Market Demand for Small Wind Turbinesoshatz/windsail/gec/Task1 report_M… · Web viewThis report assesses the market demand potential for small electric power generating wind turbines

Market, Cost, and Technical Analysis of Vertical and Horizontal Axis Wind

Turbines

Task #1: Market Demand for Small Wind

May 2003

Prepared for:

Lawrence Berkeley National LaboratoryBerkeley, California 94701

Subcontract #6703903

Principal InvestigatorsLawrence Schienbein

Eli Reich

Prepared by:

Global Energy Concepts, LLC5729 Lakeview Drive NE, Suite 100

Kirkland, Washington 98033Phone: (425) 822-9008

Fax: (425) 822-9022www.globalenergyconcepts.com

Market, Cost, and Technical Analysis of Vertical and Horizontal Axis Wind TurbinesTask #1: Market Demand for Small Wind Turbines Final

Table of Contents

1.0 Introduction..............................................................................................................1

1.1 Objectives..............................................................................................................11.2 Scope.....................................................................................................................2

2.0 Small Wind Turbine Market Barriers and Proposed Policies and Programs to Encourage Development...................................................................................2

2.1 Overview of the Developing World and Developed World Market Sectors and the Market Barriers............................................................................................2

2.2 Historic Barriers....................................................................................................32.3 Proposed Policies and Programs...........................................................................5

2.3.1 Government Incentives 52.3.2 Codes and Standards 6

3.0 Availability of Small Wind Turbine Market Information.................................6

3.1 Factors Limiting Availability of Market Information...........................................6

4.0 Cost/Demand Relationship for Small Wind Turbine Generators.....................7

4.1 Market Sector Overview.......................................................................................84.2 Cost/Demand Relationship for Small Grid-Connected Wind Turbines................8

4.2.1 Effect of Subsidies in the Developed Countries Grid-Connected Market12

4.2.2 Grid-Connected Small Wind Turbine Price Point 134.2.3 Comments on Market Size Limits 144.2.4 Estimated Cost/Demand Relationship for Small Grid-Connected Wind Turbines 14

4.3 Off-Grid Market..................................................................................................164.3.1 Market Characteristics 164.3.2 Diesel Generator Competition 184.3.3 Estimated Cost/Demand Relationship for Small Off-Grid Wind Turbines

19

5.0 Small Wind Turbine Market Size......................................................................21

6.0 Market Demand as a Function of Generator Size............................................22

7.0 Conclusions and Recommendations...................................................................23

8.0 References..............................................................................................................24

Global Energy Concepts, LLC i May 2003


List of Figures

Figure 1. Small Wind Turbines Installed on Tall Towers in a Rural (Synergy Power Corporation) and an Industrial Urban Setting (Bergey).................................................................................5

Figure 2. Manufacturing capacity versus weighted average direct costs for PV module manufacturing based on data from thirteen 2001 doe industrial participants with active production lines (NREL)..........................................................................................................9

Figure 3. Actual (1970-92) and projected (1993-2015) costs of PV module (The World Bank)..10Figure 4. Worldwide PV module shipments vs. price from 1975 to 1999 (Maycock)..................11Figure 5. Unit sales of small wind turbines versus payback period (Bergey)...............................13Figure 6. Estimated Cost/Demand Relationship for 3 kW Rated Wind Turbines in the Grid

Connected “Net Metering” Market for Next 15 Years...........................................................15Figure 7. Worldwide Annual Diesel Generator Sales by Generator Size......................................19Figure 8. Estimated Cost/Demand Relationship for 3 kW Rated Wind Turbines in the Off-Grid

Market for Next 15 Years.......................................................................................................21Figure 9. PV Market According to Size of Installation.................................................................23

List of Tables

Table 1. Worldwide PV Shipments from 1975 to 1999 (Maycock)..............................................11Table 2. Net Metering Price and Market Demand Estimates........................................................14Table 3. Grid Connected “Net Metering” Market Demand Versus Installed Cost........................15Table 4. Results of the Economic Analysis of Small Renewable Energy Systems for Four

Counties in Mongolia (Byrne, Shen and Wallace).................................................................18Table 5. Delivered Fuel Cost and Market Demand Estimates.......................................................20Table 6. Off-Grid Market Demand Versus Installed Cost.............................................................20Table 7. Worldwide Installed PV Capacity (MW) by End Use (or installation size)....................22Table 8. Worldwide Annual Sales of Small Diesel Generators by Size........................................23

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1.0 Introduction1.1 ObjectivesThis report assesses the market demand potential for small electric power generating wind turbines in the size range up to about 10 kW. A key objective was to develop a demand curve (market as a function of the effective cost to, or effective price paid by, the ultimate owner) for small wind turbines with particular emphasis on identifying the location of the “knee” of the curve, or “tipping point”; that is, the installed cost per rated power output value at which demand sharply increases.

Very little information is available regarding the size of the small wind turbine market and the market demand. Therefore, accurately estimating the size of each of the various market sectors for small wind turbines is difficult, and outside of the resources available for this part of the work. Furthermore market size and potential are covered in the Bolinger and Wiser report (Bolinger and Wiser 2002a).

Constructing a demand curve from the ground up (i.e., estimating the market volume in response to the cost of energy or the cost of electrification) is equally daunting. However, based on the available information and our understanding of the markets, we developed cost/demand relationships for the 3 kW rated wind turbine class for both the diesel/gas engine fuel displacement hybrid systems off-grid market and the grid connected “net metering” market. We also determined that considerable insight and possibly useful conclusions on small wind turbine market demand and the cost demand relationship could be achieved through an analysis and assessment of the main competing power technologies – solar photovoltaic (PV) and diesel engine generators – in addition to some limited information on the small wind turbine markets and demand versus cost forecasts.

While the list of potential competitors to small wind turbines includes fuel cells, micro gas turbines and small hydro, only diesel and PV were considered. The other potential competing technologies are either still in their infancy (and thus little information on demand or price is available) or have a very small market share as a result of being extraordinarily site specific (for example small hydro).

It is important to note that small wind systems can replace PV and diesel generators in some market sector applications (such as micro-sized off-grid battery charging systems) while in other applications small wind systems are most cost effective when working as part of hybrid systems that include PV and/or diesel (e.g., larger village power systems), sometimes along with battery energy storage.

