Repowering old wind farms is a well-established practice in mature markets, but the 320MW Zeewolde project in the Netherlands is breaking with convention.
For a start, the owners have agreed a turbine supply deal before securing financing.
Windpark Zeewolde will replace 220 turbines with 91 modern machines bundled into the Netherlands’ largest onshore wind farm.
It will be owned by more than 200 farmers and residents in the rural hinterlands of the town of Zeewolde, claiming to be the largest wind cooperative of this type in Europe.
The project benefits from the Dutch province of Flevoland’s policy of "scaling-up and cleaning up" hundreds of wind turbines installed mostly by farmers since around 1990 without coordinated planning.
It may also be one of the last Dutch onshore wind projects to receive the 15-year electricity-generation support under the Netherlands’ SDE+ system.
"We will start building the first roads and foundations in six months’ time. That is before the financing from the banks is arranged," said Sjoerd Sieburgh Sjoerdsma, managing director of project company WPZ BV.
The company has already invested in a transformer station supplied by ABB and signed a turbine supply deal with Enercon.
"These early investments are at the expense and risk of the farming community. It shows the courage of the farming community that started this project and the confidence it has in its implementation," Sjoerdsma added.
Financing should be in place before the end of 2019.
To avoid penalties under the SDE+ scheme, commissioning must be completed by the end of 2021 — within four years of the 2017 application — creating an incentive for swift construction.
Dutch onshore projects at sites with wind speeds of 7m/s, as in Flevoland, are eligible for an overall power price of up to €75/MWh, according to the SDE+ 2017 rulebook.
An average wholesale market price of €47/MWh is initially assumed, making the provisional subsidy €28/MWh, which is retrospectively adjusted annually according to actual wholesale prices.
With an expected annual output of 0.85TWh, the annual subsidy will amount to around €23.8 million, or roughly €357 million over 15 years. Total investment amounts to €500 million, WPZ said in January 2018.
Guarantees of origin
The projects benefit from another incentive. Guarantees of origin (GOs), certifying that the electricity is of renewables origin, can be sold separately at higher prices in the Netherlands than in the rest of Europe.
Dutch GOs from wind generation have doubled in value, from €3-4/MWh in 2016 to some €8.2/MWh at the end of 2018, before falling to an average €7.5/MWh in the first quarter of 2019.
Dutch onshore and offshore wind farms coming online and releasing new GOs into the market over the coming years will, however, probably drive prices down to around €5.5/MWh by 2022, said Martyn Meelhuijsen, head of structured products at Cleanworld, an independent renewables brokerage company.
In the first year of full operation alone, the Zeewolde wind farm could expect GO earnings of around €4.7 million.
Zeewolde has clinched a 15-year power purchase agreement with Vattenfall for roughly 780MWh a year from the 83 turbines owned by the project company. The remaining eight turbines belong to Dutch energy companies Eneco and Raedthuys.
"While the SDE+ scheme itself is not part of the purchasing agreement, the subsidy mechanism is part of pricing," a Vattenfall spokesman said.
This indicates the deal could see Vattenfall pay a power price indexed to the wholesale market price with a discount to take account of the cost of "smoothing" the project’s variable output with electricity bought from the wholesale market, and for taking the electricity at times of negative wholesale prices when the subsidy is not paid.
Electricity and the GOs are being bought from WPZ. The value of GOs is unknown.
"GOs generated from renewable energy plants within the Netherlands for the domestic market have a higher value than, say, GOs generated from Nordic countries from hydro power plants, currently worth €1.3-1.4/MWh," said Fabian Huneke, senior analyst at independent market specialist Energy Brainpool.
In Europe, GOs are not traded on an exchange but rather by brokers and price transparency tends to be low, he added.
No bank could include earnings generated by GOs into the long-term finance structure for a wind project due to the lack of price visibility and the price risk, which currently can't be hedged, he said.
Norwegian company Greenfact, a market intelligence company, publishes a Market Index providing a GO market trend indicator and setting a benchmark for the GO market, but the Netherlands is excluded due to its unusual market conditions.
A main driver behind higher priced GOs in the Dutch market is the CO2 Performance Ladder, explained Alexandra Münzer, managing director at Greenfact.
Companies getting a certificate at one of five levels on the CO2 ladder can use it to their advantage, for instance, when bidding for public construction contracts — their certificate level can be boosted if the company purchases Dutch GOs for its electricity supply.
The CO2 ladder system is owned and managed by the Foundation for Climate Friendly Procurement and Business SKAO.
Secondly, although GOs can be traded Europe-wide, the Dutch public is keen that national demand for green electricity is covered by GOs from domestic generation, said Münzer.
Prices are generally pushed higher in a market that is, to a large extent, "closed".
New rules at European level could do away with the on-top GO bonus for Dutch subsidised onshore wind parks, however.
The European Union's new directive on promotion of the use of energy from renewable sources, which took effect December 2018, requires that from June 2021 member states must ensure that when a producer receives financial support from a support scheme, the market value of the guarantee of origin for the same production is taken into account appropriately in the relevant support scheme.
Dutch GOs will then be taken into account when calculating subsidies, helping to reduce subsidy levels but, without a transparent GO market, potentially increasing project risk and financing cost.
Hardware
German turbine manufacturer Enercon will supply the turbines, mainly from its EP3 4MW platform. The turbines that will supply power to Vattenfall are made up of 33 E-126 EP3 4MW, 21 E-115 EP3 4.2MW, 20 E-138 EP3 4.2MW and nine E-103 2.35MW machines.
Eneco will add another four E-126 EP3 4MWs, and Raedthuys will have two E-138 and two E-115 EP3 — both models rated at 4.2MW but initially curtailed to 4MW, as will the community project’s 4.2MW units.
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