Going once, going twice, sold!

Thursday, 29 October, 2015 - 11:30
By early September, 80 out of 150 foundations at the Gemini wind farm had been driven and the two substations installed. (Photo: geminiwindpark.nl)
By early September, 80 out of 150 foundations at the Gemini wind farm had been driven and the two substations installed. (Photo: geminiwindpark.nl)

The Dutch government will be auctioning off 700 MW of ­offshore wind power annually until 2019. The tender process will begin in early 2016. This means that the offshore wind ­industry in Holland is off to a fresh start.

For a long time, things were ­quiet on the Dutch coast. In 2007 and 2008, the first commercial wind farms, ­Princess Amalia and Egmond aan Zee, were connected to the grid. The 230 MW capacity they brought online was only supposed to be the prelude for a target of 6 GW by 2020. But that never came to pass. The technology was simply too expensive for the government as a whole and incumbent Prime Minister Mark Rutte in particular. Instead of transitioning to green energy by building more offshore wind farms, policymakers and the industry wasted time with a complicated funding system (SDE) and bureaucratic obstacles. The end result of this was that not one single new offshore wind farm was built.

The market only started rolling again when there were early elections and a new coalition was formed in 2012. In 2013, forty organisations and the new government under Rutte signed the Energy Agreement for Sustainable Growth. The agreement includes 4,450 MW of offshore wind by 2023 and a
complete transition to renewable energies by 2050.

Getting the job done

Parliament got down to brass tacks in July of this year with the Offshore Wind Energy Act. This new law reorganises the expansion of wind power and the responsibilities of politics and the industry. In addition, the future wind zones are part of the Dutch National Water Plan. This takes into account the various economic and environmental interests in the territorial waters of the Netherlands and aims to create planning security for the three newly-established wind zones.

According to the current schedule, the calls for bids will begin in the first quarter of 2016 with the Borssele zone, which is near the Belgian border. Wind farms with a total capacity of 1,400 MW are planned for the region. The annual tenders will comprise 700 MW in two zones, each of which will have 350 MW. A further 1,400 MW will be tendered in another project area off the coast of southern Holland in 2017, and a third zone in the north of Holland will be limited to 700 MW. The tenders for that area will begin in 2019.

Tendering roadmap
Year Power Wind farm zone
2015 700 MW Borssele wind farm zone
2016 700 MW Borssele wind farm zone
2017 700 MW South Holland coast wind farm zone
2018 700 MW South Holland coast wind farm zone
2019 700 MW North Holland coast wind farm zone

This is a paradigm shift for the government in The Hague. The old SDE funding model (Subsidieregeling Duurzame Energieproductie) was less than attractive for offshore wind. On the one hand, investors had to pay for the grid connection themselves as well as pre-finance all preliminary planning for the necessary approvals out of their own pockets. On the other hand, they could not count on funding even if they had received approval for their construction projects because the total amount of funding available was capped due to cost constraints. This is why the last round of tenders in accordance with the old system saw many approvals for building further wind farms being awarded, but only the Luchterduinen (120 MW) and Gemini (600 MW) projects are receiving € 4.5 billion in government funding over a period of fifteen years.

Luchterduinen has been complete since September 2015, but work on Gemini only began last summer. Their investors, which include Siemens Financial ­Services and Northland Power from ­Canada, were able to secure a price of 168 €/MWh in 2010. The bottom line, however, was that a reliable framework for investors was missing. “Gemini and Luchterduinen are the last two projects that will be built using the old funding system. The government is trying a new strategy in the North Sea. It will be auctioning off a further 3,450 MW by 2019 in a tender procedure. Bidders who fulfil all criteria and offer the lowest price will be awarded contracts. The ­ceiling for bids during the first round with 700 MW is expected to be around 124 €/MWh,” explained Geert Harm Boerhave at the ­Netherlands Enterprise Agency (RVO), which belongs to the ­Ministry of ­Economic Affairs.

First bonus

This change of direction will create reliable framework conditions for building new offshore wind farms. However, in order to be awarded a contract, potential candidates have to stay as far below the price limit as possible to increase their chances. The actual government funding is basically a contract for difference that limits the cost and has a maturity of 15 years. It specifies that an operator will receive the difference between his bid price and the base price on the electricity exchange, which has been determined for one year. Eighty percent of this difference is paid out as a monthly instalment and a final settlement is generated once a year.

