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Offshore wind prospects hit by grid costs  

Credit:  Reuters | www.theage.com.au October 3, 2012 ~~

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

Cost

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 construction.

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 ($1.05 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.

Relative

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 per cent.

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 potentiallyhigh 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.

Who pays?

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 delays.

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.

Source:  Reuters | www.theage.com.au October 3, 2012

This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.

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