Germany Raises Feed Price

Germany has proposed to increase the price they pay for wind energy for newly constructed wind farms. This has significant implications for Ontario’s Standard Offer Program.

The price when approved will go up by 1.2 Euro cents per kWh for projects built in 2009, or 1.8 cents Canadian, and will be 9.1 Euros. Germany is the most advanced country in the world when it comes to wind policy. They know what it costs to produce electricity from wind, so when they deem it necessary to increase the price, you know it is needed. The German tariff is much smarter than Ontario’s already. The amount paid (or length of time that a high price is paid) varies depending on the wind, with less windy locations, where the cost of production is greater, receiving more per kWh. This allows a more even development, instead of concentrating turbines in only the windiest locations. Germany also pays extra for offshore development, which is required, as today offshore turbines cost more to build and maintain than their onshore cousins.

This change will result in Germany deploying more turbines in 2009, which will reduce the availability of turbines in the rest of the world, and increase their price beyond what it would otherwise be. Ontario needs to compete for supply with the rest of the world, and in the wind business, what happens in Germany matters.

The increase in the price paid to wind is driven by the increasing price of turbines, which is cause in part by rising materials cost. Steel, copper, and concrete prices have risen around the world, and this affects the cost of turbines. But the principal cause of the increase in turbine prices has been caused by their supply and demand.

The OPA is scheduled to review the prices offered under the Standard Offer this year. This review is now more urgently required – the Standard Offer Price will allow development only in the windiest locations, and perhaps not even there.

The rising price of turbines, and continued tight market for equipment justifies an increased price on its own. But perhaps even more compelling is the rising price of energy from other sources. The Bruce refurbishment has announced a capital cost overrun of up to 24% already, and the two units are not yet completed. A significant part of this cost overrun is passed on to ratepayers. The price of natural gas has risen by over 40% in the past few months, so gas generated electricity costs more. The price of coal and uranium are also setting records. Not to mention oil.

In this context, increasing the price paid on the Standard Offer, which will offer long term stability of supply and price for consumers, and increase the diversity of supply is a prudent move.

Hopefully the OPA price review will recognize the cost pressures, and the sensibility of adjusting price, and make moves sooner rather than later. And hopefully they will make a smarter price, that pays more in less productive areas, so wind can supply electricity in some less windy areas too.

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