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Wind power: cost reduction challenges are creating great angel investment opportunities

06 March 2019

Photo by Rabih Shasha on Unsplash

Sometimes, it seems as if the decarbonisation of power generation is so well advanced, notably in a country like the UK, that we can all sit back and relax – or rather, focus on other pressing priorities.

However, with global carbon emissions continuing to rise to new records and the impacts of climate change becoming ever more menacingly obvious, urgent action is needed – and no stone must be left unturned. Anything that can accelerate the transition to zero carbon energy must be done.

In this article, we focus on large scale wind power. Installed capacity is growing fast globally, fuelled by ever more competitive costs. In a fast-growing list of countries, deploying onshore wind power is now cheaper than fossil fuel-based electricity.

If we are to entirely decarbonise electricity over the coming decades, as we must, wind power has an essential role to play, alongside solar, and investments in new wind capacity must accelerate. Further reductions in the cost of wind power are essential to motivate large utilities and infrastructure funds to increase their investments in the sector.

This is particularly true in offshore wind, which has massive growth potential but where more work remains to be done to ‘ride the cost curve down’ – and making offshore wind more competitive requires efforts on many different fronts, including cutting the costs of the many components of the turbines but also improving the overall efficiency of wind farms and optimising the operations and maintenance costs.

For us, at Green Angel Syndicate, each of these challenges represents an opportunity to invest in innovative companies bringing solutions to the table.

This is the occasion to showcase two companies in which we have invested over the past year, helping to deliver such game changing improvements: GreenSpur, with its disruptive generator technology; and Rovco, tackling the offshore operations and maintenance costs.

We see a great variety of opportunities in this growing market, and we are continually on the lookout for more such innovations that will help achieve the world’s decarbonisation targets whilst delivering fantastic returns for early stage investors.

This vision is also one of the key reasons why, since 2018, Green Angel Syndicate has partnered with Offshore Renewable Energy Catapult in delivering a programme linking innovators, potential investors and clients.

Urgent action needed – Leave no stone unturned

Extreme weather events are becoming more common around the world, from hellish forest fires to record-breaking tropical storms, calamitous droughts and deadly floods – and scientists tell us that this is just a glimpse of the expected impacts of global warming, as greenhouse gas concentrations are continuing to grow unabated, reaching record levels in 2018.

To stand a chance of the global average temperature not increasing by more than 1.5°C above pre-industrial levels, the time has passed to ask which emissions we should tackle first. We need to tackle them all, as quickly as possible. The burning of coal and gas to generate electricity is one of the largest sources of CO2 emissions globally and so, the transition to renewable energy is, as ever, central to tackling climate change.

Global carbon emissions in 2018 are set to hit an all-time high of 37bn tonnes

Source: The Guardian, Dec 2018

Wind power – Already so big…

Power generation from the wind is not a new thing, and wind turbine technology is in many ways a mature sector. Rolling out wind turbines relies on billion-dollar projects involving massive orders to large industrial corporations, financed by big banks and infrastructure funds – and angel investors have no role to play in that. These large investments are happening: the installed wind power capacity reached 539GW by the end of 2017, almost doubling over the past five years.

Wind Power Global Capacity and Annual Additions, 2007-2017

Source: REN21, Renewables 2018 Global Status Report

In advanced countries like the UK, wind farms have moved from a niche source of electricity a decade ago to a cornerstone of the power mix, standing for c.15% of supply last year. And at times, the share of wind is already surpassing a third of electricity generation in the UK: the chart below shows live data on UK electricity generation as captured on 8 February 2019, a particularly windy day.

On a windy day, 34% of UK electricity coming from the wind

Source: MyGridGB Live Data (8 February 2019, 11am)

…but still so little

However, to tell the truth, renewable energy is still in its infancy, representing just slightly more than a quarter of global electricity production, with wind power at around 5%.

It is therefore no surprise that, under all scenarios looking at how to achieve the necessary cuts in greenhouse gas emissions, enormous growth in wind power capacity is needed. For example, IRENA expects onshore and offshore wind to contribute to 36% of global power generation by 2050, implying a multi-fold increase in installed capacity over the coming decades.

The rising importance of solar and wind energy in the power sector

Source: IRENA, 2018, ‘Global Energy Transformation, A Roadmap to 2050’

Costs are falling, and must continue to do so…

For the pace of installations to accelerate as much as is required, one key ingredient is for the wind sector to continue leading the way in terms of cost competitiveness, making its economic case more and more compelling to energy utilities and infrastructure investors as time goes by.

The ‘levelised cost of energy’ (LCOE) for wind generation has already dropped dramatically over the past decade – falling from an estimated $135/MWh in 2009 to $42/MWh in 2018, according to Lazard.

Estimated ‘levelised cost of energy’ (LCOE) for wind generation, 2009-2018

Source: Lazard Levelized Cost of Energy 2018

…in particular in offshore wind

Offshore wind power is still a niche compared to onshore, with installed capacity growing but still standing for less than 5% of global wind capacity.

