Europe is betting big on offshore wind (OSW), which now is a key component of the European energy transition agenda. This has been possible due to the strong support from policymakers and regulators, the drastic fall in technology costs, demonstrated competencies in installation, and economic success in recent auctions.
The European Green Deal envisages developing the ‘full potential of Europe’s OSW energy’ to meet its carbon neutrality goals by 2050, and the European Commission (EC) plans to work out a dedicated OSW strategy this year. In this context, policymakers in countries such as Germany, the UK and the Netherlands have increased their 2030 targets. In parallel, countries such as France, Poland and Latvia have proposed ambitious plans for the future.
However, while OSW has captured the much-needed political support, EC continues to face several challenges in meeting the set goals. A key bottleneck is the availability and development of grid infrastructure, both offshore and onshore. This challenge, however, presents the opportunity to deploy new and innovative technologies and calls for a coordinated approach to develop a robust offshore transmission infrastructure with all stakeholders involved.
With this background, Global Transmission organised a virtual conference on ‘Offshore Wind Transmission, Europe’ on July 28-29, 2020. The conference focused on highlighting the opportunities, technologies and solutions for the development of OSW transmission infrastructure. The platform led to a detailed discussion on the perspective of the transmission system operators (TSOs), policy developers and regulators, OSW farm developers and prospective investors, government agencies, technology providers, equipment manufacturers and others.
The key takeaways from the conference are presented below.
EC’s plan and strategy
In his keynote speech, Joachim Balke, Head of Unit Networks and Regional Initiatives at the EC, highlighted that Europe, with one of the world’s best OSW (and ocean) resources with proximity to demand, is witnessing faster growth in OSW as compared to onshore wind. According to the EC, approximately 12 GW of installed capacity of OSW was reported at the end of 2019. Significant offshore potential has been identified in sea basins such as the North Sea, Baltic Sea, North Atlantic, Mediterranean Sea and Black Sea. At present, EC is focusing on integration of offshore grids, including hybrid structures. However, major developments have been limited mainly to the shore, such as designing radial connections to national power systems.
The EC’s future strategy is concentrated on developing facilities further from the shore, achieving high concentration in limited sea spaces and transmitting production over longer distances. The agenda behind this strategy is to increase offshore renewables capacity 10 to 20 times by 2050. The EC is set to adopt this strategy in Q4 2020. Under this, the Commission is likely to address issues such as off/onshore grid planning; market arrangements, renewable energy support schemes; multi-use of sea space; articulation with environmental and biodiversity aspects; supporting European Union (EU) industrial and technological global leadership, inclusive and sustainable growth promoting regional cohesion across the EU; and research and innovation.
OSW development plans and opportunities in new markets
Martin Finucane, Principal Officer, International and Offshore Energy, Department of Communications, Climate Action and Environment, described how the Irish power sector is undergoing a major change as the country accelerates the transition from an energy system heavily reliant on fossil fuel to one powered by renewables. To this end, the Irish state in June 2019 adopted the Climate Action Plan 2019, which targets achieving 70 per cent of electricity generation from renewable energy sources (RES) by 2030.
The plan highlights the need for increased support and investment in OSW. The decarbonisation pathway focuses on building an OSW energy industry that can deliver at least 3.5 GW of electricity by 2030. Although, it is important to note that the accurate level of each renewable technology will be determined by a new system of competitive auctions.
To further assist deployment, the Irish government is planning to implement the new Renewable Electricity Support Scheme (RESS). This scheme will likely include a series of auction rounds over the next decade supporting the required level of additional renewable energy capacity; develop an offshore electricity grid; introduce the new Marine Planning and Development Management (MPDM) Bill (approved by the government in December 2019); and implement a new offshore grid connection policy that lines up with the RESS auction timelines (refer to Figure 1).
The rich OSW industry in Ireland is finally set to play a pivotal role in meeting the country’s renewable energy targets. But, success in meeting such ambitious targets depends on the timely execution of projects, a significant reduction in carbon emissions in other crucial sectors, and managing the ultra-high levels of variable renewables, which can lead to significant periods of oversupply, as well as addressing the island’s energy security concerns.
Roksana Szymalska, Chief Expert, Renewable Energy Department, Ministry of Climate, Poland, highlighted that the Baltic Sea has many advantages in terms of wind farm construction, such as insignificant depth and low salinity. It hosts around 2.83 GW, which is about 12 per cent of OSW capacity in Europe. Of this, the majority of the capacity is with Denmark (1.47 GW) followed by Germany (1.07 GW), Sweden (203 MW) and Finland (117 MW).
The cumulative potential capacity identified in the Baltic Sea by the EC’s Baltic energy market interconnection plan (BEMIP) Final Report, 2019, exceeds 93 GW, with a generation of 325 TWh per year. With this backdrop, regional cooperation is needed to exploit the full potential of OSW in the Baltic Sea, especially in relation to grid development. Alongside, a long-term regulatory framework and the streamlining of administrative requirements will give certainty to the market, enabling cost reduction and ensuring the stable deployment of projects.
