Salient White Elephant

June 21, 2009

Business Savvy or Sexy Technology?

Filed under: Brash Environmental Commentary, Wind Energy, Wind Power, Wind Turbine — Tags: , , — Salient White Elephant @ 11:40 am

The earlier post, Why Renewables Aren’t Cost Effective, describes how a taking a different approach to the business of wind technology may produce even more attractive results than a dazzling new technology. Let’s look at other ways for using business ideas to improve the profitibility of small wind.

The Problems with Small Wind

There are two problems with small wind – maintenance and financing. Let’s start with maintenance.

Maintenance

Not many home owners want to climb an 80 foot tower to fix a 10 kilowatt wind turbine. To date, the designers and manufacturers of small wind machines have solved this problem by making their machines virtually indestructible. Many have only a few moving parts – the rotor, slip rings, and yaw bearings. But these machines still break. They could even be hit by lightning!

My answer to this problem is to first reduce the cost of the machine by making it more destructible. If the cost is reduced by a sufficient margin, then it will be deployed in larger numbers. If the number of machines in the field reaches a significant threshold, then a business can be developed for maintaining the machines. In other words, opt for a cheap clunky machine rather than an expensive high tech ultra-reliable machine. Now a customer either hires the maintenance company to repair the turbine or exercises warranty privileges. Technicians repairing the machine are experts, and they aren’t afraid of 80 foot towers. In other words, you can spend your money on two different options:

  1. super duper designs with super duper components, or
  2. mediocre designs with mediocre components and a solid company that provides highly qualified service technicians.

The later option makes more sense. Most home owners won’t even consider learning to repair and maintain a wind machine, but they’ll consider an option that’s backed by service contracts and warranties.

Financing

How long does a wind turbine take to pay for itself? Oh man… I don’t even want to know. If you’ve seen this kind of financial analysis, it’s complicated, and I doubt the average home owner can even understand it, much less believe it. But wait a second… if it’s true… if it really is true… that a 10 kilowatt wind turbine for your back yard is a good investment, then why aren’t there companies that bank roll the installation of such machines in exchange for dividing the wealth so created with the homeowner? Just as service technicians know more about repairing wind machines, financial companies know more about financing them.

What Does This Company Look Like?

The small wind machine manufacturer proposed here does not sell wind machines – it sells electricity. And it sells the electricity to the power company, not to the homeowner. In other words, the homeowner has exactly the same relationship with the small wind company that a farmer has with a utility scale wind farm owner/operator. Just as the utility scale wind farm owner/operator pays the farmer a monthly fee for the privilege of using a few hundred square feet of his farmland, the small wind company pays the homeowner a set monthly fee for the privilege of using her home to produce the electricity that is sold to the power company. The home owner sees a “reduction in her electricity bill” equal to the monthly fee she receives from the small wind company. Everything else, the construction, grid connection, maintenance, repair, and financing of the wind machine is the responsibility of the small wind company proposed here. All the homeowner has to do is avoid hitting the base of the tower with her lawnmower!

Negotiating Power Purchase Agreements

Another advantage of the company proposed here is that, provided its revenue is sufficiently large, it enjoys a strong negotiating position with the utility company. Consider this. When a company that owns a wind farm sells electricity to a power company, what happens to all the energy that is lost in transit as the electricity is carried 30 miles to the consumer over high voltage power transmission lines? Well… maybe it’s easier to look at the flip side of that coin. Suppose you install a wind machine in your back yard and run your meter backwards. The power company just saved a bunch of money because little of this energy is lost in transmission, since it is all used either in your own home or at least in your own neighborhood. The power company also saves money in reduced maintenance of high voltage transmission lines, and reduced need for transmission line capacity in the first place. How much of these savings do you think will be reflected in your electricity bill? You guessed it – zero. You just gave the power company a nice birthday present, and every day is their birthday!

The home owner is not in a position to challenge this state of affairs. But the company proposed here that operates tens of thousands of small wind turbines around the province is in a position to negotiate a reward for the benefits they provide… including the benefits of producing electricity at the point of consumption rather than 400 thousand miles away at the other end of a 10 billion dollar 900 thousand volt transmission line.

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