High costs threaten offshore delays -- Vattenfall unsure on economics

High and rising costs of offshore wind power development could delay Swedish state-owned utility Vattenfall from building any offshore wind plant beyond its 640 MW Krieger's Flak II and 120 MW Lillgrund projects. "The price has jumped many percentage points," the company's Kenneth Averstad told delegates at the Copenhagen Offshore Wind conference in late October. "These higher than expected prices in investment costs and maintenance are something the offshore wind market has to address and solve," he said.

Krieger's Flak is a two-tier project in German and Swedish waters. The German phase, 328.6 MW developed by German company WPD, received a permit in the spring. Vattenfall bought the 128-turbine Krieger's Flak II phase from Sweden Offshore AB and Östersjön Vindkraft AB this year (Windpower Monthly, July 2005). Krieger's Flak II is not planned for operation until 2010, but the company expects initial government approval in the first part of next year.

Project manager Göran Loman agreed the cost hurdles are high. "The biggest threat to the project is not that we won't get permission, as I believe we will, but that we won't get the economics exactly right," Loman said. Unlike in Denmark, where the government has shouldered some of the cost of grid improvement and interconnection, Swedish companies are expected to pay themselves, he says.

Vattenfall and its sister consulting company Swedpower AB are considering installation of a new high voltage direct current 1000-1500 MW cable to stretch between Sweden and Germany. The new cable could handle all the output of both phases of Krieger's Flak, plus Vattenfall's planned 100-turbine extension. "Of course, who's going to pay is the big question," Loman said. "I believe in the end we will have to absorb the cost, both offshore and the on-land connections."

Vattenfall plans to spend more than SEK 8 billion SEK (EUR 830 million) on the project. The Swedish Energy Agency recently granted the company nearly 10 million SEK (around EUR 1 million) for some early work on Krieger's Flak from a SEK 350 million special fund for wind power projects. Vattenfall has also received SEK 213 million (EUR 22.1 million) for Lillgrund from this fund.

Vattenfall also wants an extension beyond 2007 of the tax break Swedish wind projects have thus far received, the current value of which is EUR 0.009/kWh. If the bonus is not extended for offshore development and equipment and maintenance costs keep rising, Averstad said other offshore plans -- such as a 15-30 turbine development off the southeast coast of the country near Karlskrona -- could face "a general postponement."

Loman said he is bullish overall about the future of Vattenfall's offshore projects, even if the current financial picture is uncertain. "We're running ahead of the technology, which I think will catch up by the time we're actually developing. I'm definitely positive."

In spite of its historical concentration in large hydro, Vattenfall has a significant investment in coal-fired generation in Germany, which has brought it the dubious distinction of being named by the World Wildlife Fund as the fifth largest emitter of CO2 among European power stations in 2005.