Offshore Wind Power Capacity By Region

Source: REN21

A key reason for this is that the costs are much higher, with an LCOE estimated at $140/MWh in 2017. This reflects the fact that offshore wind faces unique challenges related to working at sea, leading to higher construction and operation costs – both higher capex and opex. Key elements of the cost structure which are higher at sea include: 1) the foundation and support of the wind turbine; 2) the construction and installation; and 3) the transmission system.

Total installed cost breakdown for a representative offshore wind farm in European waters, 2015

Source: Irena, The Power to Change: Solar and Wind Cost Reduction Potential to 2025

However, there are also some clear advantages in working at sea, with average wind speeds higher than those on land, and fewer obstacles which can cause turbulence – so offshore wind power could theoretically be more efficient than onshore wind power.

Cost reduction opportunities are great angel investment opportunities

The LCOE of offshore wind is falling quickly – with some power purchase agreement prices for installation in 2021-2022 down to $60/MW – and this reflects the efforts made by players all along the value chain to improve the competitiveness of offshore wind.

These efforts includes improving the yield of wind farms (i.e. the capacity factor), which enables the installed capacity to deliver ‘more bang for their buck’; another one is simply to achieve reductions in the cost of each component of a wind power project – including the capital cost of the installed turbines; and the operations and maintenance cost of the wind farm once it’s installed.

For us at Green Angel Syndicate, each of these challenges is an opportunity to invest in innovative companies trying to bring solutions.

We have already started investing in companies which help delivering such improvements – for example GreenSpur, which brings disruptive generator technology; and Rovco, which has the potential to reduce offshore operations and maintenance costs. However, we see a great variety of opportunities in this growing market, and we are continually on the lookout for more such innovations.

GreenSpur – The innovative direct drive permanent magnet generator

As shown in the diagram below, the largest capex buckets for a wind turbine are the tower and the rotor blades – which can for example benefit from innovative lightweight materials or from new designs – but there are many other elements, including the gearbox and the generator, which together represent 16% of wind turbine capex according to IRENA.

Wind Turbine Cost Breakdown (5MW Offshore Wind Turbine)

Source: Irena, Renewable Energy Technologies: Cost Analysis Series, Wind Power

One example of a disruptive technology with the potential to make an impact in the design and cost of turbines is GreenSpur, a Southend-on-Sea-based company in which Green Angel Syndicate invested in 2018. The company has invented a new low-cost direct drive (gearless) permanent magnet generator, which bring three types of benefits:

  • Since its design is based on ferrite rather than any rare earth magnets, it can end the dependence of wind turbines generators on such scare and expensive resource. Each upcoming 10MW offshore wind turbine will need as much magnetic material as 3,000 electric cars – so the potential for a disruptive magnet technology is clearly there;
  • It overcomes several issues faced by manufacturers in scaling their generators to levels of 12MW and beyond – thanks to its modular design, its better mechanical tolerances and the fact that it needs less cooling;
  • Overall, GreenSpur estimates that it can deliver a reduction of one third in the generator-related capex.

GreenSpur’s innovative direct drive magnet generator

Source: GreenSpur

Rovco – Enabling more efficient operations & maintenance

n wind power, operations and maintenance (O&M) costs – the ongoing expenses such as wages and materials associated with operating and maintaining the facility, over the lifetime of the project – are a significant part of the total LCOE – typically 20% to 25% in current wind power systems.

Unsurprisingly, O&M costs for offshore wind farms are significantly higher than for onshore wind farms. Each case might be specific, but we estimate that they can typically exceed $30/MWh.
Such high offshore costs reflect the complexity and time needed to access the facilities and to conduct maintenance on the turbines, cabling and towers, above the sea surface and underneath it – and this is all compounded by the harsh marine environment, which can lead to higher failure rates for some components.

Reducing O&M costs for offshore wind farms is therefore a key challenge, and one that will help improve the economics of offshore wind. Many opportunities have been highlighted by specialists, but a key area is in the quality and cost of monitoring of wind turbines – enabling intervention when needed rather than at fixed time intervals; and doing this in a remote and automated way, for example using drones for blade and turbine inspections, can theoretically be even more efficient.

Source: Rovco

Almost a year ago, Green Angel Syndicate invested in Rovco, a company addressing exactly this opportunity, but underwater. Rovco is a subsea robotics business offering an end-to-end solution for underwater visual 3D data capture, in real time. Its aim is to revolutionise subsea survey with autonomous underwater vehicles and artificial intelligence-powered data collection.

One of its two key target markets is offshore wind farms, where underwater inspection missions currently require extensive teams and large, polluting vessels, and are very costly. With Rovco’s technology, the wind farm operators can get better quality surveys at a fraction of the cost.

Since then, Rovco has attracted a strategic investment from Global Marine, a leader in offshore engineering, and the two companies are now working together to deliver innovative subsea services, further accelerating Rovco’s impact in the market.

GreenSpur and Rovco are just two examples of companies developing technologies that will contribute to making wind power, in particular offshore wind, even more competitive over the coming years.

At Green Angel Syndicate, we see a great variety of opportunities in this growing market, so we remain very much on the lookout for more such innovations that will help achieve the world’s decarbonisation targets whilst delivering fantastic returns for early stage investors.