Attracting investors offshore in Denmark

Denmark is putting its next three large offshore wind farms out to tender, the terms of which will depend on how the government decides to meet its climate change obligations to reduce emissions. Meanwhile, a community-driven offshore project is proving that small can be as beautiful as big in the eyes of investors, whether local or international

The future of three 160 MW offshore wind power projects going to international tender in Danish waters is hanging in the balance of the carbon credits market, as the government tries to decide which market mechanism will bring home the most value to meet the country's carbon dioxide (CO2) reduction obligation. Rules for an offshore tender system have been proposed in a report by the Danish Ministry of Economic and Business Affairs, with participation from electricity system operators Eltra and Elkraft System and the national laboratory at Risø. But while the proposal covers general topics like who can submit bids and future cost projections, a payment rate is missing.

The proposal came last month before an announcement by government, due by December 1, on how it will tackle Denmark's CO2 reduction obligation. Two scenarios have been suggested. In the first, the obligation will be met via international "flexible" market mechanisms -- Joint Implementation (JI), the Clean Development Mechanism (CDM) and International Emissions Trading (IET). Under this scenario, bidders will compete to offer the largest possible payment to the Danish state for the rights to exploit offshore wind and trade the associated emission credits. In the second scenario, in which Denmark decides to offset the saved CO2 emissions from the offshore wind plant directly against those of its own fossil fuel fired plant, bidders will compete for the lowest government subsidy amount.

For the experienced only

The previous Social Democratic government had obliged Denmark's utilities to build five offshore plant, but only the first two, at Horns Rev off Denmark's west coast of Jutland, and Nysted south of Rødsand in Denmark's far south east, are currently being realised. Both projects are 160 MW, with Horns Rev due online by January and foundation work begun at Nysted (Windpower Monthly, September 2002).

The remaining three projects, which will now go out to international tender, will be located off the island of Læsø in the north Kattegat Sea, on Omø Stålgrund in the Great Belt between the main islands of Zealand and Funen, and at Gedser in the Baltic Sea off south eastern Denmark. The working group suggests that only firms with experience of both offshore construction and wind turbine operation should be considered serious bidders. The report also suggests that the site concession be limited to 25 years, that a deadline be set for project construction once a concession is granted, and that a decommissioning bond is required from developers.

On possible payment rates, the report estimates the cost of producing electricity from offshore wind plant in the next few years to be around DKK 0.26-0.34/kWh (EUR 0.035-0.046/kWh). It points out that a margin over and above this rate must allow for reasonable returns to attract investors. Furthermore, if part of the project is reserved for direct consumer involvement, a maximum limit on private consumer investment should apply, says the report. Under previous legislation in Denmark, the limit on private involvement in wind turbine ownership was linked to an investor's electricity consumption.

Under these conditions, the report does not expect completion of any project until 2007. It further suggests that an expansion of Horns Rev is the likely first step, followed by construction at Omø, an extension to Nysted, and then Læsø.

The local route

Meantime, a community-driven offshore project of ten Bonus 2.3 MW turbines, being developed south of the Danish island of Samsø is proving there is plenty of investment interest. Spurred by the country's repowering market, the Danish Investment Foundation (Difko) is offering shares to small-time investors in one of the ten turbines being built four kilometres south of the island of Samsø, between the Jutland peninsula and the main island of Zealand. A total of 7800 shares in the turbine are for sale at DKK 3400 (EUR 460) each.

"We've had a very solid response so far," says Difko's Robert Skjødt, adding that full subscription by Danish residents -- who get a special tax exemption for their investment -- is expected by the end of the year. "We want to attract Danish households to go into wind power without having to invest a million crowns. This is much in the same way we saw in Middelgrunden," he adds, referring to the 40 MW offshore wind farm near Copenhagen, half of which is co-operatively owned by domestic consumers.

Difko, founded in 1976, has financed 1176 turbines to date -- all of them in the United States during the California wind rush in the 1980s. Samsø is its first wind project since that time. Difko plans to use the experience from Samsø in foreign offshore wind investment, Skjødt says.

The Samsø project is being developed by Samsø Havvind, a company owned by the island authority, its business council and the local energy and environment office. It is the cornerstone of a larger project which aims to make Samsø (population 4300) self sufficient with renewable energy. With Difko owning one of the offshore wind turbines, another five are owned by Samsø municipality and four by private investors. "The locals developed this project," says Skjødt. "A bunch of people who sat down and said, we want to do this renewable island. We are the only professional company participating [in investment]."

Repower power

It was the government boost to Denmark's repowering market that got Difko interested. By removing the fixed wind tariff for old machines from January 1, while offering a fixed premium price for power produced from those that replace them, the government has created a repowering boom (Windpower Monthly, September 2002). The Samsø wind farm must be online by December 31 to be eligible. So far, says Skjødt, the weather has co-operated and crews are on schedule. With little fanfare and very little publicity, contractors last month finished hammering concrete mono-pile foundations into the seabed and by mid-month were starting work on towers. The turbines are reportedly similar to the Bonus 2 MW units in use at Middelgrunden, though they have a larger rotor diameter at 82.4 metres, and are 102.5 metres in height.

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