Offshore developers chase record prices as lower risks attract investors

23 nov 2016Nieuws

Vattenfall’s record-low offshore wind price of 49.9 euros per MWh ($53.0/MWh) has shocked the energy industry and new competitive tenders will further optimize projects amid favorable lending markets, leading developers told the Offshore Wind Europe conference on November 22.

The rising use of competitive tenders for large-scale new energy projects has prompted even greater focus on optimized installation processes and project costs. Vattenfall’s winning bid for the Danish 600 MW Kriegers Flak project was 58% below the cap price for the tender and almost a third lower than DONG Energy’s 72.7 euros/MWh price for its Dutch 700 MW Borssele 1&2 project, announced in July.

Installation costs are falling on improved project execution and better technology while low interest rates are allowing developers to minimize capital costs, Dr Gregor Schaefer, Head of Strategy, E.ON Climate & Renewables, told the conference.

“There’s a lot of money in the market looking for investment opportunities…that all factors into the very low prices that we see,” he said.

The offshore wind industry has entered into a new “lower plateau” of prices, according to Jos Jacobs, Project Manager Business Development of Dutch developer Eneco Wind.

Rising interest rates would increase project costs but we are unlikely to see prices go back above 100 euros/MWh, he said.

                        European offshore wind investment in H1 2016

Source: WindEurope

Europe commissioned a record 3.8 GW of offshore wind capacity in 2015 and following a brief dip in 2016, annual installations are forecast rebound to 3.4 GW in 2017 and remain between 3.8 GW and 5.0 GW between 2019 and 2023, according to figures from Bloomberg New Energy Finance (BNEF). The consultancy expects competitive tenders to be used for 46% of project commissioned in 2019, and this will rise to a 100% share for projects commissioned from 2021.

Growing installed capacity has boosted investor confidence in offshore wind power and the introduction of new companies in the market has increased competition, Matthias Haas, CEO of the Gemini Wind Park, told conference attendees. Gemini plans to commission its Dutch 600 MW project in 2017.

“Cost is related to risk and people certainly perceive the risks to be much lower than they were,” Haas said.

‘Lower then Kriegers Flak’

The Dutch government will soon announce results of the Borssele 3&4 tender for a combined capacity of 680 MW and the winning bid will provide further detail on cost reductions achieved by the industry.

Price comparisons between countries can be challenging as offshore wind developers must take into account tariff terms, linkages to inflation, tail-end merchant power terms and commissioning dates, in addition to site-specific challenges, Tom Harries, Wind Energy Analyst at BNEF, said.

The Kriegers Flat project benefits from de-risked development costs and the provision of transmission by the power authorities, Harries noted.

“The Danish bids are de-risked in comparison to, say, UK projects. The developer in Denmark takes a project on effectively at the permitted stage,” he said.

UK projects must also include transmission costs estimated at around $1 million/MW, and this leads to higher revenue requirements, Harries said.

In the Netherlands, developers are provided transmission connections and benefit from de-risked development costs, as in Denmark. This means the levelised cost of energy (LCOE) for Borssele 3&4 and later Dutch projects is expected to be below $100/MWh (94 euros/MWh), Harries said, even taking into account wholesale power prices upon tariff expiry, inflation rates, and commissioning dates.

According to Jacobs, the Dutch tenders could result in prices “even lower than Kriegers Flak.”

CAPEX gains

Improved technology and installation practices have driven down capital expenditure (CAPEX) for offshore wind projects and operators see further gains ahead.

Close collaboration between project partners, suppliers and vessel contractors is key to reducing installation times and cutting costs, the operators said.

The Gemini project worked closely with suppliers early in the development process to ensure a successful bid, Haas said.

“The working together of the construction company, the turbine company and the developer– in our case it was three parties– was essential to achieving a price that actually won the bid,” he said.

Project scheduling can be optimized by developers and suppliers all focusing on cost optimisation, Jacobs said. All parties must work together to mitigate installation risks such as weather windows and contractors must reduce margins to help form a competitive price, he said.

“We are all in the same competition, we are teaming up mostly with contractors….we must distribute the pain evenly.”

Technology improvements will continue to lower CAPEX costs, even in key components such as monopole foundations which are seen as relatively sophisticated and mature within the offshore market, Schaefer said.

“There is still more room to improve, with the design and standardization, etc,” he said.

Merchant risk

Vattenfall’s price for Kriegers Flak has caused some to question whether offshore farms can be built without subsidies, taking on wholesale power market risk.

The operators warned that lower prices can only be achieved through revenue certainty offered by long-term price support.

“You would require higher capital costs to really justify building an offshore wind farm in the open market with that big price uncertainty,” Schaefer said.

                  Average weekly power prices in Central Western Europe

Note: EEX DE=Germany, APX NL=Netherlands, EPEX FR=France, BPX BE=Belgium.
Source: European Commission Market Observatory.

Many power generation technologies continue to benefit from some type of subsidy and going forward offshore project support could come through other types of incentives, such as tax credits or prioritized in the generation mix, Haas said.

“It may come differently than per megawatt hour…create a level playing field absolutely, but you need to take into account everything,” he said.

If subsidies are removed and offshore wind farms structure projects around power market risk, developers could look to the experience of oil and gas producers in developing projects based on commodity market risk, Schaefer suggested.

“If I was building a multi-billion euro facility out into the market I would probably try to achieve a similar return as if I was in oil and gas,” he said.

Growth ahead

Current regulatory frameworks and low carbon objectives, combined with falling costs, point to a “very positive outlook” for offshore wind in Europe in the 2020s, Schaefer said.

New emerging offshore wind markets, such as the U.S., provide further growth potential, he noted.

“I sort of believe that some U.S. states will also go for wind independently of any impact from the federal government, so will some Asian countries…Overall the market is in good shape and it will continue to grow.”


Meer nieuws in deze categorie

Flonk Hotels wint Dutch Hotel Award 2024

Flonk Hotels wint Dutch Hotel Award 2024

Ook in 2024 zocht de Dutch Hotel Award het beste hotelmanagementteam van Nederland. Deze editie is het thema ‘High Tech, High Touch’. Hoe vind je als hotelmanagementteam de optimale balans tussen de “afstandelijke”, maar niet meer weg te denken, techniek en...

Lees meer
Delfsail Vaartocht 2024

Delfsail Vaartocht 2024

Op de eerste dag van Delfsail 2024, 13 juni, kwamen leden van de netwerkorganisaties CC Ventus, Top of Holland en om 8 uur bij elkaar op de kade van Delfzijl om in te schepen op de 'Regina Andrea' voor een vaartocht en ontbijt. De bijeenkomst werd...

Lees meer
Nieuwsbrief 03

Nieuwsbrief 03

Zojuist verschenen, vers van de pers: de derde nieuwsbrief van U kunt de nieuwsbrief lezen via deze link.   Veel leesplezier!

Lees meer