The Polish expert also stated that Poland’s access to the Baltic Sea guarantees several rights and opens vast opportunities. Poland holds full jurisdiction over the territorial sea and partial jurisdiction over the Exclusive Economic Zone (EEZ) that extends up to 200 nautical miles into the territorial sea of a state. Estimating the potential of OSW farms in the Polish EEZ depends upon the area that could be allocated for wind turbine construction. The spatial development plan for maritime areas currently being developed preliminarily establishes three sites with a total area of approx. 2.5 thousand sq km.. Considering the German and Danish experience as well as estimates of wind resources in the Baltic Sea, it may be assumed that the potential of the Polish EEZ is at least 10-12 GW, with an output potential of 50 TWh per year, which is almost one-third of today’s annual electricity consumption in Poland.
As per the Polish government, at present, 12 location permits have been issued for OSW farm projects while 7 of them have grid connection conditions issued. The government is currently working on the Offshore Wind Act, which covers all the relevant areas for investors such as support schemes, local content plans, grid connection, obligations of the generator of electricity, as well as regulations concerning construction and operation, tax and administrative proceedings. Currently, comments that have been submitted as part of public consultations and inter-ministerial arrangements are being analysed. The act is expected to enter into force by the end of 2020.
Jaanus Uiga, Director of Energy Department, Ministry of Economic Affairs and Communications, affirmed that OSW energy has garnered significant interest in Estonia. The country has 14 OSW farms with a capacity of 7 GW and an annual production of 26 TWh. Currently, the country’s annual electricity consumption stands at 8.5 TWh. This highlights the significance of Estonian wind capacity for both national and regional stakeholders, as the country can be positioned as a net exporter in the future.
According to Estonia’s National Energy and Climate Plan 2030 (NECP2030), released in December 2019, the country aims to achieve 70 per cent reduction in greenhouse gas (GHG) emissions by 2030 and 80 per cent by 2050; increase the share of RES in final energy consumption to 42 per cent by 2030 (including 40 per cent in electricity generation); and reduce primary energy consumption to 14 per cent. The country will also focus on increasing energy efficiency and maintaining security of supply.
Despite having significant wind potential and ambitious goals, offshore wind transmission in Estonia is constrained by the existing transmission network. The country, apart from revamping its own grid, is also betting on large-scale cross-border projects of its neighbouring countries. The country is planning to integrate its offshore production with the foreign network under the next 10-year plan. To put it in perspective, Estonia is part of the regional cooperation, particularly the BEMIP.
The key actions by Estonia for offshore wind expansion include reverse tenders of renewable energy; development of wind parks including offshore; and grid development including synchronisation with central Europe. The country is also set to develop the 1 GW Gulf of Riga offshore wind farm, a joint offshore wind project with Latvia’s state-owned Eesti Energia. Another focus area is the greater involvement of the government in the pre-development of offshore wind farms (OWF), particularly with respect to grid connection and planning.
Developer’s perspective on building offshore grids
M. Van Nuffel, Corporate and Project Finance Manager, Otary,mentioned that there are innovative solutions and set-ups that allow for a phased approach to offshore grid infrastructure, without hindering the development of OWF. In the context of financing, bankability must underpin any set-up by opting for guaranteed timing of a connection (backed by a strong indemnity in case of delay), and interfaces and liabilities must be mapped and dealt with early during the development. Notably, important investment step-up is required for the offshore grid, and clarity of the regulatory framework is crucial, but does not necessarily entail a ‘single development approach’. In addition, a TSO-driven model is not a necessity as different models can co-exist, allowing for involvement of different players, which can speed up the construction and development in a cost-efficient manner.
Financing offshore grids
James Dickson, Project Development Director, Transmission Investment, discussed the key sources of finance and investment considerations for project companies. Project financing in offshore projects is done mainly through two routes, namely, debt and equity, and is executed with the help of legal agreements. Project companies base their investment decisions on construction-related factors such as a possible increase in construction costs, delay in operationalisation and asset performance once built. They also consider operational indicators such as increase in operational expenditure (opex), replacement expenditure (repex), decommissioning expenditure (decommex) etc.
Optimal technology for OSW transmission
David Walker, Senior Product Manager, GE Grid Solutions, spoke about the integration of renewable energy into the grid, which involves connecting wind farms to the grid, transmitting power through a high voltage (HV) substation network, ensuring power balance through software and maintaining grid stability through automation.
A comprehensive portfolio of innovative and reliable products, digital solutions and technical expertise for OSW transmission comprises high voltage power electronics [flexible alternating current (AC) transmission systems, and industrial direct current (DC) substations] and equipment (transformers, gas insulated substations, air insulated substations, capacitors and reactors), automation and protection, asset management, turnkey projects and consulting, energy management, and embedded equipment.
