Wind-Based Energy Market

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Table of Contents

Executive Summary
Introduction
Findings
A Cost Evaluation of Wind Energy: Is the Wind Energy a Competitive Product?
Conclusion
Reference List

Executive Summary

Wind energy is certainly the most effective upcoming source of energy globally. BP energy is one of the energy companies that have moved on to pursue this area. The purpose of this business report is to evaluate the economic feasibility of wind energy and market performance in the next five years. This will be done through the analysis of the latest advancements in transmission technology, turbine technology and the policy condition.

Developments in transmission and turbine technology seem to be very promising as it will enhance the effectiveness and accuracy in the production of wind energy. With the execution of the newly discovered transmission technologies there will be great possibilities of introducing electricity produced from wind into market segments that have not yet been tapped.

The condition of the policies being embraced becomes another key area where consideration is required. This will be vital especially in the process of formulating the terms and strategies through which this form of energy will successfully compete with other conventional types of electricity production which are already in the market.

Introduction

Since its discovery, wind energy has been targeted by many investors in the global markets. This form of energy has become of great interest to governments, potential capitalists and the public in general. The realization of the great investment potential and security from wind power or energy led to the growth of this sector. Nonetheless, investors in this industry have been faced by many short and lasting challenges and problems.

The energy department in the U.S. has been able to discover and point a number of challenges and problems in the development of wind energy. These challenges include the perception of peril, limitation of grid and transmission, lowered competition in the wind energy market, lack of transmission infrastructure, the use of low-speed wind location, ecological policy, regulatory policy and opinions by the public in general (Johnson, Whitington and Scholes, 2010).

From an investor’s standpoint, wind energy is itself viewed as too expensive. The marginal price of wind power is basically very competitive with the most current conformist technologies. However, the fixed price of developing the technology of this form of energy is also too high and inconsiderable for many investors.

If the costs associated with the production process of wind energy are reduced, people will be able to use it at a higher competitive rate. Formulation of necessary policies will help in reducing the price of turbines by promotion of innovation and facilitating stability in market demand.

Findings

The significance of wind velocity

Kinetic energy found in wind can be tapped using wind turbines and changed into motorized energy. Electricity is generated from the motorized energy using generators. In simpler terms, wind turbines operate and function like a fan working backwards.

Intermittence

The variation of wind velocity has system-wide impact for the electricity production industry. The velocity of wind can increase or decrease by a number of factors very quickly. Every time this occurs, production from a ‘wind carpet’ – that is, the overall number of turbines in an applicable geographical coverage – increments or declines by an eighth.

Vacillation in the availability of wind causes impulsive power surges and drop-outs in the supply of power or electricity, requiring down regulation and up regulation by traditional producing plants. Pronouncements of the impact depend on the size of the wind carpet.

Wind power in the U.S.

The technology of wind turbines is in proper condition: turbines are adequately available, which means the production time affected due to maintenance or operation failure is very less. Generally, essential design principles states that the size of the turbines greatly determine the possibility of deployment.

The average ability in the United States is very great. It has been estimated that electricity generated from wind is the nation’s most abundant source of energy. Approximately a quarter of the entire land coverage in the U.S. has winds that are adequately powerful to produce adequate electricity as economically as coal or natural gas at current market prices (Wiser & Bolinger, 2007).

A Cost Evaluation of Wind Energy: Is the Wind Energy a Competitive Product?

Three Horizon Model

In the analysis of this scenario, it was critical for the company to consider the performance of wind energy in the market, thus, a three horizon model is important. The first horizon will represent the core companies that are readily recognized with the energy industry, which offer the greatest cash flow and profits.

Apart from BP industries, there are other companies that are associated with energy production. They include: Petrol China, BHP Billiton, Total, Royal Dutch Shell, Exxon Mobil and Petrobras. The focus here is to improve the performance of the company in order to optimize the extra value (Makhijani, 2007).

In the second horizon, the report considers the upcoming platforms such as the emerging entrepreneurial endeavors likely to produce huge profits in the outlook which requires substantial investment.

Hence, for BP to enter into the wind energy market, it will have to strategize on how it will strongly compete with other companies in the market. In the last horizon, the paper considers the feasible ideas for gainful development down the path – for example, small endeavors such as research, pilot initiatives, or minority perils in the new business in the wind energy market.

The Accessibility of Wind

One official obstruction to electricity generated from wind is that production inputs are physically fixed. Unlike fuels produced from uranium and fossils, it is impossible to extract wind from its resources and transport it to the production site. Instead, wind resources must be transmitted to electrical energy at their resource site, and this electricity must be converted to the production site. This hindrance is not essentially challenging because in numerous cases wind sources are very proximate to the production site (Ezio &Norman, 1992).

Conversion to Domestic Electricity Markets

It is essential to approximate the cost of electricity generated from wind delivered to the closest electricity demand plant. Since terrestrial resources of wind are particularly located in remote area, the company has to hypothesize that conversion costs would create a vital share of total electricity price. The company should hence attempt to minimize the cost of conversion by calculating the shortest way possible from each wind resource to the proximate electricity demand location.

