Connection costs overshadow off-shore wind

Tue Oct 2, 2012 11:56am EDT

(The author is a Reuters market analyst. The views expressed

are his own.)

    By Gerard Wynn

    LONDON, Oct 2 (Reuters) – Never mind the cash needed to

build wind turbines out at sea, new British data shows that

merely connecting them to the grid costs more per megawatt than

building new gas fired power plants.

    This raises serious questions about the near-term economic

viability of the low-carbon technology in which Germany and

Britain, among others, are setting such store.

    Problems have also emerged in Germany over who foots the

bill for grid connection delays, while there are additional

concerns about the cost of the wind turbines themselves, their

installation and servicing.

    Offshore wind may be entering a critical phase, where

countries can choose either to ramp up ever larger projects

further offshore – to seek better winds and economies of scale –

or else drop the technology as uncompetitive.

    Offshore wind has advantages over onshore; it is a stronger,

steadier resource and avoids planning hurdles.

    Germany and Britain lead global offshore wind ambitions,

where Germany plans to install 11,000 megawatts (MW) capacity by

2022, after deciding to ditch nuclear power, compared with just

550 MW now.   

    Britain’s “Renewable Energy Roadmap” last year envisaged a

medium projection of up to 18,000 MW by 2020, assuming

substantial cuts in installation costs, compared with 1,838 MW

at the end of last year.

    The European market for annual installations fell last year,

however, according to the European Wind Energy Association

(EWEA), at 866 MW installed compared with 883 MW in 2010. It is

expected to return to growth this year.

    Germany’s progress, in particular, was slowed as a result of

doubts over who is liable for problems with grid connections.

    In a survey of over 100 participants in the offshore wind

industry in north-west Europe, uncertainty over grid connections

was viewed as the biggest challenge alongside availability of

finance, according to FC Business Intelligence.



    Offshore wind market 2011 (page 9, EWEA):




    Britain’s energy watchdog Ofgem last month published the

expected capital cost, not including annual operating and

maintenance, for the grid connection of four projects under


    The estimated valuations and corresponding wind farm size in

megawatts, were as follows:

 Project                  MW         Estimated Transfer

                                     Value (mln pounds)

 Lincs                    250        282

 London Array             630        428

 Gwynt-y-Mor              576        306

 West of Duddon Sands     389        255

 TOTAL                    1,845      1,271


    The wind farms are all around 20 km or less from the shore,

while future farms will increasingly have to be built further

out, implying even higher connection costs.

    The four projects work out at 0.689 million pounds ($1.11

million) per MW, implying a grid connection cost for Britain’s

anticipated 18,000 MW of more than 12.4 billion pounds before

accounting for the capital and installation cost of the wind

turbines themselves.

    That extra capital cost of wind farm construction, excluding

offshore grid connection, adds a further 2.7 million pounds per

MW, according to consultants Arup, in a report to Britain’s

Department for Energy and Climate Change (DECC) last October.



    The Ofgem figures imply that just connecting an offshore

wind farm is more expensive than building a gas-fired power

plant, whose overnight capital cost (excluding borrowing costs)

is 0.669 million pounds per MW, according to estimates in a

Parsons Brinckerhoff report last year for DECC, “Electricity

Generation Cost Model – 2011 Update”.    

    In addition, offshore wind turbines run at a load factor of

only around 40 percent of their full nameplate capacity,

generating less than half as much electricity as equivalent

gas-fired capacity, which can run at 100 percent.

    Offshore wind has its own advantages, notably zero fuel

costs and zero carbon emissions.    

    Its far higher relative cost, however, suggests a more

transparent public debate to consider low-carbon alternatives

may be needed.

    These include interconnectors to cheaper resources overseas,

such as Norwegian hydropower and even Icelandic geothermal

power, as well as domestic nuclear generation and greater

investment in demand response and storage technologies to reduce

and provide for peak demand.

    To make offshore wind work in northwest Europe, policymakers

may have to adopt even more ambitious plans for the technology,

gathering individual projects into hubs further offshore to

capture more wind and pool connection costs, in a potentially

high risk strategy.

    The approach could shave 17 percent off an estimated 83

billion euros to connect 126,000 MW of offshore wind by 2030,

according to a report produced last year by renewable energy

lobby groups, consultancies and university research departments,

“OffshoreGrid: Offshore Electricity Infrastructure in Europe”.

    But it would require even more up-front cash, to plan and

build hub connection infrastructure, for larger and therefore

more expensive wind farms.

    “This of course also bears the risk of stranded investment

should some of the wind farms never get built,” the report said.



    In Britain, companies bid for an open-ended licence to

operate particular offshore transmission networks through a

competitive tender process.

    Transmission operators earn a regulated rate of return on

the costs of building and operating these networks for a period

of 20 years, costs ultimately recovered from generators and

suppliers and passed to consumers.

    The wind farm owns the transmission project through

construction, handing ownership over on completion.

    That timeline has avoided the problems that have arisen over

liability in Germany, where the onshore grid operator manages

construction and can be sued by the wind farm for any connection


    German Chancellor Angela Merkel’s cabinet approved a draft

law in August to overcome the problem by passing some of the

cost to consumers.

    The new law imposes an extra charge on consumers – average

households will pay about 10 euros a year, amounting to a total

of about 750 million euros.

($1 = 0.6192 British pounds)


 (Reporting by Gerard Wynn; Editing by Anthony Barker)



About Dougal Quixote

Slightly mad. Always believes a cup is half full so continues to tilt at Wind Turbines and the politicians that seem to believe it is their god given right to ruin Scotland for a pot of fool's gold.
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