Wind power in Germany: Quo vaditis ageing power plants? – Why wind farms should be given special attention starting from the 15th year of their operation

​In a nutshell:

Why you should give a special thought to your wind farms entering the last 5-year phase of the tariff period and why you should start to think about it before actually being forced to do so. A heads up for operators to closely monitor the specific aspects of ageing power plants and the related framework, so that the post-tariff-period operation of your power plant, often described as ”he golden end”, does not become a dead end.

The EEG was enacted in Germany on 01/04/2000 and since then this act of law has guaranteed a stable Feed-in-Tariff for wind turbine operators over a period of 20 or 21 years. Over 27,000 wind turbines have been connected to the grid ever since then. Next year, the number of wind turbines in wind farms reaching the last phase of the EEG tariff period, i.e. starting their 15th year of operation, will be close to 10,000. At the end of 2020, the EEG financing period will end for about 6,000 wind turbines and – if they continue to operate – they will have to generate profits based on prices determined on the European Electricity Exchange (EEX).

Wind turbines are currently facing bad publicity in Germany: On the one hand, citizen initiatives that have sprung up in every part of the country to campaign against wind power have unceasingly attracted some media attention. The media reports are often based on more or less founded environmental protection related decisions passed by licensing authorities who are often against further expansion of wind power. On the other hand, at the turn of the year, many wind turbines in Germany malfunctioned, rotor blades broke down (as in the Laubersreuth wind farm) or even broke off (the Briest wind farm). Such a series of failures accumulated in less than 25 days and nota bene relating to power plants built between 1999 and 2002, is certainly unusual, but has exposed a critical aspect:

Operators should devote their attention to their existing power plants early on and know action alternatives early enough to be able to respond quickly.

Old power plants in the special phase of their life cycle

Many power plants are entering the last phase of their life cycle before the end of their EEG tariff-based financing period or are already in that phase. Generally, this implies that all financial loans have been paid off and the achieved contribution margins are significantly higher. But the ”golden end” scenario for amortised power plants, so often promised and included in earlier profitability calculations, has increasingly failed to come true. This could be attributable to incorrect estimates regarding the lifetime of certain large components (e.g. rotor blades, generator, tower, or foundations). But this issue is also significantly influenced by deviating assumptions regarding maintenance and repair costs for the last years of operation and the related operational security. Another factor is that many owners of old power plants simply underestimate the necessity of exploring early on the opportunities for further operation under current market conditions. The general rule for wind turbines is the same as for any other machine, like e.g. for a private passenger car: when certain mileage is reached, you have to ask yourself how long more you want to invest in repairs and maintenance and when the time comes you need to disinvest.

In wind turbines, however, there is a whole range of factors that must be taken into account early on to make a financially optimal decision. One thing is sure: When the wind turbine suffers a major defect, every single day of downtime costs you huge amounts lost from the annual profit and you must make decisions quickly so as to minimise the financial losses as much as you can.

A crystal ball to foretell the future

Basically, three scenarios are possible:

1. Your wind turbine operates till the end of the EEG tariff period and suffers no major damage;
2. Your wind turbine suffers major damage in the end phase of its estimated life span (about 20 years assumed at the outset of the project) and the repair of the damage is at least partially covered under a full maintenance contract (or insurance) because you extended the contract to cover the whole 20-year period (usually though on different terms and offering different benefits than for the previous phase!);
3. Your wind turbine suffers major damage in the end phase of its estimated life span and the damage is not covered under a (full) maintenance contract so you need to invest heavily in the repair.

What those scenarios have in common is that in all of them, you must weigh up the future profits and costs in order to assess whether to pursue options like:

                a. further operation

                b. sale or

                c. dismantling.

Under scenarios 2 and 3 this decision must be made significantly faster because of the case of damage. When is it advantageous to select further operation, what happens in case of major damage?

As a rule, old wind turbines involve many different considerations and steps which are, however, intertwined with each other and sooner or later interlock; therefore, it is important to start to actively explore already from the 14th year of operation the following issues:

1. Because of the expiry of full-maintenance contracts normally after 15 years, the maintenance policies and the pay-out amounts relating to the remainder of the life span are of central importance in deciding whether and for how long further operation of a wind turbine will be economically reasonable → such policies should be negotiated or extended early on;
2. If the wind turbine suffers major damage not covered under a full maintenance contract or because of the age of the power plant the maintenance (or insurance) company does not cover 100 percent of the damage, you should clearly know how long it will be possible for the wind turbine to operate and make up for the higher costs, and whether the investment is reasonable;
3. This requires understanding whether and how long after the end of the EEG period it will be possible to further operate the power plant, taking into account
1. whether it will be technically possible to continue to operate the power plant in terms of lifetime and safety
2. whether it will be legally possible to continue to operate the power plant (required approvals, duration of the operating license, extension of validity of type tests, lease contracts extendable?, etc.)
3. whether it will be financially possible to continue to operate the power plant (e.g. new maintenance and lease terms, future electricity prices guaranteeing profits, etc.)
4. What options of selling electricity do I have as a plant operator after the end of the EEG tariff period?
5. From which year is it advantageous to sell the wind turbine or conduct repowering, and on what conditions would further operation be reasonable also when there is no major damage to the wind turbine?

These and many other questions should be considered when reflecting on the last 5 years of the EEG tariff period in the case of wind turbines. We recommend, however, that everyone should deal with these issues early on and check the action scenario alternatives. In any case, every single day of the wind turbine's downtime trims your operating result and thus cripples your original profitability calculation.

We will be happy to assist you in exploring options and opportunities, with the first consultation to discuss the situation being completely non-binding and for free.