New market drivers to boost utility and investor appetite for offshore wind in 2015
The Paris Protocol, carbon pricing, stringent O&M practices and competitive bid pricing are all expected to attract European utilities and investors to offshore wind projects in 2015.
By Katherine Steiner-Dicks
FCBI – (LONDON) Pledges initiated by the European Union’s Paris Protocol to reduce global emissions by 60% below 2010 levels could spur more offshore wind project planning among European utilities and investors in 2015, regardless of oil and gas prices.
The Paris Protocol, which includes the EU’s climate pledge for the December 2015 United Nations climate talks, calls for a 40% domestic reduction in [GHG] emissions in 2030. This is gradually increasing the reduction level over the period beyond the existing reduction target of 20% for 2020.
The EU calls to reduce global emissions by at least 60% below 2010 levels by 2050.
According to the European Wind Energy Assocation,12 offshore wind projects currently under construction in Europe will increase installed capacity by a further 2.9 GW, bringing the cumulative capacity to 10.9 GW.
Markets to watch
“Based on five-year MW offshore wind installation forecasts the markets to watch are the UK, Germany, the Netherlands, Belgium and Denmark – in that order,” says Feng Zhao, Director / Head of Wind Energy and Economic and Financial Consulting at FTI Consulting in Copenhagen.
Several utilities will also be eyeing less developed offshore markets including France, the Paris Protocol host. “I believe Dong Energy should be keeping an eye on all the markets providing offshore wind opportunities, even those that are less developed,” says Rune Birk Nielsen, Senior Press Officer at Dong Energy.
The North Sea will continue to be the regional hotspot for offshore deployment in the short term, accounting for 84.8% of total capacity under construction.
Belgium and Denmark are also expected to keep steady progress in new installations over the next five years.
The Netherlands’ 600MW Gemini project changed the investment model for the offshore wind sector by securing non-European investors. As more institutional investors realise healthy returns in renewables, a more global and diversified investor base will support the offshore industry over the next five years, enabling projects to complete faster.
Developer appetite
Germany’s WindMW was the largest developer in the European offshore sector in 2014 with 19.4% of total connections (Source: EWEA). Combined with RWE (14.1%), DONG Energy (14%), Iberdrola (12.1%) and Stadtwerke Munchen (11.2%), the top five developers added 70.8% of the capacity that went online during 2014.
Chart source: EMEA
However, 2015 will see Germany overtake the UK in annual grid connected capacity, according to the EWEA. The largest wind farms to be fully completed will be RWE’s Gwynt y Mor (576 MW) followed by Global Tech 1 (400 MW), both expected in Q1.
By the end of 2014, German offshore wind projects surpassed the 1 GW-mark, according to Deutsche WindGuard. This corresponds to an investment volume of about €4bn.
Blackstone Energy Partners, which has a joint venture with German developer WindMW, recently raised $4.5bn for its second energy fund, double its 2011 commitment, indicating that its limited partners have an appetite for renewables. Reported returns in excess of 30% were realised by the first energy fund.
Chart source: EMEA
Competition heats up: Denmark's Horns Rev 3
In February 2015 Vattenfall Wind Power won the concession to build and operate the 400ME offshore wind farm Horns Rev 3 in Denmark.
The second largest offshore wind operator in the world, Vattenfall outbid the largest operator, Denmark’s Dong Energy. Vattenfall won the bid at 10.31 euro cents per kilowatt-hour, or US11.52c/kWh.
The winning bid is more than 30% below the 14.07 Eurocent (15.15 Eurocent in fixed 2015-prices), which is the price being charged by Anholt Offshore Wind Farm.
“This makes it the cheapest offshore wind park in Europe at the moment,” said the Danish Ministry of Climate, Energy and Building.
“With Horns Rev 3, Denmark is making windmill history through realising a significant reduction in the cost of establishing offshore wind farms,” said Minister for Climate, Energy and Building Rasmus Helveg Petersen.
The low price is due to technological developments throughout the wind turbine industry combined with a very successful tendering process, according to the ECB Ministry.
Per Krogsgaard, co-founder of wind advisory firm BTM Consult/Navigant in Denmark believes that Vattenfall must have been ‘all hands in’ to be consented an offshore wind project of this size.
“Vattenfall may be able to reduce costs and keep a competitive edge on cabling and transformers, but this is very speculative. We need to see the technical set up before we can judge," he says.
“I believe that Vattenfall on a strategic level is driving to have more renewable energy in its generation mix getting free from dirty plants like lignite (brown coal),” says Krogsgaard.
He continues: “Magnus Hall, the new CEO, seems to be driving in the direction of renewables, which is wise since more customers and the wider public are concerned about the environment. This is in spite of the friction and slow action on the part of utilities to follow public opinion.”
In late 2014 it emerged that Hall was gearing up to lower prices to match Dong Energy’s plan to make offshore wind at least 40% cheaper. If Hall’s team can bring O&M efficiencies to all its turbines, that means cost savings to several markets. Vattenfall has more than 900 wind turbines in operation in Sweden, Denmark, Germany, the Netherlands and the UK.
Dong Energy also has big plans. “For projects given the green light in 2020, we have said that we want to reduce the costs of electricity by 35-40 per cent. We are well on track and even though it will be tough, I'm confident that we'll make it,” says Rune Birk Nielsen, Senior Press Officer responsible for Wind Energy at Dong Energy.
Cost reduction through innovation
Another company helping reduce costs is Norway’s Seatower. In February 2015 it installed its first crane-free gravity foundation (CGF) for offshore wind turbines in the English Channel off France. Danish contractor MT Højgaard administered the installation at Fécamp.
The prototype crane has been designed to drastically cut the vessel-linked costs of transporting monopoles and multi-legged jack foundations. Vessel rental costs can run up to €100,000 a day.
“No one is just sitting around sipping coffee; everyone is doing their part to make offshore wind power more competitive. This is clearly demonstrated by the highly competitive CfD auction announcements in the UK that saw an allocation for a UK offshore wind farm of £114.39/MWh, on course to meet the cost reduction of £100/MWh by 2020,” says Zhao.
“The general decline in prices in the market for wind power means that offshore wind power is now well on its way to becoming a viable competitive alternative to traditional fossil fuels. At the same time, we have developed an efficient procurement model, which the whole of Europe can take inspiration from," says Minister Petersen.