Chinese Rare Earth Rationing Shouldn't Sink Wind Power Sector 34 comments
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Once the electric and plug-in hybrid vehicle frenzy fizzles out, as cleantech frenzies typically do when reality comes knocking (i.e. corn ethanol and solar PV), the next hot thing to hit the world of alternative energy investing could very well be rare earths, or the lack thereof. Rare earth metals are used in a number of technologies, most importantly for alt energy investors in NiMH HEV batteries and in permanent magnets for wind turbine generators and electric motors (made with the element neodymium). This article, as its name indicates, will focus on the wind sector.
Consider the following two quotes on the significance of rare earths to the wind power industry (I got them from articles I found on the Climateer Investing blog, which has been keeping on top of this issue for the past few months. Click on the link above to access a number of articles on that topic):
"To make the most efficient, lightest weight, lowest service wind turbine generator of electricity takes one ton of the rare earth metal, neodymium, per megawatt of generating capacity." (Jack Lifton, 5/07/09)
"Let's take a look at wind turbines. In certain applications, two tons of rare earth magnets are required in the permanent magnet generator that goes on top of the turbine. If the permanent magnet is two tons, then 28% of that, or 560 lbs, is neodymium." (Mineweb, 5/13/09)
Why does this matter? Because China, which accounts for around 95% of global output, is purportedly planning on severely curtailing the export of rare earth minerals. Naturally, this has some people worried. Given the total tonnage of neodymium that goes into each utility-scale wind farm, some may wonder whether this trade ban will throw a spoke in the wheel of wind power development; a wheel, as industry observers know, that has been spinning incredibly fast over the past five years.
Understanding Wind Energy Costs
Perhaps the single most important metric in power generation is the levelized cost of the energy produced. The levelized cost includes all of the costs over the lifetime of the facility (capital and operating) plus a pre-determined return on capital. All of these costs (capital costs, operating costs and cost of capital) are then expressed in present value terms and amortized over the facility’s total lifetime production (generally expressed in $ per kWh or MWh).
When assessing the cost competitiveness of electricity generation fuels, the levelized cost approach yields a true apples-to-apples comparison. Thus, when trying to gauge the impact of various events (e.g. higher natural gas prices, higher cement prices, a trade ban on neodymium) on the relative cost positions of different generation technologies, the impact on the levelized energy cost provides the best measure.
Last Friday, I read a recently-published study by Maria Isabel Blanco, former Policy Director at the European Wind Energy Association (EWEA) and now an academic in Spain, on the economics of wind power. In a nutshell, the study examines, based on survey of EWEA members (EWEA's membership accounts for around 80% of global wind turbine manufacturing) and a review of the literature, the generation costs of wind energy in Europe.
Because there are no fuel expenditures for wind, capital costs make up the vast majority of the levelized cost of wind energy. According to the study, capital costs make up around 80% of the total cost of wind energy over the lifetime of a typical onshore facility (offshore wind is not addressed in this article). The wind turbine ex works - meaning the machine itself plus the tower, transportation to the site and installation - makes up around 70% of capital costs, or 56% of the total lifetime cost. Balance of plant costs include grid connection and site preparation (e.g. roads and other civil engineering work), among others.
The first figure below comes from an article on the wind power supply chain by BTM Consult published in the January/February 2007 edition of Wind Directions (see pages 5 and 6 for the full-size image). The second figure comes from a September 2007 report written by Garrad Hassan for the Canadian government on wind turbine manufacturing (see page 33 for the original figure).
Both figures show the approximate contribution of each core component to the final cost of a wind turbine. There is, of course, variation around the percentages shown here based on the turbine model, the manufacturer, the location of the turbine assembly plant relative to where components and sub-components are manufactured, etc. However, taken together, these two figures yield a good ballpark estimate of how the cost of a wind turbine is broken down between its main parts.
Both sources agree that the generator, the component that requires significant amounts of neodymium, represents around 3.4% of the total cost of a turbine. The generator thus accounts for around 2.4% of the total capital cost of a typical wind project.
The table below looks at the impact of generator costs on the installed cost (i.e. capital cost) of a fictional wind project. The data comes from EERE's 2008 Wind Technologies Market Report, where capacity-weighted average installed wind costs in the US are reported at around $1,915/kW, and capacity-weighted average turbine costs ex works are reported at around $1,360/kW, or approximately 71% of installed costs (in line with the European numbers above). The calculations assume that all other costs remain constant.
| Original Generator Cost @ 3.4% of Turbine Cost ($/kW) | % Increase In Generator Cost | New Generator Cost ($/kW) | Installed Cost Following The Increase In Generator Cost ($/kW) | % Increase In Installed Cost |
| 46 | 50% | 69 | 1938 | 1.2% |
| 46 | 100% | 92 | 1961 | 2.4% |
| 46 | 150% | 116 | 1984 | 3.6% |
| 46 | 200% | 139 | 2007 | 4.8% |
| 46 | 250% | 162 | 2031 | 6.0% |
| 46 | 300% | 185 | 2054 | 7.2% |
| 46 | 350% | 208 | 2077 | 8.5% |
| 46 | 400% | 231 | 2100 | 9.7% |
| 46 | 450% | 254 | 2123 | 10.9% |
| 46 | 500% | 277 | 2146 | 12.1% |
The Levelized Cost of Wind Energy
Using a model she built, the author of the European study discussed above calculated the levelized cost of wind energy in Europe, based on actual capital, operating and financing costs and ignoring all incentives and taxes - she therefore computed the "true" cost of wind power.
