New Energy – The Way the Wind Blows

In his autobiography, “The Way the Wind Blows”, former prime minister Alec Douglas-Home recounted bucolic childhood memories of Scottish summer holidays with each day’s activities determined by the direction of the wind.

That wind is increasingly viewed as part of the solution to society’s need for a sustainable source of electricity. Critics of wind power were understandably numerous, when faced with the prospect of the spread of futuristic turbines across wild places. Perhaps, like Home might, they fear for the plight of game birds and the visual pollution that on-shore wind farms bring.

Technical and operational hurdles for on-shore wind farms include the unreliability of on-shore wind speeds and wind shadow – the phenomenon of wind strength depletion downstream of a turbine. There is also the question of availability of suitable sites.

Like raindrops on sun-bleached rock, these concerns evaporate when wind turbines are placed off-shore. Off-shore wind is more reliable, which means more consistent energy generation and average wind-speeds are higher which permits the use of bigger turbines and therefore greater energy generation capacity.

The UK is at the front of the pack of nations building off-shore wind infrastructure. In 2017, the UK generated 15% of its electricity requirement from wind power. While on-shore turbines currently outnumber offshore at 7,000 versus 1,800 according to the UK Wind Energy Database, the larger size of off-shore turbines means that offshore capacity is 60% of onshore and rapidly closing the gap.

Wind Turbines

Wind Turbines

Developments such as Moray East in the North Sea will add significant capacity – 950 megawatts (MW) in the case of this project. Compare this with the current installed off-shore capacity of 7,113MW. This project is almost four times the size of the Burbo Bank Extension in the Irish Sea which was the first site to use 8.6 megawatt turbines. With each step-up in size comes increased generation potential.

The Burbo Bank Extension is of particular interest to as one of our infrastructure investments HICL (formerly HSBC Infrastructure Company Ltd) has recently purchased the transmission assets of this windfarm. HICL receives a payment for ensuring that these assets are operational and available for use. This type of asset fits well in a multi-asset portfolio as they are already operational and the regular cash flows will not be impacted by the prevailing power price or indeed, the way the wind blows.

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By |2018-06-08T13:56:57+00:00June 8th, 2018|Cerno Capital Posts, Other Posts|

About the Author:

Fergus surveys the full range of the firm’s investments on a bottom up basis and is principally engaged in manager and security selection. He began his investment career at Valu-Trac Investment Management in 1995, where he worked in their global equity and asset allocation products. He worked for Russell Investments as a Portfolio Manager of UK equities (2001-2006) and Asian equities (2006-2009). Fergus graduated from Edinburgh University with a BCom (Hons), holds the CFA charter and is a member of the CFA Society of the UK. Fergus is a Director of the Salters’ Management Company.