The cost of the energy delivered by the power plant is the significant figure of merit for economic analyses. Thus our use of cost per installed capacity ($/kW) as the surrogate figure of merit (as a result of the common usage in data and literature available to us) must be interpreted cautiously. In cases where a wind turbine is substituted for a PV array, for example, the cost per installed capacity might often offer an accurate comparison since it can be assumed that, on average, the capacity factor for small wind

Global Energy Concepts, LLC 1 May 2003


turbines and PV systems will be about equal in some regions. However, the analysis of hybrid systems is often much more complicated, particularly when diesel generators or other combustion engine generators are involved. In some of these cases the cost/kW of the wind turbine alone will not drive the decision to include it in the hybrid system. Of course, the wind resource (“fuel” availability) is critical in all cases and this is discussed later in the report.

1.2 ScopeThis report considers the cost (current and forecast) and demand for the main competing technologies, describes how that information was used to reach some findings on the demand and cost/demand relationship for small wind turbines, and presents conclusions and recommendations. The main variables used are installed cost and rated generating capacity. The report also includes a review of the main market barriers and programs that have been recommended to overcome those barriers because these are important factors in the assessment of the demand/cost relationship.

2.0 Small Wind Turbine Market Barriers and Proposed Policies and Programs to Encourage Development

Bolinger and Wiser (2002a) have outlined and discussed the barriers to market growth in considerable detail. The main historic barriers and proposed policies and programs to encourage small wind energy system market penetration are reviewed briefly in this section because of their close relationship to the demand/cost behavior.

2.1 Overview of the Developing World and Developed World Market Sectors and the Market Barriers

The main differences between the “developing world” and “developed world” markets are described below (Reid 2001). These two main market sectors are discussed further in Section 3.0.

“Barriers to successful implementation of renewables in the developing world are lack of transport, infrastructure and education/knowledge. Many small wind turbine manufacturers see overcoming these barriers as the key to unlocking developing world markets. A new breed of energy service companies offers one route to bridge the gap between technology providers and electricity customers. These specialist companies will arrange project finance, collect local payments, deliver the technology along with local training and maintenance and ensure long term success.

Developed world presents a different market opportunity and requires a very different approach. One approach which would help the small wind industry immeasurably would be to follow the example of Denmark’s wind export industry. Active measures to encourage an indigenous industry developed a strong home market and a technology advantage which continues to bear fruit today. Small wind manufacturers across the globe need the same opportunity to develop high quality products at reasonable volumes in their home markets to enable them to penetrate into the developing world market. In practice, small wind has received little or no support compared with other renewable energy



sectors. How can a technology that offers small scale energy generation many times cheaper than PV be overlooked in this way? One of the key potential growth areas reported by manufacturers is the grid connected market in developed countries. The fly in the ointment is the difficulty of obtaining permission and a decent purchase price for exported energy from electricity companies.”

2.2 Historic Barriers Resource assessment data are inadequate for the needs of small, dispersed wind

power generation. A key contributor to this is a consequence of the wind resource being intermittent, site-specific and unevenly distributed (much more so than the direct solar resource). At the same time, reliable wind resource characterization is absolutely essential to the investment decisions. Substantial up-front investments must therefore be made in national, regional and local wind resource assessments. This is akin to the often large capital investments required to prove the potential of a promising oil field or coal deposit, for example. (In many cases a site-specific solar resource assessment is virtually free since data can be readily extrapolated from data gathered at local or regional solar insolation recording stations. This is rarely the case for a wind resource assessment.) Thus the resource assessment cost/kW of installed small wind turbine capacity is generally very large compared to that of comparable solar photovoltaic systems. Of course, for engine-driven generators, no resource assessment is required.

Turbine suppliers and distributors depend heavily on national governments and international agencies to complete national, regional and local assessments before deciding to enter promising regional markets. Furthermore, most national and regional assessments appear to have focused on identifying a handful of promising sites for large-scale wind farm installations rather than assessing the potential for numerous small and dispersed wind turbines. Thus small wind power systems have to date only found niches in each of the market sub sectors (sometimes niche locations where financial incentives are so high that the importance of site-specific resource assessment is quite secondary). Sales have experienced markedly slow or modest growth when compared to that of PV power systems and the boom of the large wind turbine market (>1MW).

Low manufacturing volumes and lack of significant or any public funding results in high effective costs. For example Bergey (Gipe 1995) estimated that the factory net price for the Bergey Excel (10 kW rated, turbine only) in 1992 dollars for a production volume of 4000 units would be about 25% lower than the net price at the then current production rate of less than 400 units.

Small wind turbine market penetration today depends on successfully connecting a well characterized wind resource, a use for the power, and an interested individual buyer or buying group (such as a rural or village co-op) with an attractive and viable, but often very complex, financing proposal that depends heavily on some combination of government subsidies, tax credits, tax deductions, rebates, net metering program, etc. (Of course, small PV sales face the same problem.) Thus the



small wind turbine sales process is time consuming and costly on a per customer and per kW basis. It appears to be somewhat like selling life insurance but without the huge sales volumes and margins that more than offset the relatively high cost of sales. Just as in selling life insurance, turbine distributors may invest considerable time and money in “working prospects” only to find, for example, that some buyers are not eligible for some incentives and unable to afford the small turbine power system while others may become disinterested in investing further time to understand the financing plan and to evaluate the risks. Furthermore government financial incentives for small renewable power sources can be short-lived, resulting in a “start and stop” sales environment that does not support substantial private investment in turbine technology development; high-volume manufacturing; and marketing, distribution and after sales support network stability and expansion.

Small wind power has been upstaged by other renewable technologies, and particularly by utility-scale wind power (“wind farms”).

There are height restrictions on towers in residential areas and the NIMBY attitude. Figure 1 shows two small wind turbines, each mounted on a tower of sufficient height so that the turbine is well clear of the influence of the surrounding buildings and trees. The tower height shown for the urban industrial location is much higher than most local government codes permit.

Grid interconnection requirements and costs can be prohibitive.

Hidden costs associated with current power generators, such as diesel, in some markets reduce the economic incentive to install small wind power systems.

Public awareness is low.



