Offshore Wind & Transmission Forum Financing Offshore Transmission – A Transmission Owners’ Perspective
Overview • Transmission Capital • Financing Offshore Transmission – An Emerging Issue in Europe? • UK Offshore Transmission Regime – A Transmission Owner’s Perspective
Transmission Capital
Leading Offshore Transmission Experience • New company but very experienced staff • Over 50 years experience in the development, procurement, construction and operation of offshore wind and transmission • Led several major successful offshore wind and transmission projects now in construction: – Greater Gabbard OWF – BritNed Interconnector – Robin Rigg OWF • Other roles on many other offshore transmission projects now operational: – Basslink Interconnector – Isle of Man Interconnector • Managing 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, working service in relation to transmission with specialist advisers to provide: assets: – 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 – Operational management as necessary) – Insurance – Connection application and connection – Industry and stakeholder liaison agreement negotiation – Health & safety compliance – Liaison with TSO and onshore transmission – Regulatory compliance companies – Advice on performance targets – Advice on regulatory transmission issues
Financing Offshore Transmission – An Emerging Issue in Europe
Offshore Wind Farm Connections … or …
… Offshore Transmission Grids?
Growth in Capex Requirements for Offshore Transmission • Offshore wind industry has grown Installed European Offshore Wind Capacity (GW) sporadically to date 45 • But the pace is picking up and even 40 conservative estimates envisage 20-40GW 35 30 by 2020 25 • Rule of thumb of €500m capex on offshore 20 transmission for every 1000MW of offshore 15 wind capacity (15-20% total capex) 10 • So minimum of €10bn by 2020 5 0 • UK government /Ofgem estimating UK 2006 2010 2015 2020 offshore transmission market may be worth €15bn-€20bn on its own Delivering Offshore Wind Power in Europe, Offshore Wind Industry Group, EWEA, 2007 • 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 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 climate • Hence different models required …. UK first of these …
UK Offshore Transmission Regime - An OFTO Bidder’s Perspective
Transitional Projects Projects likely to qualify for First Transitional Tender (£750m - £1.0bn) 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 1 Dong Energy 178 * 2 8. Sheringham Shoal Statoil Hydro / Statkraft 315 Jun 10 6 7 1 Projects that may qualify for Final Transitional Tender (up to £1.5bn) 11 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 7. Walney 2 Dong Energy 183
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 Offshore Generator Insurance Lease Transmission Licence Crown Estate Ofgem Financing
Offshore Transmission – Financial & Bid • Cost of capital key The OFTO revenue is fixed in accordance with • Financing requirement the amount bid, but the cash actually comes – Balance sheet: net assets of 120% of RAV; from all consumers and generators (via National or Grid). There is no direct contract with the wind – Project finance: net assets or evidence of raising100% required equity and debt spend farm and so minimal credit risk – Turnover test? • Low financial risks as: National Grid Electricity Transmission plc – Credit risk minimal (see opposite) (in its role as “GB system operator”) – 20-yr fixed revenue stream subject only to: RPI indexation (full) and availability (capped at 90%) – Exchange rate risk minimal All GB • Likely sources of equity: generators & OFTO Wind Farm consumers – Established utilities associated – Infrastructure funds with OFTO – Pension funds – Others? • Likely sources of debt – Commercial banks – Capital markets – EIB – Others?
Offshore Transmission – Regulatory & Legal • Timing – Regime first consulted on in 2004, first licence Primary Legislation award not before Q2 2010 Sets overall industry – 12 month tender process …. due to start in Q3 framework 2009 • Complex industry codes & licences – Transmission Licence – SO-TO Code: governance arrangements and code change procedures Licences Industry Codes – TO Construction Agreement Current Setting detailed obligations Govern detailed Regulatory for licensees in generation, – Technical: GBSQSS, Grid Code, STC commercial arrangements Framework transmission, distribution, between industry parties • Unbundling supply – Directive due to enter force in summer 2009 – Post transposition into national legislation will require ownership unbundling of generation and Ofgem’s role transmission Regulates monopoly – Complicated, exemptions allowed, not networks through particularly clear incentives – But intention is to prevent control of one and influence in other: • Appointment of directors of supervisory and administrative boards • Exercise of control or any right including voting rights
Offshore Transmission – Technical: All projects • Health & safety (Health & safety at Work Act 1974 and underlying regulations): – The Construction (Design & Management) Regs 2007 – Management of Health & safety at Work Regs 1999 – The Diving Regulations 1997 – Electricity at Work Regulations 1989 – Working at Height Regs 2005 – … and numerous others … • O&M, insurance – OJEU process for procurement (Utilities Contracts Regulation 2006) – Timing and cost of obtaining bids during tendering process – Some repairs may require OEM – Repairs: spares, access, vessels – needs a well-thought out strategy – Insurance, few brokers experienced in this area, significant recent claims history • Decommissioning – Cables can be left in situ, offshore structures to be removed – Decommissioning plan as part of tendering process
Offshore Transmission – Technical: Enduring only • Design & Development – Regime still being devised in this area – Level of development risk to be taken not clear – who takes consent risk? – How much design and development has the offshore wind developer done? – Who takes design standards compliance risk: GBSQSS, Grid Code, Industry standards etc.? • Procurement – OJEU process (Utilities Contracts Regulation 2006) – Suppliers non-exclusive: implications? – Timing and cost of obtaining bids during tendering process – Limited suppliers in some areas (cables, VSC etc.) • Construction – Significant ground risk and weather risk to be managed – Requires experienced offshore transmission procurement and construction mgt – Requires experienced installation contractors, poor recent history on offshore cables – Turnkey v multi-contract: pricing, interface risk, delay risk etc.
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