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Offshore wind to take off!

by Jerome a Paris Tue Jan 5th, 2010 at 06:10:17 AM EST

Gordon Brown to launch £100bn wind energy programme

Gordon Brown will this week launch a £100bn programme to build thousands of offshore wind turbines that could power most of Britain's households during strong winds and are crucial to meeting the country's renewable targets.

The Crown Estate will announce which consortia have been successful in bidding to develop the nine zones, mostly in the North Sea, in the project, which is the most ambitious of its kind in the world. The prime minister is expected to use the event to promote the potential economic benefits of the massive building works.

Bloomberg has a story focusing on the financeability of this endeavor this morning, with a reasonably upbeat tone following the successful refinancing by Centrica last year of its existing offshore windfarms:

Centrica Wind-Farm Funding Success Shows Liquidity Improving

Centrica Plc’s deal to fund U.K. offshore wind farms through a stake sale and bank debt may become a blueprint for competitors in the country’s $160 billion push to develop sites in deeper and more remote waters.

While this deal does not have banks taking construction risk (contrary to the deals I've done in the past, which are sadly not mentioned here), it is indeed a welcome precedent and it is a good thing to see Bloomberg focus on that aspect of things, as this is going to be the key issue for the Round 3 plan to actually happen: the winning consortia are going to need to be able to invest several billions euros per year over the next 2 decades - in fact, whatever happens on the nuclear front, it's quite likely that offshore wind will be the biggest sector for investment in the industry in Europe into the foresseable future.


“The number of banks comfortable with financing offshore wind is fairly limited and the Centrica deal has expanded that base,” said Marcel Gerritsen, global head of renewable energy and infrastructure finance at Rabobank Nederland NV. “It creates additional liquidity in the offshore wind farm U.K. area, which is necessary given the pipeline of projects coming up.”

(...)

“The amount of capital needed to build all those wind farms is extremely large and utilities will need to bring in third- party investors,” said Jean-Daniel Borgeaud, a managing director at TCW, a Los-Angeles-based investment company. “It’s a new trend. If you had asked me two years ago if we’d work with Centrica I would have said no because utilities have typically used their own balance sheets.”

(...)

“It’s still difficult to get financing, but the market is slowly coming together,” said Alexander von Dobschuetz, head of structured finance at Munich-based bank Bayerische Landesbank. “The proposed structures and risk allocations are becoming more appropriate.”

(I'm quoted too, but will let you read it at the link)

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Interior Secretary Pushes to Complete Cape Wind Project

WASHINGTON (Dow Jones)--The Obama administration is pushing for a "common sense" resolution by March 1 to a battle over Cape Wind, the wind project off the coast of Cape Cod, Mass., that local landowners have spent years fighting.

Interior Secretary Ken Salazar said Monday that he plans to convene a meeting next week in an attempt to broker a deal that can satisfy all sides in the dispute. He said in a statement that if an agreement cannot be reached by March 1, "I will be prepared to take the steps necessary to bring the permit process to conclusion."

The announcement came after the National Park Service said that Nantucket Sound is eligible for listing in the National Register of Historic Places, a designation that could complicate commercial development. The U.S. government cited the body of water's historic and cultural significance, especially to the Wampanoag tribes, which believe that their ancestors lived on land now submerged beneath the water.

Cape Wind, which could be the country's first-ever offshore wind farm, is to consist of 130 wind turbines to be set up in 25 square miles of the sound, just off Cape Cod, Nantucket Island, and Martha's Vinyard. The controversial project has won state and local approvals, but those are being challenged in state court as local residents have raised numerous objections. The project's developer is privately held Energy Management Inc., founded by energy developer Jim Gordon.

The bolded sentence is a pretty strong political statement by the administration.


United States: Momentum Continues For Offshore Wind

The NYPA has released an RFP for the development of offshore wind power projects in the New York State waters of Lake Erie and/or Lake Ontario. Final proposals are due June 1, 2010.