Figure 1. Small Wind Turbines Installed on Tall Towers in a Rural (Synergy Power Corporation) and an Industrial Urban Setting (Bergey)

2.3 Proposed Policies and Programs

2.3.1 Government IncentivesIn the United States, often cited as the most promising market in the developed world for small, grid-connected wind turbines, the small wind turbine industry has slipped “under the radar” of the main national incentive program, the Production Tax Credit. Thus, sellers of small turbines intended for grid connection depend on a patchwork of state and local incentives, including net metering, perhaps the most familiar incentive. In addition, utility-imposed grid interconnection fees still represent a key impediment to market growth. There are several types of possible government support:

Buy-down, rebate and grant programs – applicable to the grid-connected and off-grid markets

Production tax credits – applicable to the grid-connected and off-grid markets Sales and property tax exemption – applicable to the grid-connected and off-grid

markets Net metering (imposed on utilities, usually) with annual “banking” period –

applicable to the grid-connected market.

A recent paper (Yaxas et al. 2002) highlights the impact of inadequate incentives on the market demand for small wind turbines. They reported an estimated 970 small wind turbines in Greece (up to 5 kW capacity) but noted that given the current conditions (which might be termed “business as usual”), only 700 new small turbines were expected to be installed within the next five years (approximately 2002-2007). At the same time



they reported many remote consumers without access to grid power, relying on internal combustion engines using expensive imported diesel oil. It is also significant that most of the systems now installed are hybrids with PV and/or diesel engines and most include battery storage. Of the 15 companies that responded to a questionnaire, 80% believed that the “legislative framework” in Greece did not provide adequate incentives for the deployment of small wind turbines. The authors concluded, “that in order to develop the market and create the need for new applications the permit acquiring procedures and the terms for autoproducers should be reconsidered. Solutions should be sought for the financing of systems in order to make them more attractive to the possible buyers.” This theme is repeated in many other reports and papers.

The peril of uncertain government incentives was highlighted by the recent decision in Australia to place an approximately $60,000 (A$100,000) monthly cap on subsidies for roof-mounted PV panels (re-gen 2003). The cap also places a limit on the number of new household installations to only 14 per month for the entire country. Applications for subsidies had peaked at 99 in January 2003. Under the subsidy program, the Australian government had been offering rebates of US $2.98/W up to a maximum of $4,470 per household.

2.3.2 Codes and Standards Reasonable grid interconnection standards – applicable to the grid-connected market. Model municipal zoning ordinances that treat small wind power fairly and that can be

considered and adopted by local jurisdictions that have no experience with the technology. Mostly applicable to the grid-connected market.

3.0 Availability of Small Wind Turbine Market Information 3.1 Factors Limiting Availability of Market InformationSeveral factors appear to greatly limit the availability of small wind turbine market information.

1. Because the small wind turbine industry is limited, it has no well-established and influential trade associations that speak consistently and assertively for it. (Reid reports that year 2000 combined sales for 10 major small wind turbine manufacturers were roughly only £10 million (US$16 million). Bolinger and Wiser estimate current shipments of 30 MW per year). However, the large wind turbine (“utility-scale”) industry group is well represented, having reached and exceeded the “critical mass” to become a well-recognized segment of the electric power generating industry. Annual sales of large wind turbines now exceed $7 billion, ensuring that many trade associations, government agencies, trade publications, consulting firms, investment research firms, etc., now closely track large turbine sales, market trends, and market forecasts, publishing data regularly and in considerable detail. Fairly ready access to these data is aided by the fact that many of the largest wind turbine manufacturers are public companies.



Contrast the preceding with the fact that sales and market-specific information for small wind turbines can only be gleaned from those manufacturers and distributors that are willing to share that information. Small wind turbine manufacturers in the size range of interest are themselves small and mostly privately held companies that are fiercely competing for a portion of a very small total market. (Reid reports that based on a survey of the ten major small wind turbine manufacturers, small turbine manufacturers averaged only 20 employees with a maximum of 60.) Manufacturers questioned during the course of this research were usually hesitant to share sales information. Most presumably have little time and see little value in taking the time to assemble and offer this information.

It is also noteworthy that large multinational companies have yet to enter the small wind turbine arena. In contrast, PV manufacturing is now dominated by large companies, most of them having worldwide distribution channels. The lack of participation by large firms could stymie the growth of the small wind power industry. 2. There is not one market for small wind turbines, rather two main market sectors and

several sub sectors that have unique characteristics and requirements. These sectors and sub sectors include: Developed Countries , including the residential grid connected, off-grid residential

and commercial, off-grid recreational, and off-grid high reliability power sub sectors.

Developing Countries , including off-grid residential and commercial, off-grid portable micro power, village hybrid power, and water pumping sub sectors.

The range of turbine sizes within the small wind turbine market arena is often considered to be from 100 W (so-called “micro” wind turbines) to about 250 kW. Micro wind turbines are ideal portable power sources for battery charging, evidenced by the thousands of units sold annually in China, for example. The upper limit of the size range has likely been determined in the last few years by the availability of low-cost, refurbished, first- and second-generation utility-scale wind turbines. These can be readily purchased and installed at a cost that makes them very competitive for individual rural grid-connected wind power generation in the U.S. These “larger” small wind turbines are also attractive for the typically large (multi-megawatt scale) wind-diesel systems serving remote communities in Alaska and northern Canada, for example.

3. Most of the market sub sectors for small wind turbines have been only superficially penetrated and thus very little market information exists. Two notable exceptions may be the markets for wind turbines for battery charging for recreational vehicles, such as boats, and wind turbines for charging batteries for very remote high reliability power supply systems, such as those powering telecommunications installations.

4.0 Cost/Demand Relationship for Small Wind Turbine Generators

The discussion below is focused on identifying the probable cost/demand relationship for small electric power producing wind turbine generators in the two major market sub sectors – residential grid connected and residential off-grid (or “utility independent”).



4.1 Market Sector OverviewIn the developed countries market sector, residential grid-connected wind turbines typically have ratings of about 1 to 10 kW and the market in this sub sector is driven by the effective cost to the buyer and user. As a general rule, buyers in developed countries seek a simple pay-back term of no longer than 5 years. Furthermore they do not need the wind turbine to ensure a reliable supply of high-quality electric power. The market for off-grid small wind turbines in developed countries is believed to be very small compared to the market potential for off-grid systems in developing countries. The off-grid market in developed countries appears to be limited to a few rural homes (where the cost of connection to the grid is prohibitive), remote commercial and industrial installations (such as cell phone transmitter sites) and recreational homes, vehicles and boats.

