Over the last few months, I had the privilege to meet with investors, independent power producers (IPPs), developers, bankers, media, NGOs and consultants to test The Switch view on renewable energy, such as solar, wind, and variable speed gensets (VSG), in Asia.
Between 2009 – 2011, we were spoiled by a “green race” that started as a sprint. There was an urgent need to bring Asian nations – especially China – into line with the rest of the world to use cleaner and more efficient energy sources. Suddenly in 2012, it’s turned into something of a marathon, with companies and financial institutions involved in the market, which has been slowed by regulatory and political climates that have evolved in the face of new economic realities.
The good news is there are plenty of opportunities in the clean energy field in Asia in general. By 2020, China, India, Japan, and South Korea are expected to account for 40% of all global clean power project investments. The challenge for entrepreneurs is to demonstrate the cost-to-benefit ratio that renewable and clean energy can bring to the thousands of companies in the region that are candidates for such a move.
Diverse set of challenges
One of the challenges facing investors and companies interested in getting into the game in Asia is the diverse set of cultural and political climates in the region. Asia is sometimes seen by outsiders as a monolithic whole, but it is in fact just the opposite. There are huge differences in the ways Asian countries approach renewables. Some approaches are from an industry perspective in which advocates want to create green jobs and promote the industry for export. That happens mostly in China, Japan and South Korea. Other approaches are from an energy policy perspective, due to lack of natural resources in the region.
IPPs and developers in the region with ideas or projects in place still need an influx of funding. The perception is that wind energy is still more expensive, especially to operate and maintain due to the use of conventional technology based on double-fed induction generators (DFIG), for example, which leads to greater capital investment required upfront.
Investors and banks need to be comfortable with the risk profile in the country-specific regulatory environment, for example with different grid codes. They also need to rely on technology capable of securing profitability after the normal payback period of 8 – 10 years and during the wind turbine’s average operational lifetime of 20 years. Using modern technology reduces the operational and maintenance cost of the installation.
The aggressive overseas expansion of Chinese IPPs seek funding from overseas banks that are quite prudent or reluctant to release loans and bonds due to the uncertainty or unreliability of the technology used. This is especially true in the case of DFIG.
The bottleneck faced by all the players in the wind industry is the shortage of local capital and the fear of international banks to lend the money to help projects move forward.
Wind energy isn’t really competitive on its own yet in the region, which is why there is such a strong need to reduce the levelized cost of energy (LCOE) by improving annual energy production while simultaneously reducing operation and maintenance costs. The key to moving forward is to find a solid, world-class technology partner that is able to introduce innovation in a short time and to reduce the risks in the unpredictable market situation.
One solution to cope with the myriad of problems
Adopting permanent magnet generator (PMG) and full-power converter (FPC) technology is one solution to move forward. Although the upfront costs of key components (FPC and PMG) may appear at first glance to be higher than DFIG, in reality the difference in the initial Capex can be negligible.
The immediate advantage of drive trains with The Switch PMG and FPC technology is the fact that they have already have been proven in even the harshest wind conditions and offshore environment. Our future-proof LVRT has been fully field tested to comply with the most stringent grid code requirements in all parts of the world. The long-term advantage comes from the extra energy you produce with the higher power curve efficiencies of PMG technology.
The PMG’s maximized energy production gives you significantly higher income and profitability. In addition, the longer lifetime of the machinery generates more income. With a PMG-FPC drive train from The Switch, the estimated lifetime is designed to exceed the industry 20-year average by an additional 3 to 5 years, extending the lifetime of the investment by up to 25%, which boosts returns by the same amount.
Costs associated with operations and maintenance can add up stealthily, eating away at profitability over time, if not properly managed. Again, The Switch has designed its PMG-FPC drive trains to ensure the best serviceability in the market.
Last but not least, turbine availability is the ultimate proof of a well-designed concept. The Switch can guarantee an average of 97% availability for its PMG and FPC drive train.
Carlo Cecchi, Director Business Development