On December 1, 2009, the New York Power Authority (NYPA) released a request for proposals (RFP) for the development of offshore wind power projects in the New York State waters of Lake Erie and/or Lake Ontario.

The NYPA is soliciting proposals for the development of a utility scale, offshore wind power project totaling approximately 120-500 megawatts. The project would interconnect with new or existing transmission facilities of the NYPA, National Grid, New York State Electric & Gas and Rochester Gas and Electric, which are all controlled by the New York Independent System Operator. The NYPA would purchase the full output of the wind power project under a long-term power purchase agreement (PPA).

A PPA ensures stable long term revenues, the key condition to investment in the sector.


In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Jan 5th, 2010 at 06:20:16 AM EST
The Bloomberg article has a nice plug from an energy finance head at Dexia Bank, supporting Thornton Bank and Meerwind projects.  Sweet.

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin
by Crazy Horse on Tue Jan 5th, 2010 at 08:08:37 AM EST
[ Parent ]
I posted this in Sunday's Salon, with the comment that the UK needs to push onshore wind much more strongly, in order to guild both the supply chain and the necessary expertise in installation, technical management and O&M.

J noted Vestas choose the French port of Dunkirk as base of operations for building the 300MW Thanet windpark in the Thames Estuary.  Indeed, a crucial decision, and a loss of UK jobs (gain for France.)

Here's a long-winded explanation from the Vestas PR J flagged.


Vestas pulled the V90 back from new sales in the offshore market after initial negotiations began with Warwick. After a year of engineering work and testing on a new internal component, Vestas made the V90 available for offshore again in May 2008.

"On the sales side, we had applied the brakes to a full stop," says Anders Søe-Jensen, President of Vestas Offshore. "For a new organization that was watching a market blooming around us, it was a painstaking affair." Vestas Offshore used the time well, however, he adds. "We had been growing at tremendous speed. This gave us time to look at the way we were organized and improve that."

More importantly, he says, Vestas designed an improved, methodical way to test products before they are released at its new test centre in Denmark. "We have some of the world's most advanced test facilities, where our turbines and components are very thoroughly tested before release. This goes for onshore as well as offshore," says Anders Søe-Jensen. "Our new test facility helps to ensure that the Vestas product quality remains best in class."

He adds, "Offshore, the lesson is: you have to be bold, but very cautious. Never put a prototype offshore. We also learned that you need knowledgeable guys offshore. Experience is everything out there - that's what makes a difference."



"Life shrinks or expands in proportion to one's courage." - Anaïs Nin
by Crazy Horse on Tue Jan 5th, 2010 at 07:57:44 AM EST
is a member of the Vestas Government and had some relevant prior offshore experience as the boss of Alcatel Submarine Networks.

We worked together on the Q7 and Belwind projects.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Jan 5th, 2010 at 08:43:11 AM EST
[ Parent ]
I'll add a link to a recent diary on the topic: Wind Turbines Kill Babies by crankykarsten which did not generate a lot of debate, despite its interesting question about who should get the returns from wind farms...

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Jan 5th, 2010 at 08:47:07 AM EST
That was an interesting Diary.

Jerome a Paris:

about who should get the returns from wind farms...

What's your view?

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Jan 5th, 2010 at 08:53:03 AM EST
[ Parent ]
I think those taking the biggest risk should also reap the biggest award. Using the three phases, one could argue the project developers should get the biggest return (as they are currently getting as a percentage of invested capital), then those taking the risk during construction phase and then the operational phase. However, it should be noted that in both the construction and operation phases it needs to be looked at who is actually taking the risks! In the construction phase that might not be the investor but in fact the differenct contractors or maybe the single one EPC contractor - though I cannot imagine a project where a big industrial company acting as turnkey EPC contractor acutally gets a 25% (or similar) premium for offering that EPC contract. From what I see no investors are willing to pay that much premium for an EPC to take all the risk, even if that is perhaps the premium they could get if they sold the finished project to a life insurance company after construction...
by crankykarsten (cranky (where?) gmx dot organisation) on Wed Jan 6th, 2010 at 11:28:32 AM EST
[ Parent ]
a £100bn programme to build thousands of offshore wind turbines that could power most of Britain's households during strong winds

What are we speaking of, that is in terms of MW-s of generating capacity and TWh-s of expected annual generated electricity?