In the developing countries off-grid market sector, wind turbines usually have ratings well below 1 kW, typically 100 to 600 W. In this market, wind turbines and wind hybrid systems (comprising, for example, a wind turbine, a small PV array, batteries, a controller and the necessary power converters) are often a more cost-effective option than engine-generator delivered electric power or are the only option for the supply of electricity. The price per kW of installed capacity that buyers in the respective markets are prepared to pay and the price point at which the demand rapidly increases can be expected to differ greatly. Where engine generator units are displaced or combined with wind as hybrid systems, the delivered price of fuel and the efficiency of the engine generator drive the price point for the wind turbine. In short, wind turbines compete mainly on the basis of the cost of fuel and the engine efficiency, not on the basis of capital and operating cost, since small engine generators are still roughly offered at about 1/3 to 1/6 the price of small wind turbine generators of the same rated power.

Most non grid-connected consumers who would benefit from small PV or wind power generation live in undeveloped countries where both credit and liquid assets are in short supply. Of the 1.6 billion people worldwide without access to electricity, roughly 80% live in South Asia or sub-Saharan Africa and live on less than $2 per day (World Energy Outlook 2003). Though need for small generation is extremely large, the market demand (willingness to buy) does not keep pace. Also this market demands micro power generators in roughly the 45 W size range, as shown in Table 3.

4.2 Cost/Demand Relationship for Small Grid-Connected Wind TurbinesThe best guide to the relationship between installed cost and demand for small wind turbine systems for the grid-connected market sub sector is that of PV modules. PV modules (a component of a PV power generating system) are offered today to buyers at prices in the range of about $4/W to $8/W, somewhat higher than the price of complete small wind turbine generating systems. However, published projections show that PV module costs will continue to fall. Therefore small wind turbine manufacturers must respond not only to today’s PV system prices but also to the strong possibility that PV module prices could fall by about 50% or more within the next 4 to 7 years.



For example, NREL’s PV Module Manufacturing Program (NREL 2003) projects that the cost of manufacturing a PV module could drop to $1/Wp by 2007, but with a very definite leveling out of cost beginning around 2005. Similar projections by Kulsum Ahmed (The World Bank 1996) appear to be far more aggressive, indicating that module costs (believed to be the price for the buyer in this instance) could drop to $1/Wp to $2/Wp by about 2005, with a trend to the cost leveling out starting around 2005 (similar to that shown by NREL). These historical data and projections are shown graphically in Figures 2 and 3.

Figure 2. Manufacturing capacity versus weighted average direct costs for PV module manufacturing based on data from thirteen 2001 doe industrial participants with active

production lines (NREL)



Figure 3. Actual (1970-92) and projected (1993-2015) costs of PV module (The World Bank)

Data collected in a world PV market assessment (Maycock 1999) illustrate that at module prices of about $4/W, sales began to increase dramatically, as shown in Figure 4 and Table 1.



Shipments vs Price

0

50

100

150

200

250

0 5 10 15 20 25 30 35

Price ($/Watt)

Ship

men

ts (M

W)

Figure 4. Worldwide PV module shipments vs. price from 1975 to 1999 (Maycock)

Table 1. Worldwide PV Shipments from 1975 to 1999 (Maycock)

YearPrice $/watt

MW Shipped Worldwide

1975 30 21976 25 21977 20 2.251978 15 2.51979 13 41980 12 6.51981 10 7.751982 9 121983 7.75 201984 7 221985 6.5 261986 5 281987 4 291988 3.75 341989 4.25 401990 4.75 471991 4.5 551992 4.25 601993 4.25 601994 4 701995 3.75 801996 4 891997 4.15 1261998 4 1531999 3.75 201



The prices (costs to the buyer) shown are for PV modules themselves, which are only a part of the complete PV power generating system. The installed cost of a PV power system is usually about two times the cost of the modules. The additional costs are termed balance-of-system (BOS) costs and include the costs of the controllers, inverters, batteries, supporting frames, electrical conductor, and other labor. The experience curves for the BOS components roughly follow those of PV modules over time (Maycock 1999). Accordingly, the trends in the installed cost for PV systems can be estimated fairly reliably knowing the relationship between module prices and BOS prices.

The demand price relationship can be interpreted indirectly from Figure 4. Multiplying the module price by a factor of two gives a good estimate of installed cost. The installed cost of PV systems near the inflection point, or “knee,” of the curve would then be two times $4/W, or $8/W.

4.2.1 Effect of Subsidies in the Developed Countries Grid-Connected Market

Care must be exercised when interpreting Figure 4 to give an exact price point for the “knee” of the curve due to the fact that the effect of incentive programs is embedded. That is, the real cost to the buyer is substantially lower than the price realized by the PV module supplier, which is represented in Figure 4. For example, one of the most significant incentive programs, called New Sunshine, was instituted by Japan in 1994. It was responsible for rapid growth in the Japanese PV market. This program offered rebates up to 50% to residential grid-connected customers (Bolinger and Wiser 2002b), and rebates up to 67% to commercial grid-connected customers (Greenpeace). Clearly a portion of the explosive growth in PV module shipments is the result of these programs. The German “100,000 Solar Roofs” program is the biggest incentive program in Europe, consisting of attractive loans (1.91% interest rate in 2002) for amounts up to 6228 Euro per peak kW (or “kWp”) for systems up to 5 kWp and 3115 Euros per kWp for larger systems (33% growth). In addition, the power purchase price in 2003 is 45.7 Euro cents per exported kWh. (EuroObserver 2003).