She found that the single most critical variable impacting the levelized cost of wind energy was full load hours, or the average annual production divided by the facility's nameplate capacity (the more often cited capacity factor is equal to full load hours divided by total hours over the measurement period). Capital costs came in second.
A drop of 10% in full load hours, according to the author's model, leads to a cost increase of 8.5%. In comparison, a 10% increase in capital costs, all else equal, triggers a 7.7% increase in total lifetime costs. As can be noted in the table above, generator costs would have to increase by over 400% to trigger a 7.7% increase in levelized energy costs - while 7.7% is not a trivial number, especially if the increase is sudden, it probably does not constitute a project killer in most cases.
Of course, the costs and calculations presented here are rough estimates and will differ across installations and regions. Nevertheless, they provide a good approximation of the potential impact of higher generator costs on the cost of wind energy.
The Market For Wind Generators
Over the past three years, the supply of many core components for wind turbines has been incredibly tight, leading to a reversal of the long-term trend toward lower levelized wind energy costs (for a recent analysis this reversal in the US, see the EERE's 2008 Wind Technologies Market Report). Generators, however, were not one of those rare components. Bearings and gearboxes are the two parts for which the most severe shortages exist (or did, pre-crisis), while the market for generators is relatively well supplied by the likes of Siemens (SI) and ABB (ABB).
Even though increases in copper prices have put upward pressure on generator costs in the past few years, it is fair to say that generators have not been a problem component in the wind supply chain.
Conclusion
It is too early to tell what impact Chinese restrictions on rare earth exports will have on the price of wind generators and, ultimately, on the levelized cost of wind energy. However, as shown above, the wind industry is an position to bear substantial cost increases in this one component before the overall economics of wind projects are affected.
More generally, I believe it's premature to conclude that limits on the export of rare earths mean that China will also limit the export of value-added manufactured goods such as permanent magnets. The main idea here is, most likely, to bolster the country's manufacturing sector - the very same manufacturing sector that acts as a giant job creation machine and prevents China from experiencing widespread social unrest. As recently pointed out by The Economist, all of emerging Asia's consumers consume about 40% of what Americans do and, although this is gradually changing, it wouldn't be in China's interest to strain that trade relationship by depriving the West of a whole host of technologies that consumers here have gotten used to.
While rarer rare earths may materially impact certain sectors of the economy, the wind industry, by-and-large, should do just fine.
Full Disclosure: The author is long ABB
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youtube.com/watch?v=0C...
YouTube - WheelTug Demonstration--Taxi without engines
2 min 29 sec - May 20, 2007 -
WheelTug's demo in the Arizona desert. This electric motor fits in the nosegear and lets airplanes move on the runway without turning on ...
youtube.com/watch?v=0C...
Thanks for the clarification of the alternatives to using neodymium in wind turbines.
Thanks for your links to teh Chorus technology - sounds as though it has real potential, and I look forward to the results of testing in the aircraft wheel hub.
Any more news on which car manufacturer is interested?
Neodymium?? It's already a replacement for the previous scarce motor metal! Does it have a NEXT??? Maybe. Or, is the better alternative to not use Neodumium at all????? Wisdom, suggests the latter. However, greed rules, until it can't; and then of course, it does again. That being when the wiser choice becomes a good business decision again.
Sort of a David and Goliath story. Place your bets accordingly, but with caution: this is just business! So you guys may be right.
For a further novel solution read page 32 of the Oak Ridge National Laboratory report (www.osti.gov/bridge/se...).
I don't think neodymium or REs will be a roadblock to HEVs, PHEVs or BEVs. Like with wind, there are alternatives, which, if and when rare earths are in short supply, will surely be used.
PS: Emotion in the cleantech space invariably leads to blinkered analysis, I suggest you dial it down and you may see things clearer. I speak from experience.
You just read it that way because engstudent had posted not favourably to the Chorus motor - his comment was not posted when I wrote mine.
Actually, I would not write off the Chorus motor because it has ahd a hard time catching on - after all, there has not previously been a problem with neodymium supplies, so there has not been great incentive to switch.
engstudent, I am glad that there are other alternatives to the use of neodymium a will as the Chorus motor, as an individual initiative stands little chance, but when a lot of people try different ideas one is likely to make it.