Exploitation of Price Differences in the Global Market

In this case, the company predicted that power or electricity generated from wind can be transmitted directly to its place of use – this way the company will be exploit the variation of energy prices in the markets. The prices of power/electricity contrast significantly depending on the State. In cases where wind velocity is not strong enough for energy/power production, coal plants can be utilized to generate electricity/power so as to ensure that capacity of transmission supply is always upheld at 100 percent (Wizelius, 2007).

Cost-Benefit Analysis

In order to arrive at a conclusion concerning the competitiveness of energy generated from wind under each case, the company had to evaluate the variation between the production cost and the market prices. Nevertheless, the company had to include a release charge so as to calculate the overall cost of energy service. Therefore, it is because of the variations in overall electricity costs across nations, energy generated from wind is economically possible in distant markets of California.

SWOT Analysis

Strengths

The production of energy from wind has been technologically proven viable in both local and global energy markets.
The production of this form of energy does not need any fuel inputs which makes reduces the general production cost.
Wind is the only renewable, nontoxic and non-emission source with no carbon related costs.
The cost of wind electricity traded to the grid has been diminishing and hence is almost reaching equality in numerous markets – this is a trend that is expected to continue.
Plants to produce wind-based electricity can be planted both on land and in water, which makes it very flexible.
Wind is so far the most cost-effective and renewable energy source.

Weaknesses

The problem with wind is the fact that it is an intermittent resource – wind is very hard to forecast whether it will blow or not.
Wind is very inefficient and unsuitable compared with fossil fuels
The fusion of wind energy into the grid at range needs to have changes in the institutional structure among grid operators and utilities – it will be hard for the company to accommodate this.
Electricity produced from wind will be costly compared fuel from fossils that are already in the market; hence competition will be a very hard task.
Market for wind energy is partly affected by policy – this makes wind energy market prone to political instabilities.
In the United States, energy sector has inadequate long-term policies, which makes it very difficult to spur capitalists’ confidence.

Opportunities

The company already has larger and more effective turbines to tap huge capacities of wind at a considerably cheaper cost.
The company has direct force turbines that can possibly reduce costs related to O&M.
The offshore winds are an opportunity to the company.
Since enough energy is being produced, the company will be able to venture into the existing markets opportunities in Latin America, China, Eastern Europe and other upcoming markets.
The company will combine its wind energy with natural gas to handle the problem of intermittency.
The company has devised a unique technology for storing the energy.

Threats

There is a change in energy production policy, particularly in the U.S. that renders wind uneconomical in terms of market competition especially considering other sources such as fossil fuels.
The development of the project will be hindered by the global recession and the credit freeze which has affected the energy markets.
The use or reliance of offshore winds has turned out to be very expensive and therefore very complicated.
The cost of inputs soar as the recession ends
The prices of natural gas in the market remain low.
Another threat concerns the public loses – emission of carbon product which makes it very hard to maintain helpful enticement and policies.

Policy Variables

The company has taken into proper consideration how policy variations affect the economic capability of wind electricity in both domestic and international markets. In particular, the company has considered how manufacturer tax credit can affect the company’s model, and the possible influence of a cap-and trade system for the emissions of carbon product (Porter, 1991).

The Producer Tax Credit

The original model of the company presupposed an impartial policy standpoint with reference to wind-based electricity. Through the application of this methodology, the company noticed that wind electricity is economically practical even without the support of ‘Producer Levy/Tax Credit’. Nonetheless, the use of this credit may force the expenditure or costs associated with electricity generated from wind, further escalating the level of competition and the potential to create new market platforms. Therefore, in the present market venture the company is considering the upshot of the ‘tax credit’ associated with the producer.

Cap-and-Trade

The present policy situation could not be much preferable to a cap-and-trade arrangement for carbon discharges. Since all three main company’s prospective executives are advocating for a cap-and-trade policy, emissions from carbon will possibly lead to financial constraint in the future.

Such an output is specifically preferable to energy sources that are non-emitting – best example being wind energy. Since the costs of operation for the BP’s competitors will probably rise electricity generated from wind is likely to become very economically feasible in the global market.

Conclusion

The company’s cost-benefit analysis indicated that electricity generated from wind is very competitive under different circumstances. Under the current policy condition, the market strategy found that electricity produced from wind was not much competitive in a remote market situation.

However, wind generated from wind becomes very competitive when broadcasting to distant markets to exhaust region cost differences. Therefore, if a system of cap-and-trade was embraced, the possibility that the electricity produced from wind will be competitive in both close and distant markets by 2017.

Reference List

Ezio, S. & Norman, H., L. 1992 ‘Wind energy in Europe.’ Wind Engineering, Vol 16 No. 1, pp. 23-31.

Johnson, G., Whitington, R. & Scholes, K. 2010. Exploring Strategy. FT Prentice Hall: New York.

Makhijani, A. 2007. Carbon-Free and Nuclear-Free: A Roadmap for U.S. Energy Policy. Oxford University Press: New York.

Porter, M. 1991. ‘America’s green strategy’ Scientific American, Vol 264 No.4, pp. 96.

Wiser, M. & Bolinger, M. 2007. Annual Report on U.S. Wind Power Installation, Cost, and Performance Trends: 2006. Harvard University Press: London.

Wizelius, T. 2007. Developing Wind Power Projects: Theory and Practice. Macmillan Publishers: New York.

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