The modified pricing (from the owner’s perspective) therefore changes the interpretation of Figure 4 by effectively shifting the entire curve to the left. Thus the real “knee” as seen by the Japanese buyer is between $2.68/W and $4/W installed, taking the Japanese 50% to 67% rebate into account. It must be noted that a significant increase in sales in Japan occurred already in 1988, before this incentive program was in place, so the rapid increase in sales was not entirely the result of the incentive. However, to be conservative, we believe that the range of $2.68 to $4/W without incentives should be used as the range of the “knee” of the demand curve. Note also that this price demand relationship applies to grid-connected power generating units and that market sub sector and therefore its extrapolation to wind turbines also implies the grid-connected mode. (Since 1999, the time of the last data points presented in Figure 4, PV module prices have decreased only slightly (Solar Module Price Environment) while at the same time PV module manufacturing costs have decreased by roughly 30 to 40%.)



4.2.2 Grid-Connected Small Wind Turbine Price PointIt can be concluded that the installed price of a grid-connected small wind turbine must be on the order of $2.68/W to $4/W, without incentives, in order to capture a share of the incentive-based PV grid-connected market. Commercial small wind turbines are already available in this price range but sales have been modest, at best. This is possibly largely due to differences in capacity increments and difficulties in siting wind turbines in urban and suburban areas. PV arrays can be purchased in very small increments, allowing the $4/W cost to be applied to an initial installation of 100W, for example, followed by 100W increments to be added later, if desired, at roughly the same cost per unit of capacity. Wind turbines do not lend themselves to modular incremental increases in capacity. Furthermore, local approvals for PV arrays are usually far easier to obtain than those for wind turbines because of the visibility (visual “intrusion” of a turbine and tall tower), the perceived risk, and the concerns about noise. The extra costs, energy and time required to fight permitting “battles” can deter interested wind turbine buyers.

The preceding suggests that small wind turbine system prices must be less than PV system prices for a pronounced ramp up in wind turbine sales in the grid-connected sub sector. The degree to which the installed cost of small wind turbines must undercut that of PV is difficult to estimate. The American Wind Energy Association (AWEA) suggests that the industry hopes to reduce the installed cost of small residential wind turbines to between $1.20 and $1.80 per Watt by 2020, resulting in life cycle cost of energy (based on 30 years) of between $0.04 and $0.05/kWh. We believe that at that cost, small residential wind would be competitive with all alternatives. Thus, it can be further concluded that at an installed cost of about $1.80/W, the demand for small residential wind turbines should increase even more sharply.

Bergey shows a similar demand price relationship to that shown in Figure 4 in which “price” is replaced by payback period. A very similar surge in demand (the “tipping point”) to that shown in Figure 4 occurs starting at about a payback period of six years (Figure 5). The basis of Bergey’s curve could not be determined; however, it is interesting to note that the price point is consistent with the developed country buyer’s five-year payback expectation previously discussed.

Figure 5. Unit sales of small wind turbines versus payback period (Bergey)



4.2.3 Comments on Market Size LimitsThe results of a 1981 report assessing the near-term high potential counties in the United States for small wind energy conversion systems (Arthur D. Little 1981) demonstrate the real limits of the market for small grid-connected wind turbines in a developed country, in this case a developed country having vast open spaces when compared to the countries of western Europe and Japan. That study, perhaps the most comprehensive of its kind at the time, determined that 17.8% of rural homes (3.8 million) and 28.5% of farms (377,000) nationwide are located in counties with comparatively high SWECS (small wind energy conversion system) potential. The study methodology included analyses of wind resources; turbine cost and performance data; federal, state and county financial incentives; utility net metering; utility interconnection costs; energy end use and climate effects. Although much of the input data have changed since 1981 (due to continuously evolving financial incentives, for example) and the assessment could be done today with more precision (for example, detailed wind resource maps now exist for many states), it seems reasonable to conclude that estimated percentage of rural home and farms having SWECS potential today could be close to the numbers determined in the Arthur D. Little study.

4.2.4 Estimated Cost/Demand Relationship for Small Grid-Connected Wind Turbines

Based on the information assessed and our understanding of the market for small grid-connected wind turbines, we developed a cost/demand relationship for the 3 kW rated wind turbine class operating in the “net metering” mode. The relationship is based on the following assumptions:

All of the electrical energy delivered by the wind turbine system is sold at the net metering price. That is, all of the energy is used by the owner to reduce his purchases from the utility or sold back to the utility at the same rate.

The demand to purchase a turbine is determined by a simple 5 year payback requirement.

Constant dollars, no inflation and no price escalation. The average wind turbine generator capacity factor is 0.2 on a worldwide basis. Total demand for the next 15 years is estimated to be 2.5 million wind turbine

generator systems, worldwide. The “cost” shown in Tables 2 and 3 is the price paid by the ultimate owner of the

turbine (completely installed) after all subsidies, tax benefits and so on. The total amount paid to the turbine supplier can be greater, depending on available subsidies, tax benefits and so on.

Table 2. Net Metering Price and Market Demand Estimates

Net MeteringPrice ($/kWh)

"5 Year Revenue" ($)

MaximumEffective InstalledCost ($/W)

Market Demand in Net Metering Price Range(number of WTGs)

0.06 1577 0.53 295,000



Net MeteringPrice ($/kWh)

"5 Year Revenue" ($)

MaximumEffective InstalledCost ($/W)

Market Demand in Net Metering Price Range(number of WTGs)

0.08 2102 0.70 400,0000.10 2628 0.88 500,0000.12 3154 1.05 700,0000.14 3679 1.23 450,0000.16 4205 1.40 150,000

2.00 5,000

Table 3. Grid Connected “Net Metering” Market Demand Versus Installed Cost

Installed Cost ($/W) Number of Turbines2.00 5,0001.40 155,0001.20 605,0001.00 1,305,0000.85 1,805,0000.70 2,205,0000.50 2,500,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

0.00 0.50 1.00 1.50 2.00 2.50Effective Installed Cost ($/W)

Num

ber o

f Win

d Tu

rbin

e G

ener

ator

s

Figure 6. Estimated Cost/Demand Relationship for 3 kW Rated Wind Turbines in the Grid Connected “Net Metering” Market for Next 15 Years



4.3 Off-Grid Market

4.3.1 Market CharacteristicsA recent paper (Byrne, Shen and Wallace 1998) demonstrates the strong competitive position of very small (micro) wind turbines and wind hybrid systems for off-grid power generation in selected regions of Mongolia. The authors state:

“the levelized costs of off-grid, house-scale renewable energy systems are cost-competitive with conventional gasoline sets-sets and PV/wind hybrid systems appear to be an economic means of providing year-round electricity service and meeting the rising energy demands of remote households in Inner Mongolia.”

