I was quite disturbed the other day to learn from the FT Energy Survey the other day, that the price per megawatt of wind turbines is continuing to climb. As the article says;

Shai Hill, division director of climate change at Macquarie Capital Securities, predicts that the price of turbines - which has risen by more than a third in the past two years to about £1.5m - will rise by 10 per cent this year and with a rise of the same amount expected next year. This is even without taking into account rising steel prices - most turbine manufacturers build a clause into their supply contracts stipulating that steel price rises can be passed on to customers.

Steel prices by the way, have risen six times since 2000. To get some idea of how big a jump in the installation per megawatt cost of wind turbines we've had over the last few years, take a look at this paper "European Wind Power: Thar she blows !" published by Augusta Finance in April 2003. Back then, the price was EUR 1 million per megawatt - which was itself a big fall from EUR 1.7m per megawatt in 1996. For those of you who think more readily in dollars, it's even worse. In April 2003, the EUR:USD exchange rate was around 1.04 rather than the 0.63 you get now.

So you could say since 1996, we've followed a V-shaped curve - wrongly assuming it would continue - and have had a rough ride on the way up. The big question is though, when will prices come down again?

Well, on the face of it, if Mr Hill's forecast is correct, you'd have to say, not for a few years.

All of this makes me think that the wind farms erected in 2003 at 2003 costs, now selling into record highly priced electricity markets, must be the most profitable wind assets out there.

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