Germany: Grid Connection Remains Great Bottleneck to Offshore Wind Development

Grid infrastructure and transmission networks need to continue to develop if Europe is to hit its 40GW offshore wind target. Germany is making headway and recently passed a draft law on offshore wind. The law, due to take effect later this year will give more leeway to grid operators such as TenneT and 50Hertz. 

Julia Goddard, Director, Green Power Conferences recently interviewed Wilfried Breuer, Managing Director, Projects and Board Member, TenneT Offshore:

GPC:  How is your company playing a leading role in developing a European offshore wind power grid?
TenneT:  TenneT TSO is responsible for the grid connection of all offshore wind farms that will be built in the German part of the North Sea. Therefore we already invested around 6bn euros to provide grid connections for more than 5 GW offshore wind energy. This is approximately already half of the German renewable energy standard for offshore wind of 10 GW until 2020. These investments together with our significant role in expanding the onshore grid make us the biggest investor in the German energy turn around.

Green Power Conferences:  Where will the capital come from to finance offshore wind power grid development?
TenneT:  TenneT has already talked to investors that are interested in financing offshore grid infrastructure. For them it is important that offshore risks stand in an economic proportion to the possible profit. Therefore they have to be low and comparable to the risks in the onshore grid. Furthermore the investment volume must be clear.

Green Power Conferences:  What will be the most important topic of discussion at Offshore Wind Power Grid 2012?

TenneT:  The German government’s renewable energy standard for offshore wind is very ambitious. 10 GW offshore wind until 2020 is a huge challenge regarding the timely coordination of the construction of grid connections and offshore wind farms. In order to meet these standards one wind turbine would have to be erected in the German North Sea every working day – I’m wondering if the maritime industry has the capacity and the logistics to cope with this herculean task.

Green Power Conferences also interviewed Daniel Wong, Head of European Utilities and Infrastructure Team, Macquarie Bank and Dima Rifai, Chief Executive Officer, Paradigm Change Capital Partners:

Green Power Conferences:  Where will the capital come from to finance European Green Power Grid development and in what way will cost be allocated? 

Daniel Wong, Macquarie Bank:  A number of parties have shown appetite for European Green Power Grid development from developers, infrastructure funds, utility companies, pension funds, insurance companies and other direct investors.  The lending market for this sector continues to evolve as it grapples with both banking reforms and the development of this sector, but banks, non-banks and bond arrangers are tracking this space.  The manner costs are allocated depends on the overriding regulatory regime and commercial arrangements in place on particular projects.  Transparency with respect to regulation is the key to attracting capital into the sector.

Dima Rifai, Paradigm Change Capital Partners:  Whereas we still expect the majority of capital to be deployed by the traditional players and in particular utilities, we have been observing increased interest from financial investors including institutional investors, to enter this market. In particular, we see mobility in the following three areas:

–          Offshore wind networks, such as the Great Britain OFTO’s

–          Regional DNO’s

–          Interconnectors

The cost allocation issue is particularly important in attracting non-utility capital. We expect pure merchant projects to be quite limited and given the revenue uncertainty, unattractive for institutional investors. As such the majority of investments will still be funded on a RAV basis. Whereas, economic efficiency dictates that costs should be allocated to those who benefit from the projects, we believe that the majority of European grid expansion will eventually get paid for by consumers, through socialised tariffs. This will be potentially attractive for investors. The current Inter-TSO Compensation scheme is quite limited in scope but it could form the basis for cost sharing between countries.

TenneT, Macquarie Bank and Paradigm Change Capital Partners will give more information at Offshore Wind Power Grid conference, held as part of the Green Power Grid Congress, 4-5 December 2012, which will advance policy and industry discussion and include a series of interactive debates analysing the major challenges involved in cost-effectively connecting offshore wind farms and the scaling up of the offshore wind power grid:

• How can the regulatory and commercial communities come together and create a cost-effective offshore wind power grid infrastructure?
• Sessions will focus on policy frameworks, legal and financial challenges and address the practicalities of permitting, installation, cabling and construction risk.

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Press release, October 17, 2012; Image: Statnett