Table 4 shows the results of their study, based on 41 households of herder families in four counties having operating experience of at least one year with small off-grid wind and PV systems. The results show that in the largest size range (roughly 350 to 500 W rated systems providing about 600 to 900 kWh/year) large hybrid systems offer significantly lower levelized electricity costs than gasoline engine generator sets. All of the systems shown include battery storage. The delivered cost for gasoline was $3.07/gallon ($0.75/liter).

When the actual battery field experience is incorporated into the analysis, the levelized cost increases substantially in most cases. Field experience showed that the selected batteries (locally made lead-acid) had a lifetime of only one year for wind and small hybrid systems (versus three years claimed by the manufacturer) and two years for PV and large hybrids (versus four years for PV only and five years for a large PV/wind hybrid system claimed by the manufacturer). However, researchers found that the households lack knowledge of the batteries and adequate training in their usage, resulting in improper utilization and maintenance and thus shorter lifetimes than those claimed by the manufacturer. While higher quality imported sealed batteries could greatly improve the situation, the extra cost would adversely affect the affordability.

The wind turbines analyzed are locally made, along with the charge controller, DC to AC inverters, and the batteries (as mentioned previously). The PV arrays are Chinese made and the gasoline engine generator units are imported from Japan.

The authors note,

“although it is not necessary to include an inverter, the prevalence of AC-powered appliances and lighting make this the most practical system configuration.”

Most families were reported to consume 300 Wh to 600 Wh per day, mainly for lighting and to power radios and small black and white TVs. When a small refrigerator is introduced, daily consumption rises to 1200 to 1600Wh. Only the higher rated wind turbine, generator set and hybrid systems are capable of supplying the latter load levels.



The paper highlights the fact that small wind turbines can compete as individual units (in place of PV and/or small engine generator units) and as part of hybrid systems. System aggregators, supplying developing country markets, will configure the most cost-effective systems based on the solar resource, wind resource, power system costs and fuel costs. The paper also highlights the critical role of inverters and charge controllers for the various hybrid systems. Hybrid systems for the off-grid market are generally configured as “battery node” systems where the charge controller regulates the charging and discharging of the battery bank and the inverter converts the regulated DC power to AC power. In some cases DC power is provided directly to the loads. Thus delivery of reliable power from the system depends critically on these two subsystems.



Table 4. Results of the Economic Analysis of Small Renewable Energy Systems for Four Counties in Mongolia (Byrne, Shen and Wallace)

System Configuration

Power Rating

Output Range (kWh/y)

System Total Capital Cost ($/W)

Levelized Cost Based on Manufacturer Quoted Battery Lifetime ($/kWh)

Levelized Cost Based on Battery Lifetime From Field Analysis ($/kWh)

Wind Only (Wind, Battery, Charge Controller, Inverter)

100W, 200W and 300W

200-640 1.70-2.78 0.24-0.37 0.50-0.63

PV Only (PV, Battery, Charge Controller, Inverter)

60Wp, 75, 85, 100 and 120Wp

120-240 7.39-7.55 0.67-0.73 0.77-0.83

Small Hybrids (Wind, PV, Battery, Charge Controller, Inverter)

35Wp-60Wp PV with 300W wind turbine

400-750 2.28-3.54 (covering both small and large hybrids)

0.31-0.46 0.57-0.72

Large Hybrids (Wind, PV, Battery, Charge Controller, Inverter)

100-120Wp PV with 300 W wind turbine.

560-870 2.28-2.54 (covering both large and small hybrids)

0.32-0.46 0.43-0.57

Generator Sets (no energy storage, not serving continuous duty cycle equipment)

450W and 500W

660-730 1.10-1.57 (covers both generator set categories)

0.76-0.80 0.76-0.80

Generator Sets (serving continuous duty cycle equipment, with energy storage, charge controller and inverter)

450W and 500W

480-560 1.10-1.57 (covers both generator set categories)

1.09-1.19 1.16-1.27

4.3.2 Diesel Generator CompetitionThe entrenched distributed generation technology most competitive in the world off-grid market is diesel generators. The current pre-eminent position is shown in data published by the Australian Greenhouse Office (Redding Energy Management 1999) for worldwide annual sales of remote area power supply systems (RAPS). The data show that diesel generator set sales alone totaled 1700 MW. PV sales were estimated to be 60 MW, while small wind turbines totaled only 5 MW. Note that these are sales for off-grid power generating systems covering the range from a few watts (typically battery charging PV) to roughly 15 kW (typically diesel engine generators). We believe that total diesel generator installed capacity by size could be the basis for estimating the “price point” and potential market penetration for small wind turbines in the off-grid market. Small wind turbines can displace some small diesel sales, particularly for battery charging, but, as stated previously, small wind turbines can also work in conjunction with diesel generator units as part of wind/diesel or even wind/diesel/PV hybrids. Because the off-grid market sub sector is multi-faceted when



compared to the grid-connected small power systems market sub sector, considerable further research and assessment of diesel generator sales, size distribution, applications, price and fuel cost information is required. The number of small diesel generator units installed annually for off-grid power generation approaches 1,000,000, several times the number of installations of either small wind or PV units for off-grid power. Diesel generator sales for engines less than 100 kW grow rapidly with size starting at about 10 kW; the larger the generator, the more capacity installed worldwide. However, even though dwarfed by sales in the 50 kW size range, about 600,000 to 700,000 diesel generators in the 1.5 kW size range for stationary electric power generation are sold annually.

Figure 7. Worldwide Annual Diesel Generator Sales by Generator Size

4.3.3 Estimated Cost/Demand Relationship for Small Off-Grid Wind Turbines

Based on the information assessed and our understanding of the market for small off-grid wind turbines, we developed a cost/demand relationship for the 3 kW rated wind turbine class operating in the diesel/gas engine fuel displacement hybrid systems mode for both battery charging and direct AC power supply configurations. The relationship is based on the following assumptions:

The wind turbine generator operates as part of a hybrid system that includes an internal combustion engine or operates as a replacement for an internal combustion engine. E.g., wind/diesel, wind/diesel/pv

The electrical energy delivered by the wind turbine system reduces the consumption of the fuel ("fuel saving mode").



