No foreign interest in Denmark offshore -- Three giants and a consortium of enthusiasts bid for 200 MW

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Denmark's next government sponsored offshore wind power station -- a 200 MW extension to the existing Horns Reef development in the North Sea -- has attracted the interest of four potential developers, all of them Danish. Each has registered its intention to bid for the contract to build and operate the project. They are the country's two big power suppliers Elsam and Energi E2, Danish Oil and Natural Gas (DONG), and a consortium of seven small wind project development and investment firms calling itself Horns Rev II.

The Horns Reef extension is the first of two new government offshore wind demonstration plants set in motion in the spring. The site for the second plant is still undecided, but the choice so far is between a shallow area known as Omø Stålgrunde in the Great Belt, between the main islands of Zealand and Funen, or an extension to the existing 165 MW Nysted wind plant, also in relatively sheltered Baltic Sea waters, but further south and east (Windpower Monthly, May 2004).

The Horns Reef extension, on the other side of the country, will be Denmark's third offshore demonstration plant. The first, the original 160 MW Horns Reef station off the west coast of Jutland in the North Sea, was built by Elsam, its owner and operator, using Vestas turbines. It was commissioned in 2002. Energi E2 and DONG built the second Nysted plant using Bonus turbines, which went online last year.

May the lowest price win

The Danish energy ministry opened the competitive tender with a pre-qualification round, saying it would invite a maximum of five companies to submit bids. Only four responses were received. Bids will be judged on their legal, economic, financial and technical abilities to operate an offshore wind station. In addition, the bidders must document "substantial and recent experience with energy production from wind farms as well as offshore stations." The restrictions limit the field of possible contenders considerably, but experience provided by a bidder's likely sub-contractors may also be taken into account.

The tender will go to the applicant who can build and operate the wind farm for the lowest subsidy per kilowatt hour over the lowest number of hours of operation at full capacity over the projected 25 year plant lifetime. A bidder's proposed construction timeline and physical layout plan for the project will also be considered.

A people's presence

The consortium Horns Rev II knows it is up against tough competition in three major energy companies, but it is confidant it has the experience and means to win the bid. One of its partners, Vindenergi ApS, built Denmark's near-shore 19 MW Rønland wind plant in the Lim Fjord in the north of Jutland last year.

"Rønland is a tenth of the size of the new Horns Reef plant," says Vindenergi's Per Lauritsen. "But altogether, the seven companies in our consortium have built 200 MW of wind plant and currently operate 75 MW of turbines. So in both size and experience, we believe we are up to the task, even though we must also include banks in our financing."

Lauritsen says the consortium has not yet worked out the kilowatt hour price it will be able to offer in its bid, but it plans to go the route of co-operative public involvement. "We plan to sell half the 200 MW as public shares, possibly via a listing on the stock exchange, so Horns Rev can become a new, national Danish company," he says. The public company model has proved successful in two earlier offshore projects: the privately developed 40 MW Middelgrund offshore wind station just off Copenhagen is 50% owned by local citizens, as are five of the ten turbines that make up a 23 MW plant off the island of Samsø, in sheltered waters east of the Jutland peninsula.

The other six partners in Horns Rev II include developer Dansk Vindenergi ApS, Skovgaard Invest ApS, Petri Holding Aps, PMN Holding ApS, GK Gruppen ApS and Wind Investments ApS.

Danes only

The Danish government has been at pains to stress that its offshore tender program is open to international bidders. The first tender proposal, which saw the light of day late last year, was laughed out of the water for what the wind industry described as uneconomic and unreasonable requirements. The revised framework under which the Horns Reef tender has been issued was passed by parliament with broad cross-party support in late March (Windpower Monthly, May 2004). With four bids in, it seems that at least Danish contenders for the contract believe the new terms and conditions make construction and operation a profitable business proposition.

The lack of foreign bidders comes as no surprise to Danish wind industry analyst, Birger Madsen of BTM Consult. Foreign companies are more likely to turn up as technology suppliers in the next phase of the tender, he says. "It's difficult to enter the Danish market," continues Madsen. "I think most companies would rather use their energy other places, where they have a better chance for profit. It's another aspect of the same reason that one still does not see foreign wind turbines on Danish soil."

He points out that the offshore incentives on offer are sparse compared with those in the UK, where capital subsidies are available. At the same time, investors in UK offshore development can also count on income from sale of renewable obligation certificates in the British renewable energy marketplace as well sale of electricity.

Kingdom of Elsam

Another key factor was the disadvantage foreign developers might see in competing against the Danish energy giants. "These Danish companies own the power grids into which the offshore plant must feed its generation," says Madsen. "They have a degree of freedom in many factors." Additionally, Elsam has a wealth of experience from Horns Reef I, including detailed wind data. "They have more or less all the advantages," Madsen says.

The project's size might also be a factor. The first round of the UK offshore tenders -- which are now being realised -- allowed a maximum of 30 turbines a project. "A project of that size must be a bit more attractive as a first project than to throw oneself out into a 200 MW one," he says. The new Horns Reef project will probably cost around $400 million.

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