I will study your links with interest.
The Tesla seems to have little problem with performance.
green.autoblog.com/200.../
LOTSA WEAK AUTHORS AND READERS ON SA. IT TAKES A BIT OF TIME SORTING BUT THERE'S A GOOD CORE--DEPENDING ON SUBJECT. I COULD NOT MAKE THE REFERENCED LINK.
On Sep 01 09:28 AM Gareth Hatch wrote:
> For some comments on this, from someone at a vertically integrated
> Chinese "mine to magnet" company with a US presence, check out my
> notes on this subject here at Seeking Alpha via bit.ly/H4f6e
You should try writing an article or two, Dave, I'm sure you have insight to give.
thanks for the compliment!
Your in-depth knowledge given in articles of some of the technologies being discussed would also help inform some of the more financial types - some of the statements made about energy technologies are a tad peculiar, to say the least! :-)
Here is authoritative info on the ac motor in the Leaf:
www.nissan-zeroemissio...
I'm a little confused that Mitsubishi have chosen permanent magnet for the iMiEV, as it's dislike of high temperatures would seem to mitigate against being able to run it without a break in a full EV, although they have obviously engineered their way around it as prototypes are running around fine.
www.reuters.com/articl...
For the latest post about Moycorp reopening its US mine. There are a number of good articles at Reuters and as always a good place for information for investors.
Cheers Dave
I too had at one stage, if not bought into the hype on rare earths, was at least seriously concerned enough to want to look into it further.
Perhaps we are missing out, as there seems to be good living to be had jetting around the world to conferences and making portentous statements that we are all doomed! ;-)
Apart from fossil fuels, the only one that worries me much now is helium, essential for many technological processes, they ain't making any more, and it escapes from the atmosphere as it is so light and so is a wasting asset.
We don't seem to have dealt in a sensible way to ensure continuity of supply in rare earths, having swallowed too much efficient market guff, we could have supply interruptions and are over-dependent on China, but for the longer term they are mostly both too abundant and too substitutable to provide a show stopper.
Davewmart.
While you are somewhat right that regular wind gens won't be viable in low wind areas, you can design WG's that are more eff at lower speeds. You simply use a larger blade set to make up for the lower power available. Not viable for commercial wind farms but very doable in home sizes. Don't forget electric costs for homeowners is 2x's utility cost and homeowners don't pay land, transmission business overhead or stockholders.
Also an average wind speed is not the complete story. We have much low speed but we have good high speed winds too at which time you make your power.
I use to build WG's in the 80's along with doing hydro/aerodynamics so know these detail. My high speed cruising sailboats went 25mph under power or sail as an example.
Few things are impossible if you are a good designer and don't get caught in conventional thinking. Just optimize it for the conditions present and think outside the box but within the laws of nature.
For EV's regular motors are good, even better as series or Sep-Ex wound have 9x's rated torque, 5x's hp, h for start up allowing a smaller motor than PM which only gets 3x's rated torque/hp.
I replace my 3.5hp series motor with a 9hp rated PM motor and the PM burned up shortly and replaced it again with the 3.5hp unit which worked for many yrs at several times it's rated power.
I must come over as very negative about renewables, but I am in fact a fan.
It is just that I believe in trying to make sure that different resources are used where they are optimal, and I feel that a lot of folk are allowing their enthusiasm to overcome their judgement - not talking about present company, of course! ;-)
I am a bit of a fan of the windspire design I quoted, which is very good in low winds.
To me, the thing about renewables is that they are very local, and blanket solutions involving them don't work.
Where I live, in Bristol, a windturbine would be pretty useless, although I am on the top of a hill, and so have better wind than in the valley below.
If I were ten miles away, on the coast, and had a bit of land, then conceivably a wind turbine could make some sense if used in conjunction with the grid - it would be ridiculously uneconomic to use battery back up.
The power source I am really against though is coal, and in practise countries such as Germany in spite of massive investment in renewables, far more than would ever be tolerated in the US or UK, are in practise burning coal, and imported natural gas.
France, which gets most of it's electricity from nuclear power, emits far less carbon.
In the US though it is far easier to get quite a lot of your power from renewables - I am a particular fan of municipal solar power, where you put 2-10MW on the ground near small towns, and don't have to step up or down the power, so you avoid most of the transmission costs, which as you say are a substantial part of total costs.
BTW, have you checked out the Mercedes BlueZero?
green.autoblog.com/200.../
Oh Lord, won't you buy me a Mercedes-Benz! :-)
On Aug 31 10:25 AM kmi wrote:
> I dunno, if China slows exports it sounds like the reason would be
> to use it domestically, and since they are one of the fastest growing
> energy consumers in the world, I suspect that although it may hurt
> wind farms or rare earth users outside the country, it may also decrease
> global energy consumption on a way that decreases global pressure
> to create utility scale wind projects...
>
> Interesting article nonetheless but nothing to worry about yet...