Vattenfall’s Vesterhav costs – another new landmark! by Giles Hundleby

Well here we go again! No sooner had we finished explaining DONG Energy’s winning bid of €72.7/MWh for Borssele I and II than along comes Vattenfall to win the Danish near-shore competition at an even lower headline price.

Its bid for two wind farms (Vesterhav Nord and Vesterhav Syd) with a combined capacity of 350MW just off the west coast of Jutland has secured them a 13-year (approximately) contract-for-difference at a price of €64/MWh. So how did they arrive at this lowest-yet price, equating to a levelised cost of energy (LCOE) of €61/MWh? The chart below shows how Vattenfall could have reduced LCOE so dramatically.

 

Figure 1: Vesterhav Costs – Getting to LCOE of €61/MWh.

Vesterhav Costs
The first thing to note is that the sites are different from most others in the North Sea due to their location very close to the shore. With turbines as close as 4km, Vattenfall does not need an offshore substation and can just bring the array cable strings onshore. This saves a lot of money in the transmission system. The sites also have good average wind speed, are reasonably close to potential construction ports and are very close to operations and maintenance ports. The sites are suitable for monopile foundations, but are not so shallow as to make construction difficult.
This means that the starting point for the Vesterhav sites is lower than the range of LCOE that we calculate for more conventional self-developed 500MW sites across different locations in European waters with final investment decision (FID) in 2020.

So what other things might Vattenfall have done to really push down the cost?

  • Development savings: The Danish government undertook much of the preliminary development activities for the sites. Even though it will pass on some of these costs to Vattenfall, the overall development costs (and risks) are believed to be lower than normal.
  • Pipeline effects: Combining the additional 350MW with existing orders can give Vattenfall an advantage in enabling it, and its supply chain, to unlock additional economies of scale to lower LCOE. This effect is assumed to be smaller than in the Borssele case because DONG has a bigger pipeline.
  • Lower wake losses: A further special feature of these Danish sites is that they are long in the crosswind direction and thin in the downwind direction. This means that they can be laid out with (nearly) a single row of turbines resulting in very low wake losses when the wind is in the prevailing direction.
  • Larger turbine rotor and high AEP: Vattenfall’s turbine supplier may have leveraged work done with other developers, especially DONG for Borssele, to come up with ways to increase annual energy production (AEP). If they have, it is likely to be mainly through increasing rotor size, but improving reliability and availability and overrating in some conditions could also play a part
  • Vattenfall’s  buying power: Through its knowledge of the sector and volumes, Vattenfall probably has higher buying power (even in a pipeline situation) than many other bidders (though likely still not as much buying power as we assumed for DONG in the Borssele case).
  • Vattenfall benefits from other local wind farms: The two sites are close to Vattenfall’s existing wind farms Horns Rev I and Horns Rev III that it won in competitive auction last year. This proximity means that Vattenfall should have more detailed knowledge than is usual on operational, site and metocean conditions, including fatigue loadings and the potential for extended lifetimes. It is likely to be developing more sophisticated and value-adding operations and maintenance activities that improve the availability and reduce costs over time.
  • Lower WACC: Vattenfall’s investment committee and external finance providers may view that this project in Vattenfall’s hands has lower risk than typical offshore wind projects. If so, a lower weighted average cost of capital (WACC) would be available on the project.

The continuing of the downward trend in LCOE shows what can be delivered by competitive auctions for projects on government pre-developed sites. Common sense tells us that this model will stick around and we should expect to see more countries moving to it in future.

If you’d like to know more about how we can help you model cost impacts or develop your understanding of offshore cost trends, email Giles Hundleby 

2017-05-12T15:18:24+00:00 21/10/2016|Views|