. Wind energy's intermittent nature creates constraints that affect the reliability, availability, and adequacy of the power system; therefore, thorough assessments during wind studies should aim to unearth possible discrepancies that may under- or overestimate wind energy. Uncertainties in energy losses, wind data, and power curve should also be considered to accurately validate the annual energy yield.

  • Wind farm layout optimization: Wind turbines have grown taller to access better wind resource quality at greater heights and to guarantee improved clearance for longer blades. This form of upscaling increases the rated power and introduces technical, higher costs, and legal and economic challenges in the project. To have better economies of scale, larger wind farms that combine several turbines are the usual configuration. However, optimal positioning of the turbines aims to minimize wakes that negatively affect the wind farm's expected energy output. Therefore, it is not a question of having as many turbines as possible on a wind farm but finding the optimum position for each turbine, ensuring alignment with the main wind direction, and correcting alignment degradation when necessary.

  • Land use and zoning: Preliminary and late-stage siting gather information that assesses the suitability of a particular location for onshore wind energy. Factors to consider when studying a specific site include:

    • Soil conditions
    • Zoning regulations
    • Infrastructure that ensures access to the site
    • Height limits
    • Permitted distances from structures and homes
    • Property boundaries
    • Land ownership maps
    • Pipelines
    • Location of substations
    • Existing grid conditions and future plans for reinforcement
    • Existing wind farms in the area
    • Average yearly wind speeds, wind resource maps and the quality of the renewable energy data at the site
    • Environmental regulations
    • Obstacles such as vegetation, buildings, structures that can affect the quality of the wind resource

Ideally, sites with lower CAPEX are more attractive options as upfront costs usually result in up 75% - 84% of the total cost of an onshore wind energy project.

wind-farm3 Overview of some inputs for different cost calculations on an onshore wind energy project Source: Schäfer

Tip #3: Carefully weigh grid and TSO constraints on project design

Grid and constraints established by the Transmission System Operator (TSO) affect the final design of an onshore wind project and its costs. These costs can vary depending on the size of the wind farm and the voltage system. For example, clusters of large onshore wind plants (up to 100MW) are connected to high voltage systems, while small wind energy plants are connected to low voltage systems (up to 300kW). These connections influence the design and the eventual needs for substations and overhead lines. Additionally, if the grid has to be reinforced to facilitate the integration of the wind energy plants, this also affects the project's costs and design constraints.

wind-farm4 Connection procedure for grid connection based on a European context. Source: Gonzaléz & Lacal-Arántegui

Knowing how costs are allocated, and the timeframe grid connections are approved is essential for effective project planning and risk mitigation. These two factors should be carefully considered to assess whether the proposed design at a particular location is optimal and whether an alternative could result in less grid connection costs, better wind resource availability, and higher wind farm profitability. A grid connection feasibility study provides this type of high-level detailing to examine voltage limit violations, possible overloads, system requirements, and other aspects related to the electrical design of the system.

The grid connection request is a lengthy process that is frequently unpredictable and not transparent. This affects the length of time the project remains in the project development stage. For a better understanding of some of the data that are needed at this stage, our article on data-driven solutions to renewable energy failure provides some really helpful insights.

Tip #4: Encourage community participation and ownership from the early stages of the project

Community acceptance of onshore wind projects has gradually improved over the years, but there is still a long way to go. The reality is that while many people are in favor of low-carbon energy, they would prefer project developments anywhere else.

Noise issues caused by the rotating blades, environmental concerns, visual pollution, land restrictions, and the obstruction of migratory birds by wind turbine blades are some of the common concerns voiced by opponents. It makes sense to address all concerns through frequent community-focused meetings from early on in the project, being transparent about specific project details and understanding that a commercial developer is and will always be seen as an outsider. Contrary to community-owned wind energy projects that are met with less resistence, outside developers have to wear many hats to win trust. In the absence of a government incentives to support community involvement, targeted efforts to promote transparency and inclusion should be embraced, with a clear plan and timeline for information sharing.

Bringing it all home

Bringing a wind energy plant to life involves more than installing it in a wind-rich area. Knowing the intricacies of the project lifecycle stages and the contractual obligations with different participants requires a thorough study and continuous refinement to adjust for deviations in requirements and project design. This ensures not only technical feasibility but also the bankability of the project.

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