The wind turbine generator or hybrid generator system charges a battery bank or supplies AC electricity directly to the load (s).

Demand to purchase the turbine is determined by a simple 5 year payback requirement.

Constant dollars, no inflation, no price escalation. Maximum gasoline or diesel fuel delivered price is less than about $1.50/liter Average IC Engine fuel to electrical energy efficiency is 2 kWh/liter. Losses

associated with energy storage are not considered. All wind generated electrical energy can be used. Total demand for the next 15 years is estimated to be 2,500,000 wind turbine

generator systems. Average wind turbine generator capacity factor is 0.2. The “cost” shown in Tables 5 and 6 is the price paid by the ultimate owner of the

turbine (completely installed) after all subsidies, tax benefits and so on. The total amount paid to the turbine supplier can be greater, depending on available subsidies, tax benefits and so on.

Table 4. Delivered Fuel Cost and Market Demand Estimates

Delivered Fuel Cost ($/liter)

Engine Generator Electricity Fuel Cost Component ($/kWh)

“5 year” revenue ($)

Maximum Effective Installed Cost ($/W)

Available Market in Fuel Price Range (number of WTGs)

0.20 0.10 2628 0.88 5,0000.40 0.20 5256 1.75 120,0000.60 0.30 7884 2.63 500,0000.80 0.40 10512 3.50 1,000,0001.00 0.50 13140 4.38 500,0001.20 0.60 15768 5.26 250,0001.40 0.70 18396 6.13 125,000

Table 5. Off-Grid Market Demand Versus Installed Cost

Installed Cost ($/W) Number of Turbines7.00 06.00 125,0005.00 375,0004.00 875,0003.00 1,875,0002.00 2,375,0001.00 2,495,0000.80 2,500,000



0

500000

1000000

1500000

2000000

2500000

3000000

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00

Effective Installed Cost ($/W)

Num

ber o

f Win

d Tu

rbin

e G

ener

ator

s

Figure 7. Estimated Cost/Demand Relationship for 3 kW Rated Wind Turbines in the Off-Grid Market for Next 15 Years

5.0 Small Wind Turbine Market SizeIn addition to competitive pricing information, the data in Table 1 also provide a starting point for an estimate of the expected current overall market size for small wind turbines.

We believe that a very conservative estimate of the current accessible small wind turbine market is 5% of the PV module deliveries today (about 500 MW/year) due to the permitting and wind resource availability issues discussed and the structure and size of the small wind turbine industry. This would place the total accessible market for small wind turbine installations per year at 25 MW, once the price point is reached. If small wind turbine sales increases track those of PV, annual sales increases of 10% to 25% are expected.

The breakdown of installed PV power in Japan as of December 31, 2001, as reported by the International Energy Agency (IEA) tends to support the 5% estimate. That report shows that off-grid installations totaled 69,580 kW while distributed grid-connected installations totaled 379,770 kW. Off-grid installations are 15% of the total. Japan might represent one extreme with respect to the ratio of off-grid to grid-connected opportunities for both wind and PV. Ignoring wind resource assessment issues, we might assume that wind cannot compete for most grid connected opportunities in Japan due to local permitting restrictions, leaving the off-grid market as the only opportunity for small wind



power in Japan – a total potential of 15% of the small systems market. Small wind cannot expect to capture that entire potential for the reasons already discussed. We believe that 1/3 or less of the 15% (5% or less of the total market) might be available to small wind power.

The Small Wind Turbine Industry Roadmap (AWEA) estimates that the total potential for small wind turbines in foreign countries alone will reach 211,800 MW (total installed capacity) by 2020. Assuming an initial market breakthrough to turbine deliveries of about 50 MW per year (currently thought to be about 30 MW per year), supplying the 211,800 MW by 2020 would require annual sales increases of slightly more than 50% starting in 2003. This rate of market growth is not realistic given the current structure and capacity of the small wind turbine manufacturing and systems aggregators industries. Growth rates of this magnitude have been forecast for the small home-sized fuel cell market, for example, but in that case the forecasts are premised on very high volume manufacturing by large and experienced manufacturers; mature and extensive sales, distribution and product support networks; and ready access to conventional consumer financing plans. Today’s small wind turbine industry is not in that league. However, the AWEA targets could be met if much larger companies, comparable to those now active in the utility scale wind turbine industry, enter the small wind turbine industry in the near future. This implies, not only the manufacturing, marketing, product distribution and product development “muscle” but also, in particular, the ability to bring the financing packages necessary to penetrate the developing country market sector.

6.0 Market Demand as a Function of Generator Size Small wind turbine demand as a function of generator size can be estimated using PV and diesel generator demand data. The size of the power generator is directly related to end use as shown in Table 7 (Maycock 1999), which gives the end use, typical size and market size for PV installations world wide. These data give us an idea of what the demand on a small wind turbine will be at various size ranges. The highest installed PV capacity is for residential grid-connected customers, with installations rated at about 3.5 kW. This market has also grown most quickly when compared with other sized PV installations.

Table 6. Worldwide Installed PV Capacity (MW) by End Use (or installation size)

End use Consumer products

World off-grid rural

US off-grid residential

On-grid residential or commercial

Central plant

Size in W 5 45 500 3500 1,000,000Year Annual installed capacity (MW)1990 16 6 3 1 11993 18 8 5 2 21996 22 15 8 7 21997 26 19 9 27 21998 30 24 10 36 21999 35 31 13 60 2

Figure 9 is a graphical presentation of the same information and more clearly illustrates the much greater rate of sales growth in the 3500 W size range when compared to other



size ranges. This again is partially due to incentive programs, but also due to the inherent utility of this size range and a corresponding ability of consumers with enough credit or resources to purchase and install the PV system.

