Too many problems and little reward -- Offshore interest wanes

The relatively low payment foreseen for power generated from offshore wind farms under Germany's renewable energy law, compounded by supply line bottlenecks, associated cost increases, and the current global onshore market boom, is stifling interest in financing independently owned offshore projects. Under these conditions, German offshore wind power may become the sole province of the already dominant German energy incumbents, E.ON, RWE, Vattenfall Europe and EnBW, which have the strength to make projects work strategically and economically by marrying wind with other generation.

Between them the four companies already control 80% of Germany's generating capacity. Underscoring the designs of the energy majors on offshore wind, E.ON and Vattenfall Europe, along with large regional energy company EWE, have secured controlling stakes in an offshore turbine test field under development, Borkum West, into which the German environment ministry is pouring EUR 50 million. Total cost of the test site is put at EUR 175 million once it is operational in 2008.

Demo project

Other partners in the test site -- which has the nature of a demonstration project -- are wind turbine makers Repower Systems and Multibrid Entwicklungsgesellschaft, owned by Prokon Nord. Prokon initially developed Borkum West as a wind station, before selling it to a foundation for operation as a test site. Multibrid and Repower will each deliver six turbines for the demonstration project. Also involved is network company Netsanschlussgesellschaft Nordeney. Named after the island of Nordeney, the company is owned by a number of offshore wind developers, state ministries and the main town on Nordeney. The island will be traversed by the cable taking power from Borkum West to shore.

When and if offshore wind development in Germany moves beyond the Borkum West project remains to be seen. Under the German renewables law, offshore wind power can expect to see a purchase price of around EUR 0.09/kWh. The rate in France and the UK is about EUR 0.13/kWh while in the Netherlands owners can look forward to total returns of EUR 0.14-0.16/kWh, notes Christian Schnibbe of large German wind developer WPD. The relatively low German rate means project financing for WPD's already permitted 21-turbine Baltic 1 offshore station, which recently received all cable permits, seems unlikely. The most realistic option currently available to the company, says Achim Berger of WPD's offshore wind subsidiary, is that financing for Baltic 1 is wrapped into a package with WPD's second Baltic Sea project in German waters, Krieger's Flak 1, to consist of 80 turbines. Talks are underway with potential investors, says Berger.

In this scenario, the most likely buyer for the projects is Sweden's Vattenfall, parent company of Vattenfall Europe. The company already owns the 128-turbine Krieger's Flak 2 offshore project, which is planned for Swedish waters, having bought it from WPD and its partner Wind-Projekt in May 2005. Assuming Krieger's Flak 2 goes ahead, the investment of around EUR 1 billion will be financed from the Swedish energy giant's balance sheet, giving the company more flexibility in making the investment work. Not only can it sell the power generated on the Swedish electricity market, it can also sell the green certificates awarded to all Swedish wind projects and co-ordinate wind with its hydro and nuclear generation resources.

Vattenfall in the wings

Vattenfall is planning an undersea cable to Germany which, assuming it is built, can pick up power from Krieger's Flak 1, Krieger's Flak 2, and a third Krieger's Flak project of 91 turbines proposed for Danish waters (Windpower Monthly, October 2005), and Baltic 1. The cable will enable power trading between Germany and Scandinavia.

Vattenfall is also a main contender for Plambeck Neue Energien's 80 turbine Gode Wind project in the North Sea, also recently granted a construction licence. Plambeck says it is seeking "a strong and financially well endowed partner" to help progress the project, estimated to require an investment of EUR 750 million. Potential partners include energy companies, offshore oil investors and construction industry companies, says Plambeck's Wolfgang von Geldern, which could possibly bring new life into Germany's generation landscape.

As well as being a likely potential purchaser for Gode Wind, Vattenfall is first in line to pick up Plambeck's first offshore project, the 77 turbine Borkum Riffgrund proposal. Developed in partnership with Danish energy company E2, on a 50:50 basis, Borkum won a construction permit back in 2004. Since then, company restructuring following the merger of E2 and Elsam with Danish oil and natural gas company DONG has seen Vattenfall take 49% of E2's share in Borkum Riffgrund, part of a shares for assets swap for the minority share Vattenfall held in Elsam. Under an earlier agreement, when the time comes for the formal decision to build Borkum Riffgrund, Plambeck's share in the project drops to below 10%. Vattenfall and E2/Dong will share the other 90%.

Price talks

Political discussions on increasing payment rates for German offshore wind energy are underway. A positive outcome "could boost interest not only in project financing but also from financial and strategic investors," says Von Geldern. WPD's Berger agrees, noting the Dutch Q7 60 turbine project has shown project financing can work for offshore wind (Windpower Monthly July 2006). The options being discussed to improve German offshore economics include a national offshore support program for an initial 3 GW and cable connection costs being shouldered by the transmission network operators.

The German wind lobby is keen to avoid "political horse-trading," it says, noting an improvement for offshore wind at the cost of, say, an extension to the operating life of nuclear plant (all owned by the big four generators) or lower payments for onshore wind would hardly contribute to more competition in the German electricity sector.

Three with permits

Of the 15 German offshore projects with construction permits in the exclusive economic zone (EEZ), of which 13 are in the North Sea and the two in the Baltic Sea, only three have permits for running cables from the wind station to the start of the 12 nautical mile zone and from there to shore. They are the 12 turbine Borkum West 60 MW project, the up to 400 MW, 80 turbine Nördlicher Grund project, also in the North Sea, and the up to 600 MW, 80 turbine Krieger's Flak pilot project.