This system is quite risky for investors because they have to sell the electricity on the market on a daily basis, and the price can fall below the average base price. In addition, the industry in Holland has to get by without an adjustment for inflation. On the other hand, a 10 % bonus will initially be paid on top of the subsidies to compensate for uncertainties in the calculated wind resources. The assumption here is that the probability that the wind farms will reach the predicted number of full load hours is 50 %. The instalments are calculated based on these forecasts.

RVO paid out a first bonus in October and published all information relevant for the bidding process. There is now a complete package available from the government for interested investors similar to the one in Denmark. It allows developers to begin the design phase. “In addition to all necessary authorisations, the packages also contain data on wind resources, unexploded ordnance or the type of seabed that was determined by drilling,” Boerhave said. The grid connection, which will be provided by the Dutch grid operator TenneT TSO, is also included. Since all projects are relatively close to shore, alternating current is sufficient for the connections.

In order to keep costs within limits here as well, standardised substations with a capacity of 700  MW will be used. There are no requirements regarding the types of turbines and foundations, but the number of turbines per wind farm is limited to 96. In addition, operators need to fulfil extensive protection requirements for porpoises, birds and bats using appropriate deterrence measures and automated monitoring systems. For example, when the foundations are driven into the seabed, noise needs to be kept lower than 160 or 172 dB, depending on the time of year.

Promoting innovation

Policymakers are hoping that by creating a framework that will not change until 2023, they will be able to save costs of up to 40 % in the areas of construction and operation, and for this reason, the starting prices will be reduced in the upcoming rounds. “It could be around 5 € / MWh and will depend on the water depths in the project areas, among other things. However, innovations are expected to reduce the costs for the second tender,” ­Boerhave said.

The Top Consortium for Knowledge and Innovation Offshore Wind (TKI Wind op Zee) will also be contributing. It controls the research and development work between industry, science and policy­makers. This applies to collaborations and projects, but it also includes an offshore research wind farm, which is used to test new methods and technologies for construction and operation. “TKI is bringing innovations to the market. We are currently preparing the tender for a demonstration site that will begin in early 2016. This procedure is not part of the tenders for offshore wind, but rather a separate process that allows Dutch companies to test their ideas,” Project Manager Bob Meijer at TKI said.

After a long dry spell, those companies will soon have work on their own doorstep. Up till now, the specialists had used their large maritime equipment and know-how to lower costs in other European offshore markets. “The Dutch offshore wind industry is very happy with the transition to a new system because it will create new jobs and add value in the Netherlands as well as innovations on the market,” said Albert van der Hem at the Northern ­Netherlands Offshore Wind network. This means that the only ones walking away almost empty-handed will be the project developers who had not received confirmation that they would be receiving funding via the old system. Their approvals were revoked without replacement. Instead, € 600,000 will be provided as compensation for all old projects.

Torsten Thomas

Similar Entries

Wind turbine (pict. Dewesoft d.o.o.)

The energy company Vattenfall has selected Dewesoft to provide the tower monitoring solution at what will be the world’s largest offshore wind farm.

Rostock-based company EEW Special Pipe Constructions GmbH has received an order from the Swedish energy group Vattenfall to produce 41 monopiles for the 344 MW offshore wind
farms Vesterhav. The contract was signed on 19 November 2021.

Strohm and Siemens Gamesa collaborate on offshore green hydrogen solutions (pict. Siemens Gamesa Renewable Energy)

Strohm, the world's first and leading manufacturer of fully bonded, Thermoplastic Composite Pipe (TCP), has signed a memorandum of understanding (MOU) with Siemens Gamesa Renewable Energy, the global market leader in offshore wind.

The jacket, which will support the offshore platform substation, was secured on the seabed using the Saipem 7000 heavy lift vessel  (pict. SSE plc)

Construction of the world’s deepest fixed bottom offshore wind farm, which is also Scotland’s largest, has reached another milestone with the installation of a jacket in preparation for the project’s offshore substation topside which is due to be installed in early 2022.