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 • Transmission Capital – an introduction • 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
Transmission Capital – an introduction
Leading Offshore Transmission Experience • New company but experienced staff • Over 50 years in offshore transmission • Led several major successful offshore projects now in construction: – Greater Gabbard OWF – BritNed Interconnector – Robin Rigg OWF • Other roles on many other offshore projects now operational: – Basslink Interconnector – Isle of Man Interconnector • A team of international experts providing project management and specialist technical expertise Offshore wind farms Round 3 wind farms (under construction) (initial development recently completed) Submarine cable (in service or under Onshore power construction) stations (in service)
Design, Development, Investment & Asset Management • • We offer a full design & development Full service for equity investors, service in relation to transmission working with specialist advisers to assets: provide: – – Front end engineering and design Bid management – – Environmental Impact Assessment Development and Design – – Stakeholder consultation Technical and legal due diligence – – Land right acquisition Arranging debt finance – – Crossing agreement negotiations Procurement and construction management – Sea-bed survey (and other site – investigations as necessary) Operational management – – Connection application and connection Insurance agreement negotiation – Industry and stakeholder liaison – Liaison with TSO and onshore – Health & safety compliance transmission companies – Regulatory compliance – Advice on performance targets – Advice on regulatory transmission issues
Financing Offshore Transmission – an emerging issue in Europe
Growth in Capex Requirements for Offshore Transmission • The pace of offshore wind growth is picking up Installed European Offshore Wind Capacity (GW) • 45 Even conservative estimates envisage 20- 40 40GW by 2020 35 30 • To date rule of thumb of € 500m capex on 25 20 offshore transmission for every 1000MW of 15 10 offshore wind capacity (15-20% total capex) 5 • Farther offshore wind farms will require even 0 2006 2010 2015 2020 greater transmission capex Delivering Offshore Wind Power in Europe, Offshore Wind Industry • So minimum of € 10bn in Europe by 2020 Group, EWEA, 2007 • 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
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 Onshore TO Offshore Transmission Owner (OFTO) Generator Connection to onshore network Onshore Substation Offshore Platform 132 kV Cable 33 kV Inter Array Cables
Industry Relationships Transmission Use of System Charges GBSO O&M Contract Bid revenue stream Sale and Purchase Agreement OFTO Insurance Offshore Generator Lease Transmission Licence Crown Estate Ofgem Financing
Transitional Regime Projects Projects likely to qualify for First Transitional Tender (£1.15bn) Project Developer Size (MW) Exp. Completion Dong Energy / 1. Barrow 90 Operating Centrica 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 * 2 8. Sheringham Shoal Statoil Hydro / Statkraft 315 Jun 10 6 7 1 Projects that may qualify for Final Transitional Tender 11 (up to £1.5bn) 13 10 8 12 Project Developer Size (MW) 9. London Array E.ON / Dong / Masdar 1000 5 10. Lincs Centrica 250 3 9 4 11. Gwynt y Mor RWE Innogy 750 12. Docking Shoal Centrica 500 13. Race Bank Centrica 500
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
Contact details: Email: chris.veal@transmissioncapital.com Tel: 07768 036613 Web: www.transmissioncapital.com
Recommend
More recommend
