A Probabilistic Approach to Wind Energy Generation Costs in Italy

In order to render the observations in the dataset expressed in coherent and therefore comparable money terms, they all need to be to be restated in 2010 Euro terms. Every observation has therefore to take industry-specific price inflation into account. All the observations expressed in money terms were therefore collected along with their original date in order to maintain the possibility to introduce the above modification.
The prices, and therefore the costs, paid for the construction of a large wind power by its patrons have followed a particular path over the last decade. Many international agencies and observatories of renewable energy economics trends have noticed that, after a period of normal steady reductions in the prices of installed wind power (minus 2% per annum from 2000 to 2004) brought about mainly by technological efficiency improvements in the productive process, this tendency changed in 2004, with prices soared 20% by 2006. This increasing trend continued till 2008, when the prices reached the peak in the decade. From 2008 to the end of 2010 the prices started again to decrease, as reported by Bloomberg in its third issue of the Wind Turbine Price Index (Bloomberg, 2010). The New Energy Finance division of the leading industry analysis company reports a decrease of about 15% in the prices for turbines in 2010 with respect to 2008, the peak year. Bloomberg also declares that there is no sign of a price recovery in the near future.
The increasing part of the 10-year long trend (from 2004 to 2008) can probably be explained by the interplay of increasing demand and the particular structure of the industry for the production of the necessary equipment: being indeed made up of a handful of big players, these are much less subject to competitive pressures and are able to exploit fully the increasing demand for wind power plants, driven by rich governmental incentives in most of the Western countries (European Wind Energy Association, 2009). These equipment manufacturers are usually vertically integrated and offer a turn-key product where the bulk of the total cost is constituted by the aero-generator (tower and wind turbine): the rate of increase in the price of 1 MWp of installed and ready to operate wind power has indeed followed closely the rate of increase in the price for the turbines, which, as noted earlier, constitutes about the 70% of the total final overnight or installation cost in the case of an onshore plant and about 50% in the case of an offshore one. Another reason for prices that tend to grow also in face of a constant technical development that should bring them down can be that the sales pipeline of these pieces of equipment is very long, with orders done up to one year before the actual installation. Therefore a long time is needed before the cost reductions due to technological improvements can flow through the sales pipeline and reach the customers. The prices’ slowdown experienced after 2008 can be explained, in the context of the global recession, by a situation of oversupply in the industry, created by a stalling demand that can hardly find cheap financing for the wind projects, since the general liquidity is in bad shape after the financial crisis. Thus future price decreases have to be allowed to flow through the sales pipelines when the markets will fully recover (Bolinger, 2010).
Based on an elaboration of the data presented above, this works finds out that, accounting for the decreases and increases in prices over the last decade, the specific inflation rate for installed wind power is very close to being irrelevant and calculated by the author at 0,75%: this rate will be used in the adjustment of the historical data for the Overnight Costs and also, as a proxy, for that of the O&M and of the Grid Upgrade costs.