Leo Dalmar, Offshore Grid Expert Engineer, SuperGrid Institute, explained how an offshore wind power grid connection architecture can be optimised by using techno-economic modelling software. The stand-alone software can help in grid design optimisation by offering relevant parameters and data such as wind turbine layout, wind distribution etc. for grid assessment. The generic techno-economic approach supports the emergence of cost-effective innovative grid connection architectures both for bottom-fixed and floating OWF.
Maxime Toulotte, Head of Technical Marketing SLS, Nexans, provided an insightful comparison between high voltage alternating current (HVAC) and high voltage direct current (HVDC) subsea cables. The HVAC subsea cables are a well-proven technology, do not require converters and entail a lower capital expenditure. On the other hand, HVDC subsea cables involve a narrower corridor for submarine and land cables, reduced losses in cable system for long distances and no limitation in length.
In future, the dynamic export cables will be different from static cables. They will be able to bear fatigue and high tension loads as well as large voltage gradients. Currently under development and qualification are cables with metallic sheathing and laminated foil.
Sven Achenbach, Senior Lead Engineer, Siemens, discussed the high level topology of AC and DC transmission and break even distance between AC and DC. The high level topology involving AC transmission requires an offshore substation, HVAC export cables and an onshore substation. High level topology involving DC transmission includes an offshore converter station, HVDC export cables and an onshore converter station. Break even distance between AC and DC depends on transmission power, cost of the offshore terminal and the difference in total cable cost.
Regulatory challenges and issues
Felix Fischer, Principal Associate, Chatham Partners, highlighted that Europe has been witnessing the adoption of different regulatory schemes in the development of OSW transmission. The schemes have been adopted on the basis of the regulatory history of the country, distance from the shore and type of network needed, such as point-to-point (in UK) and cluster connection (in Germany).
Under the regulatory scheme of Germany, grid connection is planned, built, financed and operated by the TSO and is considered part of the country’s grid. Remuneration is accounted under prevailing incentive regulation with a fixed (hypothetical) internal rate of return (IRR). OWF has a claim against the TSO for timely and reliable compensation to the grid. In addition, OWF receives compensation amounting to 90 per cent of lost revenues in case of unavailability of the grid connection caused by delay, interruption and maintenance in excess of a certain threshold. Notably, cost for unavailability compensation is passed on to grid users, unless the TSO is found negligent and thus grid users end up paying more if the grid connection fails.
On the other hand, UK’s regulatory scheme for offshore grid connections allows an offshore transmission operator (OFTO), which can either be the OWF or a third party, to plan, build, finance and operate the grid connection. OFTO is chosen by the British energy regulator, Office of Gas and Electricity Markets (Ofgem) on the basis of a competitive tender for offshore transmission licenses. It involves a fixed 25-year revenue stream indexed to UK inflation. Revenues are paid by National Grid Electricity Transmission (NGET) in their statutory ring-fenced role as National Electricity Transmission System Operator (NETSO). Under the scheme, potential deduction in remuneration for non-availability of network is capped at 10 per cent of base revenue in any given year. According to recent studies, the offshore grid market has been found to be less competitive in Germany as compared to the UK.
TSO perspective on integrating OSW
Michiel Muller, Programme Manager, North Sea Wind Power Hub Programme, described how the accelerated deployment of large-scale offshore wind and its integration into the energy system needs international coordination, long-term policy targets and a robust regulatory framework. Linking offshore wind connection and cross-border interconnections and the connection of wind farms from one country to demand centres in another are equally crucial.
Morten Pindstrup, International Chief Engineer, Energinet.dk (Danish TSO), emphasised that the market design of an offshore grid should be transparent, non-discriminatory, in a reasonable investment climate, and scalable. The design should be as per the offshore bidding zones as it helps in achieving correct dispatch in all cases, allows the use of a balancing platform, helps wind farms in trading and offering balancing services, transparent capacity calculation and compliance with 70 per cent requirement and priority dispatch for renewables.
International grids and regional cooperation
John More from PROgress on Meshed HVDC Offshore Transmission Networks (PROMOTioN), introduced PROMOTioN as an EU 2020 funded research and development (R&D) project on meshed offshore HVDC transmission grid technology to enable the export of large-scale offshore wind and reinforce the internal market by interconnecting EU member states. He emphasised that several studies have indicated that to export the 200 GW of wind envisaged to be realised by 2050, an interconnected HVDC transmission grid is the most economic option. This requires a paradigm shift from how HVDC links are built today.
The way forward
Europe has begun its journey to carve out a noteworthy place for itself in addressing the global climate change crisis with its recent policies and plans focused on meeting ambitious carbon emission reduction and renewable energy generation targets. Its position is reflected in the impressive target of increasing offshore renewables capacity 10 to 20 times by 2050.
The rich offshore wind industry is finally set to play a pivotal role in meeting Europe’s renewable energy targets. But, success in meeting such ambitious targets depends on the timely execution of projects, innovative regulatory schemes, regional cooperation, technology and innovation, as well as addressing the continent’s energy security concerns.