With WindEurope 2019 set for Kopenhagen, we take a look at the current offshore wind farm status in Denmark.
In january of this year, we reported that the Government of Denmark had signed a Memorandum of Understanding with wind industry majors with the aim of strengthening and continuing the strong collaboration between the global wind energy industry and the Danish government.
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The MoU, titled ‘Second to none wind energy framework – think Denmark’, was signed by Kristian Jensen, Denmark’s Minister of Finance, Lars Christian Lilleholt, Minister of Energy, Utilities and Climate, Anders Runevad CEO Vestas Wind Systems, Markus Tacke, CEO Siemens Gamesa Renewable Energy, Philippe Kavafyan, CEO MHI Vestas Offshore Wind, Henrik Poulsen, CEO Ørsted, Magnus Hall, CEO Vattenfall, and Mads-Ole Astrupgaard, Chairman of the Danish Wind Industry Association.
In a previous report, the Danish government stated: “The first batch-produced Danish wind turbines from the late-1970s had an output of 22 kW, and the wind turbines were gradually scaled up to 55, 75 and 95 kW through the course of the 1980s. Alongside this commercial production, a government funded development programme was undertaken by the electricity companies to test considerably larger pilot wind turbines. Since the 1980s, the wind turbine industry’s commercial products have become increasingly larger-scale. Today’s largest turbine, currently undergoing testing, is an 9 MW unit with a rotor diameter of 164 metres.”
“The number of wind turbines in Denmark peaked in the year 2001 at more than 6,200 installed turbines, of which more than half were older wind turbines with an electrical output of less than 500 kW. Almost all installed capacity was on land at this time. Since then, the number of wind turbines has decreased by roughly 1,000, while the total installed output has doubled from just less than 2,500 MW in 2000 to over 5000 MW by end of 2016. The wind power share of the domestic electricity supply has been growing steadily since 1980. In 1990, the share was 1.9%, and since then it has increased sharply. In 1999 the figure topped 10%, and in 2008 it reached 19.1% of the electricity supply. The wind penetration* in 2015 amounted to 42% of Danish power supply. Projections show that with the planned new wind farms amounting to approximately 1350MW installed capacity, wind penetration will be around 50% by 2020.”
“The development of wind power in Denmark has been characterised by strong public involvement. It was small machinery manufacturers that established the wind turbine industry, and only after the consolidation of the industry through the 1990s did it become dominated by large, partly internationally owned and listed companies. Similarly, on the customer side, numerous jointly owned (through entities such as cooperatives) wind turbines were established in the period 1984- 94. The majority of wind turbines erected since 1995 are owned by individuals, energy companies and other commercial wind power companies.”
“The progression towards fewer jointly owned and relatively larger wind turbines has made it difficult to maintain local support for new wind power projects. But to ensure continued development of wind power, it is essential to have backing in the local community. The Energy Policy Agreement of 21 February 2008 therefore stipulated that a range of new initiatives should be undertaken to promote local acceptance, including options to purchase shares of new wind power projects.”
The signatories to this MoU, the first of its kind in Denmark, agreed ”to strengthen the collaboration enabling Denmark to remain a preferred country partner for the global wind energy industry.”
This MoU is said to underscore the ambition of the Danish government for Denmark to be a vital base for the leading players in the global wind energy industry, notably by providing state-of-the-art framework conditions and an attractive environment for the wind industry related to areas such as research and development, test and demonstration facilities, access to skilled labor and a market for state-of-the art onshore and offshore wind.
In June 2018 an energy agreement was signed, which also included the establishment of three new offshore wind farms that will supply at least 2,400 MW of green electricity to the energy system – more than the total combined electricity consumption of all Danish households. Establishment of the offshore wind farms. “The offshore wind farms will be built before 2030. A cost-effective expansion of wind energy is essential. Therefore, a sound procurement process will allow for maximum competition to achieve the lowest possible price. In recognition of the significant aesthetic impact that offshore wind turbines can have on the coastal landscape, the energy agreement expands the power of municipalities to reject offshore wind turbines from 8 km to 15 km off the shore”, stated in the Energy Agreement.