0

10

20

30

40

50

60

70

1 10 100 1000 10000 100000

Size (W)

Wor

ldw

ide

capa

city

(MW

)

1999

1998

1997

1996

1993

1990

Figure 9. PV Market According to Size of Installation

Table 8. Worldwide Annual Sales of Small Diesel Generators by Size

Application

Irrigation, Mechanical Power, Remote Electricity

Deep Well Pumps, Building

Electrification, Cottage Industry

Village Electrification, Backup Power

GenerationSize (kW) 1.5 10 50WorldwideCapacity (MW) 1000 1500 50,000

7.0 Conclusions and Recommendations The installed cost of small wind turbine systems without incentives or after incentives

for the grid-connected market in the developed countries market sector must be less than $2/W today to foster a rapid increase in market penetration (i.e., to achieve the “tipping point”). (The after incentive installed cost is defined as the cost to the buyer after all rebates, tax benefits, accelerated depreciation, etc., are taken into account.)

Published projections show that PV module costs will continue to fall. Therefore

small wind turbine manufacturers must respond not only to today’s PV system prices but also to the strong possibility that PV module prices could fall by about 50% or more within the next four to seven years. Even if balance-of-system costs do not decrease, PV system costs could decrease by 25% within that time period.



In the developing countries residential off-grid market sector, wind turbines and wind hybrid systems can compete with PV and diesel generator systems at prices well in excess of $4/W. High annual unit sales volumes are possible but total turnover could be more than offset by the very small size of wind turbine that is demanded (approximately 1/30 to 1/10 the rating of turbines for the developed countries’ residential grid connected market). That is, total sales in terms of rated capacity and thus turnover could be disappointingly small relative to the number of units sold.

The available market today for small wind power systems, based on the current industry makeup, manufacturing capacity and distribution channels, is conservatively estimated to be 25 MW. However, the AWEA targets could be met if much larger companies, comparable to those now active in the utility scale wind turbine industry, enter the small wind turbine industry in the near future. This implies not only the manufacturing, marketing, product distribution and product development “muscle”, but also, in particular, the ability to bring the financing packages necessary to penetrate the developing country market sector.

In sharp contrast to the utility-scale wind turbine industry and the PV manufacturing

industry, the small wind turbine industry is not currently structured to adequately address the current and future available markets for small wind power systems.

The most promising size and application for a small wind turbine may be a grid-connected 3.5 kW system, based on the world wide demand for similarly sized diesel engines (1000 MW/year), the demand for PV systems in this size range (60MW/year in 1999) and the fact that grid-connected buyers/users likely have the best access to credit, cash down payments and government incentives.

Total diesel generator installed capacity by size could be the best basis for estimating the “price point” and potential market penetration for small wind turbines in the off-grid market. Small wind turbines can displace some small diesel sales, particularly for battery charging, but small wind turbines can also work in conjunction with diesel generator units as part of wind/diesel or even wind/diesel/PV hybrids. Because the off-grid market sub sector is multi-faceted when compared to the grid-connected small power systems market sub sector, considerable further research and assessment of diesel generator sales, size distribution, applications, price and fuel cost information is recommended.

8.0 ReferencesAmerican Wind Energy Association. The U.S. Small Wind Turbine Industry Roadmap. AWEA Small Wind Turbine Committee, www.awea.org/smallwind/documents/31958.pdf.


http://www.awea.org/smallwind/documents/31958.pdf


Arthur D. Little, Inc. Near-Term High Potential Counties for SWECS Final Report. Prepared for the Solar Energy Research Institute, Subcontract No. BE-9-8282-11, SERI/TR-98282-11, February 1981.

“Australia casts cloud over solar PV projects,” re-gen, April-May 2003, Page 9.

Bergey, M. “Development Approaches: Small Wind Systems,” presentation at the National Wind Coordinating Committee’s New York and Pennsylvania Wind Energy Workshop and Wind Forum, Albany, New York, July 25-26, 2001.

Bolinger, M. and Wiser, R. Domestic and Global Wind Power Markets for Large and Small Wind Turbines: A Collection of Information for Wind Sail, LLC. Environmental Energy Technologies Division, Ernest Orlando Lawrence Berkeley National Laboratory, Report LBID-2459, Nov. 2002

Bolinger, M. and Wiser, R. “Support for PV in Japan and Germany.” Berkeley Lab and Clean Energy Group, Case Studies of State Support for Renewable Energy, September 2002.

Byrne, John, Bo Shen and William Wallace. “The Economics of Sustainable Energy for Rural Development: A Study of Renewable Energy in Rural China.” Energy Policy, Volume 26(1), pp. 45-54, 1998.

Gipe, P. Wind Energy Comes of Age. John Wiley and Sons Inc., New York, 1995, pp. 139-140.

Greenpeace and the European Solar Power Association (EPIA). “Solar Generation,” Part 3, The Solar Race, http://www.greenpeaceusa.org/media/publications/solargeneration/solar_summary.pdf.

IEA Photovoltaic Power Systems Program. “Cumulative installed PV power in Japan by sub-market.” http://www.iea-pvps.org.

Maycock, P. “The World Photovoltaic Market 1975-1998.” PV Energy Systems, Inc., August 1999.

National Renewable Energy Laboratory (NREL). PV Manufacturing R&D Project, “Cost/Capacity Analysis for PV Manufacturing R&D Participants.” http://www.nrel.gov/pvmat/pvmatcost.html, 2003.

Photovoltaic Barometer. “33.3% Growth in 2002.” EuroObserver , 41, April 2003.

Reid, B. “Can Small Wind Go Big Time?” Wind Directions, Volume XX, Number 3, March 2001.


http://www.nrel.gov/pvmat/pvmatcost.html

http://www.iea-pvps.org/


Redding Energy Management in Association with FMIT Energy and Environmental Management Group. “2% Renewables Target in Power Supplies – Potential for Australian Capacity to Expand to Meet the Target.” submitted to the Australian Greenhouse Office, January 1999, http://www.greenhouse.gov.au/markets/mret/pubs/12_remote.pdf.

Solar Module Price Environment, All Solar Module Index, http://www.solarbuzz.com/Moduleprices.htm.

Synergy Power Corporation, http://www.synergypowercorp.com/project.htm.

The World Bank. “Rural Energy and Development – Improving Energy Supplies for Two Billion People.” Washington, DC, 1996.

World Energy Outlook 2003.

Yaxas, Y., M. Papadaki and Tsoutsos. “A market survey for small wind turbines in Greece,” http://www.eurocarribean.org/chania/folders/52_Yaxas.pdf, 2002.


http://www.eurocarribean.org/chania/folders/52_Yaxas.pdf

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