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As others have pointed out, the title is highly misleading because the facility has yet to be built. Moreover, projecting a cost-per-kwh over 20 years is a mea

As others have pointed out, the title is highly misleading because the facility has yet to be built. Moreover, projecting a cost-per-kwh over 20 years is a measure in futility. It's impossible to project energy prices 20 years in the future-- it's very possible another energy source will trump this facility's cost per kWh. In addition, cost per kWh amortizes the cost of construction where money is spent today for benefits to accrue in the future. How you determine this discount rate has a massive impact on the supposed value of the facility. As PG himself has pointed out, behind every significant news article is a submarine pushing public opinion[0] http://www.paulgraham.com/submarine.html http://www.paulgraham.com/submarine.html

daurnimator 8y ago
Could they buy/sell options/futures that mature over the next 20 years to get some certainty about it?
- ajcodez 8y ago
  It sounds like they already did some kind of 20yr swap - 'a long-term power-purchase agreement had helped the wind farm “offer an attractive price” to consumers'
  - dav43 8y ago
    Yes, that is essentially what a PPA sets out. There are several structures that can be deployed, but fundamentally its fixing the future revenue streams of the asset. The buyer of the PPA wins, as they get a fixed cost. The seller wins, their revenues are fixed and known, and they can get more leverage from debt finance because of this - thus, they get a better return on their equity investment.
Dylan16807 8y ago
> Moreover, projecting a cost-per-kwh over 20 years is a measure in futility. It's impossible to project energy prices 20 years in the future-- it's very possible another energy source will trump this facility's cost per kWh. You don't have to predict any prices to predict the costs of a specific facility. > In addition, cost per kWh amortizes the cost of construction where money is spent today for benefits to accrue in the future. How you determine this discount rate has a massive impact on the supposed value of the facility. Sure, but it's easy to take the construction cost and run your preferred discounting math on it. > behind every significant news article is a submarine This ain't a submarine, it's clearly promoting the specific installation...
- oblio 8y ago
  > This ain't a submarine, it's clearly promoting the specific installation... Yeah, if the whole thing could move we'd call it a sailing ship.
clomond 8y ago
I agree on the clickbaityness of the title but disagree on your assertion that one can not predict what this price a project is willing to sell its energy generated at given the expected costs of developing the project. (This is different from them making a prediction in energy costs far into the future, which you assert). This is because the majority of “material” factors within the project can be known with a reasonable degree of certainty today. Expectations of costs over the course of the project can in theory be protected via contract (I.e. land rights over decades, service agreements from manufacturers of the turbines) or are “fixed” and are “costs incurred today” and can be amortized over a given a period of time. Additionally, insurance and warranties on the equipment move the risks off to others to further help generating certainty which can be extrapolated to a reasonable “expected rate of returns/expected cash flows” - I.e. What, given all of what they’d know - the price of selling electricity over a given period of time is needed to pay back on the project. Apparently this developer determined that they can sell their electricity for 7.5Cents(USD)/kWh over a period for 20 years and still make a reasonable profit. (Note: I also don’t agree that there isn’t an agenda/narrative with such an article & title. Just that if developers couldn’t predict such costs, they wouldn’t guarantee the low price in the first place).
gehsty 8y ago
The price is on the subsidy awarded not on the actual price the energy is sold at. The subsidies in the UK are dropping to these levels.. And for some European projects there are zero subsidy (though these are contracted in a different way so not exactly comparable).
ryanwaggoner 8y ago
That's explicitly not what PG pointed out: Of the stories you read in traditional media that aren't about politics, crimes, or disasters, more than half probably come from PR firms.

daurnimator 8y ago

Could they buy/sell options/futures that mature over the next 20 years to get some certainty about it?

ajcodez 8y ago
It sounds like they already did some kind of 20yr swap - 'a long-term power-purchase agreement had helped the wind farm “offer an attractive price” to consumers'
- dav43 8y ago
  Yes, that is essentially what a PPA sets out. There are several structures that can be deployed, but fundamentally its fixing the future revenue streams of the asset. The buyer of the PPA wins, as they get a fixed cost. The seller wins, their revenues are fixed and known, and they can get more leverage from debt finance because of this - thus, they get a better return on their equity investment.

Dylan16807 8y ago

> Moreover, projecting a cost-per-kwh over 20 years is a measure in futility. It's impossible to project energy prices 20 years in the future-- it's very possible another energy source will trump this facility's cost per kWh. You don't have to predict any prices to predict the costs of a specific facility. > In addition, cost per kWh amortizes the cost of construction where money is spent today for benefits to accrue in the future. How you determine this discount rate has a massive impact on the supposed value of the facility. Sure, but it's easy to take the construction cost and run your preferred discounting math on it. > behind every significant news article is a submarine This ain't a submarine, it's clearly promoting the specific installation...

oblio 8y ago
> This ain't a submarine, it's clearly promoting the specific installation... Yeah, if the whole thing could move we'd call it a sailing ship.

clomond 8y ago

I agree on the clickbaityness of the title but disagree on your assertion that one can not predict what this price a project is willing to sell its energy generated at given the expected costs of developing the project. (This is different from them making a prediction in energy costs far into the future, which you assert). This is because the majority of “material” factors within the project can be known with a reasonable degree of certainty today. Expectations of costs over the course of the project can in theory be protected via contract (I.e. land rights over decades, service agreements from manufacturers of the turbines) or are “fixed” and are “costs incurred today” and can be amortized over a given a period of time. Additionally, insurance and warranties on the equipment move the risks off to others to further help generating certainty which can be extrapolated to a reasonable “expected rate of returns/expected cash flows” - I.e. What, given all of what they’d know - the price of selling electricity over a given period of time is needed to pay back on the project. Apparently this developer determined that they can sell their electricity for 7.5Cents(USD)/kWh over a period for 20 years and still make a reasonable profit. (Note: I also don’t agree that there isn’t an agenda/narrative with such an article & title. Just that if developers couldn’t predict such costs, they wouldn’t guarantee the low price in the first place).

gehsty 8y ago

The price is on the subsidy awarded not on the actual price the energy is sold at. The subsidies in the UK are dropping to these levels.. And for some European projects there are zero subsidy (though these are contracted in a different way so not exactly comparable).

ryanwaggoner 8y ago

That's explicitly not what PG pointed out: Of the stories you read in traditional media that aren't about politics, crimes, or disasters, more than half probably come from PR firms.