In opening a roundtable, held at the Renewable Energy World Europe conference in Amsterdam in June, moderator Peter Spaans of sponsors Ernst & Young (E&Y) said the European offshore wind sector offered both huge opportunities and challenges – from project financing and the supply chain, to construction, operations and maintenance (O&M) and grid connection.
Giving an overview of the industry, Arnaud Bouillé, director within E&Y’s renewable energy team and lead in offshore wind, said recent projection figures by Bloomberg showed that total cumulative expenditure in offshore wind would reach $150 billion by 2020.
Echoing Spaans, Bouillé said that, despite a significant pipeline of development, there were various hurdles to accessing capital, from managing development and construction risks to long-term O&M.
He cautioned that, at the same time as the industry was relying on regulatory incentives, some of the regulatory framework for European renewable energy was under review and this may adversely affect confidence in the offshore wind sector. “This is the sort of signal that could put the industry off and slow down investment significantly,” he said. While agreeing that many issues were pertinent to the future of wind power – from the economic downturn to the need for better industry collaboration – participants voted to focus their discussion on four main topics:
- The need for grid connections
- The role of engineering, procurement and construction contracts (EPCs)
- The optimum level of energy storage
- The availability of finance
Participants called for grid connections to the shore to be made easier and for capacity for offshore wind parks. They also emphasized that a clear and robust regulatory framework was crucial for the long term.
Ton van Dijk, manager Licensing at Delta, said: “If you are talking about big offshore wind parks in the northern part of the North Sea, you have to make a grid connection. Is it a case of everyone for himself or one common grid where everybody can plug in?”
Klaus Grundel, corporate finance leader at Bard Holding, called for transparency around the long-term regulatory framework. He said it was unclear what companies were responsible for and what were regulatory responsibilities. “It’s a grey area in which we need clarity in the future,” he said.
Just two German companies currently have grid connections. Bard Holding has two connections. Grundel said these were hard to get and involved talking to numerous people in government, quasi-government agencies and connection companies. He said: “They act in a way that is not always very helpful for a park to be developed. They say, show us everything is done and then we can give you the grid connection. That’s the challenge we are facing right now.”
Grundel highlighted the intra-European variance in regulation, explaining that, in Germany, the responsibility ends at a company’s transformer platform, while he understood it was not the case in the Netherlands. Markus Wandt, head of Mergers and Acquisitions at RWE Innogy, also explored industry differences. He explained that, in the UK, a project owner builds the grid connection which, on completion is transferred to an offshore transmission operator. Whereas in Germany the grid operator builds the grid connection, and the cost of selecting which project or grid connection gets built is arbitrary.
“It’s holding back the realization of offshore wind farms. In our experience, the system in the UK is far more efficient and it’s very simple. If someone has the money and control to build it, he is fortunate,” said Wandt.
Bouillé acknowledged that the German grid system seemed problematic, while the UK transitional arrangement might bring some financing benefits, although he said that was yet to be validated.
When it came to becoming EPC contractors themselves, most of the big marine contractors were sceptical because they had not seen money flowing into the area, said 1-Tech consultant Jan Hanssen. “As soon as one of them sees money they will all run after it but at the moment, like most of us, they are sceptical of the economics,” he said.
Asked to identify the stumbling block that was preventing the bigger offshore projects being integrated into some sort of ‘super grid’ construction, Grundel said firms were struggling to get connections, an issue which needed to be addressed at an European Union (EU) level.
EPC Contractors Role
Participants had a lively discussion on whether a single point of contact in the form of an EPC contractor could help to standardize the supply chain. Some felt it would help projects run more smoothly, while others felt that such a consolidation of responsibility would be too high risk.
Grundel stated that offshore wind parks needed a single point of contact, in an EPC contractor. He said they were complex infrastructure projects, with very different dynamics, customers and risks than onshore wind parks. “That’s why Bard has decided to create an EPC contracting company as an overall, overarching company that subcontracts within one company,” he told the group.
He said that multi-contractual situations, where one company contracts out to different firms, could lead to inefficiency and complexity. He added: “The EPC provider in that situation has a more difficult task to realize. If you do it all under one roof in one company, you are able to reduce the complexity issues in co-ordinating all those different companies. That’s why we think our concept is unique. It’s like an EPC contract and one-stop shop in one company.”
A past track record was seen as essential. Van Dijk said that, although many companies might want to be EPC contractors, a lack of experience and knowledge was a disincentive.
Several of the roundtable participants pointed out that having one main EPC contractor with multiple subcontractors was a common model in the oil and gas industry.
One roundtable participant added that he had not come across a single EPC contractor offshore. He said: “No one is willing to assume the full project risk and talk about the pricing of such risk. No one is willing to consider it.”
Rounding up the subject, Spaans said using EPC contractors was a key concept for offshore wind projects but one with issues and risks.
The optimum level of energy storage
Participants exchanged ideas about how to store wind power energy, including one of building new storage facilities and using wind to power hydrogen vehicles.
David Richardson, principal engineer with Ace European Group, suggested storing wind power energy in hydrogen facilities around Europe, where it could be compressed and used to power hybrid vehicles. He said energy produced at night could be used during the day, when prices are higher. However, while agreeing introducing hydrogen was a fascinating idea, Hansen said it might add complexity and compound risk.
