Thursday, 7 July 2016

Dutch tender award for offshore wind plant is 25% cheaper than Hinkley C contract

The Dutch Government has awarded a contract to build two 350 MW Borssele offshore windfarms for 87 euros per MWh (£74 per MWh), some 25 per cent cheaper than the current value of the contract for Hinkley C. The contract has been awarded to DONG, in which the Danish Government has a majority share.

This price for Borssele 1 and Borssele 2 includes transmission costs but, unlike the case of the proposed Hinkley C nuclear power station, the price does not include any offer of loan guarantees from the Government. Hinkley C is routinely reported as being paid £92.50 for a 35 year contract, but this is in 2012 prices. The current (jJune 2016) price is £97 per MWh, which puts it as being a lot more expensive than the Borssele offshore wind project.

Offshore wind prices have been tumbling in the past couple of years compared to earlier contracts awarded in the UK. Last year Vatenfall won a contract with the Danish Government to build the 400 MW Horns Rev plant at 103 euros per MWh (£88 per MWh) although this figure does not include transmission connection costs.

So why have costs for offshore wind been falling so much, and how come the costs appear to be so much lower than the UK's, whose last (2015) auctions revealed prices for offshore wind of around £120 per MWh?

According to DONG, their cost reduction can be ascribed to: 'The reduction of cost of electricity is driven by cross-industry collaboration, ongoing innovation of wind turbines and blades, continuous improvements of foundation design and installation methods, higher cable capacity, a growing and competitive supply chain and not least the synergies from building large-scale capacity sites such as Borssele 1 and 2. In addition, the Dutch sites offer good seabed conditions as well as good and stable wind speeds, which contribute to high output from each turbine.'

It should be noted that both the Danish and the Dutch tender processes are much superior to the relatively 'laissez faire' approach of the British, an aloofness that increases uncertainty and thus investment costs. In the Dutch and Danish cases the sites have been carefully evaluated for technical and planning considerations before the tender, and permits have been assured. In the case of the UK, developers are left to bear the risk of these factors.

Although the UK Government has said it wants to give contracts for more offshore wind schemes, timing of this has been thrown into uncertainty by recent political events. It is now far from certain that the (new?) ministers at the Treasury and the Department of Climate Change will adhere to agreements about issue of future 'contracts for differences' (CfDs) that have been made between Osborne and Rudd.
Nevertheless, RenewableUK calculates that offshore wind schemes, including those which already have finance and planning in place for construction, will provide 10 per cent of UK electricity supply by the year 2020. However, the UK Government is refusing to make any contracts available for the cheapest electricity power option, onshore wind, which is currently being installed under the Renewables Obligation for around £70 per MWh.

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  1. Onshore wind is currently being deployed at under £70/MWh, but I bet under a correctly structured support scheme projects would proceed for a lot less - maybe we'll under £50/MWh for the best projects. From reading industry press it is interesting to see many projects are still being proposed, with some looking to proceed without subsidy before 2020.

  2. You do need to factor in the intermittency costs (which get larger as the total fleet includes an ever higher % wind) - but countering that on the Hinkley side there's the significant added cost of its CfD being for 35 years

    as an old offshore player (oil & gas) I do also anticipate that the issue of reliability / maintenance costs will grow over time, for any offshore wind that's over-the-horizon in stormy waters. The rule of thumb is: no major maintenance gets done in winter on an unmanned platform

    (if you've ever been on a platform in the North Sea in a winter storm, with boats and helicopters all kept in port, you'll know why)