If we are here: can anyone dig up figures on total wind power generation (TWh) in the UK in 2009?

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Tue Jan 5th, 2010 at 10:55:44 AM EST
it'll be in here

Digest of United Kingdom energy statistics (DUKES) - Department of Energy and Climate Change

he Digest, sometimes known as DUKES, is an essential source of energy information. It contains:

  • extensive tables, charts and commentary
  • separate sections on coal, petroleum, gas, electricity, combined heat and power and renewables
  • a comprehensive picture of energy production and use over the last five years, with key series taken back to 1970.


Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Tue Jan 5th, 2010 at 11:07:14 AM EST
[ Parent ]
well initial back of an envelope calculation that might be entirely wrong says 20.7 TWh

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Tue Jan 5th, 2010 at 11:11:36 AM EST
[ Parent ]
Hm? You must use a very high capacity factor.

I just started into reading your link; there's a graph saying "Wind & wave" was at 7.1 TWh in 2008.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Tue Jan 5th, 2010 at 11:56:03 AM EST
[ Parent ]
More precise figures for wind only later: 4.236 TWh in 2006, 5.288 TWh in 2007, 7.114 TWh in 2008. That was 1.5 resp. 1.9% of supply.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Jan 5th, 2010 at 12:14:29 PM EST
[ Parent ]
Had a quick flick, saw that wind was 5.5% of renewables, and renewables were 10.3% of supply, created total in TWh from claimed output of nuclear stations which they claim to be 13%  of the total of UK the UKs nuclear sector might have been overstating their output.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Tue Jan 5th, 2010 at 12:30:06 PM EST
[ Parent ]
is usually meant to include only residential electricity consumption, it's NOT overall consumption per capita.

It's a marketing gimmick of the wind industry, fairly widely used.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Jan 5th, 2010 at 12:47:51 PM EST
[ Parent ]
Still, it's a relevant statistic. Useful for comparing countries with different kind of economies, industry-heavy and not.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Jan 5th, 2010 at 01:45:10 PM EST
[ Parent ]
yes, the biggest challange is going to be getting the money. However, I believe money will be found.

I think the financing will come from different players for different stages of the wind farm "life cycle", notably the construction phase and the operation phase which are very capital intensive as money is needed to build the farms and then money to buy the finished project. The developement phase is not that capital intensive, however, it needs very specific know how which is currently still lacking in sufficient quantity and quality to realise so many large projects as the 3rd round projects - a problem which IMHO is currently very much underestimated...

Regarding the financing, my best bet is that the operation phase (coupled with strong service agreements from either manufacturers or perhaps exeperienced operators like those big utilities who already operate offshore wind farms) will be financed by life insurance / pension companies either directly or through project bonds (perhaps as a protfolio of farms).

The construction phase will either by "classically" project finaced (as Jérômes projects) or financed by the utilites with put-option like agreements to sell the projects off to other investores (above mentioned life insureres etc....) so that the utilites balance sheets only need to be used for relatively short periods to be freed up again for the next project. Perhaps a couple of utilites will spin off their renewable energy divisions and have IPOs as the risk profile of offshore wind farm construction is different than "normal" utility stuff... A wholly other scenario would be for EPC contractors to actually take the risks using the "life insurance company put-option" either directly (if they have a big enough balance sheet to do that on a big scale (unlikely) or using bank finance to bridge until operation (effectively giving the banks the risks again, just like in a classical project financing, with the only difference being that it doesnt need to be long term funded thanks to the life insurance put).

by crankykarsten (cranky (where?) gmx dot organisation) on Wed Jan 6th, 2010 at 11:46:56 AM EST


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