Robert Seiter, E&Y’s EMEIA Cleantech leader, said a more stabilizing storage system was needed because electric cars only consume a small amount. His colleague Spaans suggested that wind park developers build storage facilities at the same time, as no single utility was prepared to invest in storage as it was considered too expensive.
Frank Wiersma, consultant Wind Energy at Ecofys, said the cost for a pure storage system was prohibitive. He said the industry would have to look at other alternatives, including grid strengthening, better control of consumption and the future of electric cars.
Availability of Finance
Spaans asked whether – despite the relative availability of money considering the downturn – there was enough investment capital.
Participants heard offshore wind was still regarded as high risk and that more experience in establishing wind farms was needed to encourage investors.
One attendee pointed out that there is a huge challenge to get investors involved in offshore wind because it is very risky, the track record is very limited and the money needed is very large. “We are not talking about one hundred million we are talking about billions,” he said. “It’s fragmented in various countries and regimes. It’s not making life easy for investors.”
The group was concerned that investors would not invest in offshore wind until more projects materialized and more experience was gained. Sometimes European subsidies are too complex, with each country having a different scheme and there being confusion about the different schemes.
One of the roundtable participants felt that the sheer scale of the first development stage was a disincentive, with, for example, UK wind farm investment due to be more than £100 billion ($160 billion) in the next decade. He said: “None of the players collectively have that kind of money, so there will be a huge amount of capital required. I don’t think it’s an issue whether the capital is there. We are all in a regulated market. Without subsidies nobody would be sitting here.”
He flagged up the difference between tariff regimes, with, for instance, a feed-in system in Germany and a market-driven system in the UK. He said that in his company’s experience in raising capital for projects, the feed-in regime was better for securing larger investment.
“The UK has the most ambitious programme in terms of offshore. I don’t see 100 billion sterling or euros out there in the market with the prevailing regime. I think it’s going to be very difficult. You need to be able to think about what is the best regime that will facilitate growth.”
Sounding a positive note, E&Y’s Bouillé said as long as parties are credible, and interfaces can be managed, financing is doable.
EU Renewables Target
The European Union (EU) target to supply 20 per cent of its energy from wind and other renewables by 2020 will not be met – according to the majority of roundtable participants. Van Dijk was among those who felt it was unattainable. He said: “The development will be slower than the German government hopes. They can set out a programme of subsidies and see whether they will work.”
He added that energy prices were still too cheap and that a good CO2 trading system with realistic prices would help.
One roundtable participant pointed out that many European countries had aging power generation platforms. He said: “I have my doubts whether … the outgoing power plant generation base will be replaced. That will create a gap in power production. And the quickest way of filling that gap is with offshore wind. We should try and build offshore wind plants quicker than any nuclear power plants.”
On a positive note, Hanssen said: “I think the target will be reached. If you present to the population the alternatives, including more onshore wind, the risk will be seen as even more. But I am going to be an optimist.”
- Michiel Ybema, Group Treasurer, Green Gas, The Netherlands
- Markus Wandt, Head of Mergers and Acquisitions, RWE Innogy, UK
- Andre Zimnik, Project Support Manager, Volker Construction International, The Netherlands
- Nanning de Jong, The Bridge, The Netherlands
- Ralph Eller, General Manager Windpower, RUAG, Switzerland
- Frank Wiersma, Consultant, Wind Energy, Ecofys, The Netherlands
- Esa Peltola, Customer Manager, Energy Systems, Wind Energy, VTT Technical Research Centre of Finland, Finland
- Frederik Deutman, Rabo Project Equity, Rabobank, The Netherlands
- Klaus Grundel, Corporate Finance Leader, Bard Holding, Germany
- Jerry Douglas, Engineering Practice Leader, ACE European Group, UK
- Eldred Clark, Engineering Manager, Ace European Group, UK
- David Richardson, Principal Engineer, Ace European Group, UK
- Jan Hanssen, Consultant, Offshore Projects, 1-Tech, Belgium
- Ton van Dijk, Manager Licensing, Delta, The Netherlands
- Jos van der Heijden, Heijden Project Management, The Netherlands
- Sabine Lankhorst, Offshore Wind Journal, project manager, The Netherlands
Europe’s offshore wind potential
The potential of the offshore wind sector in Europe is immense. According to the European Wind Energy Association (EWEA), it would be able to power the whole of Europe seven times over.
There are currently 830 wind turbines installed and grid connected, totalling over 2000 MW in 39 wind farms in nine European countries.
Last year, 201 wind turbines were installed and grid connected, up 56 per cent on 2008. This year, the expectation is that 1000 MW will be installed, a 71 per cent market growth compared with 2009. Alpha Ventus, Germany’s first offshore wind farm, went into operation
There are more than 100 GW of offshore wind projects at various stages of planning. According to EWEA, if all were realized they would produce 10 per cent of the EU’s electricity.
The UK is currently leading the field in terms of installed capacity and last month the Crown Estate gave the go ahead for an additional 2 GW in offshore wind capacity.
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