Permitted plant grinds to a halt -- Rising costs thwart Butendiek

Germany's 240 MW Butendiek offshore wind project has ground to a temporary halt after five years of planning. The cost of the North Sea development has escalated -- hit by rising turbine prices, more demanding technical requirements and increasingly stringent conditions from banks for guarantees. The project developer has also run out of funds and lacks a general contractor after its failure to complete an agreement with Vestas for supply of 80, 3 MW turbines. A cable permit is also missing.

Butendiek is one of the most advanced of nine offshore projects with construction permits in Germany, not one of which has advanced to construction. Much of the development so far has been financed by the Butendiek company through a fund in which 8400 private investors have put their money. The company is run by its nine initiators.

The "people's offshore wind company," as it is known, expects to get a cable permit before the end of the year. It has a construction permit extended to October 2008, bids in for components, foundations and network connection and confirmation the project can be insured. The project proposers also met the banks' requirements for financing, conditional on approval of a general contractor. But with no turbines and no general contractor, Butendiek is currently dead in the water.

As far back as autumn 2003 -- and under much fanfare at the Husum wind exhibition -- Vestas signed a letter of intent declaring its readiness in principle to take over as contractor in spring 2005. At the time it promised the wind turbines would be made at Vestas' works in Husum. A final agreement with the Butendiek company failed to be reached.

Other companies involved, such as those providing the foundations or network connection, are either not in a position or not willing to take over responsibility for the project, says the developer. Butendiek has dropped talks with Vestas for the moment and is looking for other turbine suppliers.

Purchase price

Butendiek is also considering selling all project rights or freezing all rights temporarily once full permitting is achieved. Alternatively, it may seek other new partners. The government has fixed a purchase price for offshore generation, but it is too low to provide a solid base for the EUR 500 million total investment, says the development company. A return on investment of just 3-5% is too low to provide an attractive proposition. "If you take on the offshore risk, then you want a chance to earn more on your investment than with a risk-free government bond," Butendiek says.

Capital

The current minimum rate for offshore wind set by Germany's renewable energy act is EUR 0.091/kWh, made up of EUR 0.0619/kWh for 20 years plus a bonus of EUR 0.0291/kWh, payable for 12 years if the plant comes online before the end of 2010, but extended for a longer period if the plant is more than 12 nautical miles from the coast and the water depth exceeds 20 metres.

The developer is considering a capital increase at the turn of the year to allow it to continue with development work. Existing stakeholders -- including the 8400 private investors -- and potential investors on a waiting list will initially be tapped for more funds, although others are invited to participate. After injection of new capital, the company will seek to complete all permitting, including the cable route to shore and a power purchase contract with energy company E.on. After five years of development work and notwithstanding the increase in cost, "the Butendiek project can be completed," says the company.