European Offshore Wind 2009
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European Offshore Wind 2009 A description and analysis of the new competitive regime for the provision of grid connections for UK offshore wind farms
description
European Offshore Wind 2009. A description and analysis of the new competitive regime for the provision of grid connections for UK offshore wind farms. Overview. Financing Offshore Transmission – an emerging issue in Europe The UK Offshore Transmission Regime a description - PowerPoint PPT Presentation
Transcript of European Offshore Wind 2009
European Offshore Wind 2009
A description and analysis of the new competitive regime for the provision of grid connections for UK offshore wind farms
Overview
• Financing Offshore Transmission – an emerging issue in Europe
• The UK Offshore Transmission Regime
– a description
– an offshore wind developer’s perspective
– an OFTO bidder’s perspective
• Who will the new offshore transmission owners be?
• How does the regime impact on offshore grid design?
– a grid system planner’s perspective
Financing Offshore Transmission – an emerging issue in Europe
Growth in Capex Requirements for Offshore Transmission
• The pace of offshore wind growth is picking up• Even conservative estimates envisage 20-
40GW by 2020• To date rule of thumb of €500m capex on
offshore transmission for every 1000MW of offshore wind capacity (15-20% total capex)
• Farther offshore wind farms will require even greater transmission capex
• So minimum of €10bn in Europe by 2020• UK government /Ofgem estimating UK offshore
transmission market may be worth €15bn-€20bn on its own
• Greater interconnection will increase capex requirements, and benefits even more so
Installed European Offshore Wind Capacity (GW)
0
5
10
15
20
25
30
35
40
45
2006 2010 2015 2020
Delivering Offshore Wind Power in Europe, Offshore Wind Industry Group, EWEA, 2007
New Challenges for Transmission Companies
• Onshore grids largely built by state owned monopolies• Many grids now in private hands• Private finance required to fund offshore transmission expansion• Investment requirement offshore may be greater than existing asset base (cf UK)• Investors may not be willing to fund or at least to commit to funding expansion• Particularly in current “credit crunch” climate• Hence different models required …. UK first of these …
The new UK offshore transmission regime
Description
• By summer 2010 it will be prohibited in the UK to transmit electricity offshore at 132kV or above without an offshore transmission licence
• Ofgem will be the licence awarding entity• Currently no offshore transmission licences exist• Licences will be awarded following a competitive tender on a project-by-project basis• The criteria for licence award will be 60% finance based and 40% non-finance• Existing and under construction offshore transmission assets will be transferred to
new offshore transmission owners (OFTOs) – TRANSITIONAL REGIME• New offshore transmission assets will be procured, constructed and owned by new
OFTOs – ENDURING REGIME
Scope of OFTO
Offshore Transmission Owner (OFTO)Onshore TO Generator
Offshore Platform
Connection to onshore
network
132 kV Cable 33 kV Inter Array Cables
Onshore Substation
Industry Relationships
OFTO
GBSO
O&M Contract
Ofgem
Offshore Generator
Crown Estate
Lease
Sale and Purchase
Agreement
Transmission Licence
Bid revenue stream
Transmission Use of System Charges
Insurance
Financing
Transitional Regime Projects
Project Developer Size (MW) Exp. Completion
1. BarrowDong Energy / Centrica
90 Operating
2. Robin Rigg E.ON 180 Jul 09
3. Gunfleet Sands I & II Dong Energy 172 2009
4. Thanet Vattenfall 300 *
5. Greater Gabbard SSE / RWE Innogy 504 Mar 11
6. Ormonde Vattenfall 150 Nov 10
7. Walney I & II Dong Energy 360 *
8. Sheringham Shoal Statoil Hydro / Statkraft 315 Jun 10
Project Developer Size (MW)
9. London Array E.ON / Dong / Masdar 1000
10. Lincs Centrica 250
11. Gwynt y Mor RWE Innogy 750
12. Docking Shoal Centrica 500
13. Race Bank Centrica 500
Projects likely to qualify for First Transitional Tender (£1.15bn)
Projects that may qualify for Final Transitional Tender (up to £1.5bn)
1
2
34
5
67
9
1011
1213
8
An offshore wind developer’s perspective …
• Good bits– Offshore wind developers don’t need to finance offshore transmission connection– Rate of return requirements will be less than for offshore wind farm – offshore
wind developers will benefit (customer taking the risk of default of the offshore wind farm)
– Energy production metered offshore
• Bad bits– No significant compensation if offshore transmission is unavailable– No significant compensation if offshore transmission is late
• Clarification needed in some areas– When to seek appointment of the OFTO?– How many OFTOs for a large multi-site project?
An OFTO bidder perspective
• Good bits– Credit risk minimal, 20-yr fixed revenue stream subject RPI indexation
– Availability incentive/penalty (capped at 10% of annual revenue)
– O&M and insurance costs, generally small and can be estimated and fixed
– Most significant repair costs should be insured or under manufacturer’s warranties
– Some cost items are pass-through
• Bad bits– A long time coming (regime first consulted on in 2004)
– Complex, costly and lengthy tendering process
• Clarification needed in some areas– Lack of clarity as to when committed financing required
– Indeterminate timing gap between licence award and takeover of asset
– Requirement for compliance with utilities contract regulation (OJEU)
– Level playing field with respect to generator-affiliated OFTO bidders
Who will the new offshore transmission owners be?
Who might the new OFTOs be?
• Transitional– Offshore wind generators (for their own projects)
– Existing onshore TOs
– New entrants backed by infrastructure/pension funds
• Enduring– Offshore wind generators (subject to unbundling)
– Existing onshore TOs
– New entrants - to the extent cut-their-teeth on the transitional rounds
– New entrants - with offshore construction management experience
UK regime impact on offshore grid design
Offshore Wind Farm Connections or offshore grids?
A grid system planner’s perspective
• UK regulatory enduring regime still being developed• Some positives
– Information to be published by TSO
– Co-ordination by controlling body (landlord)
– Co-operation between developers
• Some way to go though …– Connection application process requires individual treatment of offshore wind farms
– Offshore wind developers incentivised to be selfish in some circumstances
– Interconnection has to be merchant
• Some of these issues will be addressed through forthcoming UK consultation processes
• What can EU do to help or hinder?– Cross-border planning standards
– Clear and certain mechanism for recovering costs of interconnection (including return on investment)
Conclusions
• Financing offshore transmission is a growing challenge• New models for funding being tried• UK model has acceptable risk/return profile for low return capital• Some issues still need to be resolved in the tender process but otherwise attractive
for investors• Some issues less than ideal for offshore wind developers and enduring regime still
being devised• A competitive process expected with new entrants in the transmission ownership
space• EU has a role to play in facilitating cross-border connections leading to an optimal
offshore grid design
