Research: Managing Wind Farms In Markets With Volatile Energy Income

Windfarm profitability challenges prompt a study identifying causes and proposing measures. Over-optimistic forecasts and market volatility are key issues. Active ownership and cost reduction strategies are recommended for improved profitability.

Challenges

Windfarm owners are struggling to keep their windfarms profitable in markets like Sweden, where revenues from renewable energy have dropped significantly in recent years and where windfarm revenues are exposed to the volatility of the energy market prices.

The objective of the study was to identify the reasons why windfarms have ended up in distress and discuss and propose economic, technical and managerial measures to avoid ending up in distress or to turn the windfarm back into profitability.

Key findings

Two key findings regarding the cause was that some markets, like Sweden and Norway, have had the lowest energy prices in the EU while having no fixed tariffs for wind power. In addition, pre-construction pricing forecasts were much too optimistic.

Strategies

Several measures are recommended to both increase revenue and reduce costs to return to profitability, with the best results achieved by owners who take an active ownership role. Passive owners need to become more active and challenge their service providers continuously, e.g. with regular competitive tender initiatives or re-negotiations of existing contracts (up to 22% price reductions achieved).

Other markets, where windfarm owners are still less cost sensitive (due to higher tariffs and/or guaranteed income streams), will likely end up in a similar situation as support schemes in place now are further suspended.

Additional Information

This study was the Diploma thesis for the University of St. Gallen, Executive Diploma Programme in Renewable Energy Management (REM-HSG), for which Thilo Langfeldt was awarded the 2017/18 REM-HSG Best Thesis Award.

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Managing Windfarms in Volatile Energy Income Markets