To zoom in the recent addition, the Horns Rev offshore wind farm, located in the North Sea, 25-40 km off the west coast of Jutland. Vattenfall is the developer, operator and owner. The 407 MW wind farm – Denmark’s largest – will boost Danish wind energy production by 12%. This will provide enough power to cover the consumption of the equivalent of around 425,000 Danish households. It uses the world’s most powerful wind turbine platform: the 8.3 MW MHI Vestas V164 model.Vattenfall won with a bid worth DKK 770/MWh (€103/MWh). The Danish Government is paying Vattenfall the difference between this and the electricity price for the first 12 years of the project. That makes Horns Rev 3 one of the cheapest operational offshore wind farms in Europe.
In their 2018 statisics report, WindEurope noted: 2018 was a record year for corporate renewable PPAs deals in Europe with 2.4 GW of contracted capacity in wind and solar power projects. Recent years have seen a steady growth in corporate renewable PPA deals in Europe. The volume of capacity contracted through corporate PPAs has increased fivefold since 2015, from just 1GW in 2015 to over 6 GW in 2018. Over 85% of the contracted renewable capacity in the last five years has beenprovided by wind power projects.
Wind energy is very well placed among other low carbon technologies to accommodate corporates’ needs for renewable electricity due to its scale, cost-competitiveness and risk profile. There are different models of corporate engagement. The most important that have been used in wind energy can be broadly summarised in two segments: investing directly in projects and owning the underlying asset, or acting as an off-taker through power purchase agreements (PPAs).
From a corporate’s perspective, acting as an off-taker is a feasible model to control costs over long periods of time (at times up to 20 years), diversify energy sources and meet sustainability targets. Owning the asset may come with certain cost of capital implications for corporates.
This is not only due to the large pay-back period for wind energy projects, but also due to increasing competition for ownership in wind energy assets. Corporates not operating in the wind sector might find it challenging to execute renewable contracts at better prices when compared to power producers or other businesses with more experience.
Corporate renewable PPAs also come with certain benefits for generators. Price visibility over a long period of time and a guaranteed off-taker are important to lower the cost of debt financing. Lenders would typically need downside protection in project revenues to ensure debt repayment obligations are met. As such, they tend to prefer lower revenues over a long period of time – matching the loan term, rather than higher but uncertain revenues.
Corporate renewable PPAs to date are still limited to a handful of countries although 2018 saw the first corporate PPAs signed in four countries: Poland, Germany, Denmark and Spain. The Nordic region, followed by the UK and the Netherlands, are the biggest market for such deals. What these markets have in common is a good track record in renewable energy development, coupled electricity markets, sufficient demand for green electricity from corporates and – most importantly – a lack of explicit regulatory barriers to sign corporate renewable PPAs.
However, the new Renewable Energy Directive mandates Member States to identify and remove administrative to corporate PPAs and facilitate their uptake in their National Energy and Climate Plans which set out their Climate & Energy policies from 2021 to 2030.
One important element in corporate PPAs is the underlying renewable energy support scheme in the country. In Feed-in Tariff jurisdictions, for instance, it has been challenging to find the value proposition for such contracts. Therefore, as the Feed-in Tariff support schemes across European countries are brought to an end, market-driven markets will likely see the volume of corporate renewable PPAs increase in the near future. Elements of merchant financing that are starting to emerge in the wind sector will require some form of additional revenue stabilization through support schemes, corporate renewable PPAs and other hedging instruments.
Stated on the website of the Danish Energy Agency, the next big offshore wind farm to be tendered out in Denmark is Thor, which is to be located in the North Sea west of Nissum Fjord, at a distance of around 20 km from the shore. The new wind farm is named “Thor” after Thorsminde, the nearest village on the shore. The wind farm will have a capacity of min. 800 MW and max. 1.000 MW, and will be connected to the grid between year 2024 and 2027. The Danish Energy Agency will conclude the tendering process with final bids in Q4 2021. Thor offshore wind farm is the first of three large offshore wind farms to be built in Denmark before 2030. This has been decided in the Energy Agreement from June 2018, which all political parties stood behind.
This article was previously published in the Offshore WIND magazine, issue 4, 2019.
about 6 years ago
With WindEurope 2019 set for Kopenhagen, we take a look at the current offshore wind farm status in Denmark. In january of this year, we reported that the Government of Denmark had signed a Memorandum of Understanding with wind industry majors with the aim of strengthening and continuing the strong
