Dong loses out on deep-water offshore connections

UK: Despite its unsuccessful deep-water wind bid, the energy firm has enlarged its portfolio with project acquisitions across Europe.

Dogger Bank: UK wind farm could generate up to 10GW
Dogger Bank: UK wind farm could generate up to 10GW

When the UK government announced the successful bidders for the third, deep-water, round of offshore wind farm licences, one of the biggest shocks was that Danish company Dong Energy came away empty-handed. Dong is one of the leading players in UK offshore wind, with over 700MW of wind farms operating or in construction and more than 2GW in development. It was part of a consortium with E.ON and Fred Olsen Renewables.

According to a spokesman, Dong was surprised to miss out, particularly in view of its claim to have more experience in offshore development than any of its competitors. "We have built half of the largest offshore wind farms in the world and we are heavily engaged in UK projects," he says. "But we are now focusing on our existing pipeline of projects."

Indeed, while successful bidders were signing zone development agreements with UK seabed owner the Crown Estate from December 2009, Dong was busily enlarging its portfolio with acquisitions in Germany, the Netherlands and the UK.

In the German sector of the North Sea, Dong has acquired PNE Wind's 50% share of the Borkum Riffgrund 1 and 2 projects, making it the sole owner of both. The purchase price consists of an upfront payment of DKK 100 million (EUR13.4 million) and additional milestone payments worth DKK 150 million (EUR20.2 million) subject to the wind farms being built. Under the deal, Dong will also redeem loans to PNE worth some DKK 70 million (EUR9.4 million). Dong's purchase of PNE's stake in the projects comes earlier than planned, resulting in a discounted purchase price.

Borkum Riffgrund 1 has German government consent for 77 turbines with a nominal output of 277MW. An application for 96 turbines at Borkum Riffgrund 2 is in the advanced stages of the consenting process. Dong says it bought out PNE to have full control of the projects and move them forward to take advantage of the German government's "sprint bonus" for offshore wind farms completed before the end of 2016. PNE will continue its involvement with the two, acting as service provider during development.

In the UK, Dong has formed a joint venture with Siemens Project Ventures to buy a 50% equity stake in Centrica's 270MW Lincs project for £50 million. Dong and Siemens' stake represents a total £375 million capital investment in the £750 million project.

As part of the deal, Siemens and Dong have expanded their existing turbine reservation agreement to supply the Lincs project with 75 Siemens 3.6MW machines. Under the original agreement in March 2009 - the largest of its type in the world - Siemens was contracted to supply 500 turbines totalling 1.8GW for Dong's northern European projects. So far, 277 have been earmarked for Dong's 367MW Walney wind farm and the 630MW London Array in which Dong holds a 50% stake. Other sites that could be supplied are Borkum Riffgrund, Westernmost Rough, north-east England and West of Duddon Sands in the north Irish Sea.

Meanwhile, at Lincs, Siemens will also design and build the grid connection, including offshore and onshore substations and laying the onshore cables. When operational, Centrica's energy supply subsidiary British Gas will buy 75% of the electricity and 50% of the Renewables Obligation Certificates (Rocs) under a 15-year power purchase agreement. Lincs, sited 8km off the coast of Skegness, will receive enhanced support for offshore wind of two Rocs for each megawatt hour generated. Construction is expected to begin in late summer this year, with commissioning beginning in 2012.

Earlier in December, Dong entered into a 50:50 joint venture with Scottish and Southern Energy (SSE) to develop three wind farms off the Netherlands. SSE had secured consent for the projects: Den Helder 1, Breeveertien II and West Rijn, totalling just over 1GW. The partners say that timing of any development will depend on financial support available under the renewables incentive mechanism.

Continuing its collaboration with SSE, Dong has sold the company a minority stake in its Walney project in the Irish Sea. SSE is paying £39 million for the 25.1% share, of which some £17 million is subject to the operational performance of the wind farm. SSE will also pay its pro rata share of the just under £1 billion construction cost.

According to Dong Chief Executive Anders Eldrup, its reduced share in the project allows the company to diversify risks. Walney will be built in two 183.6MW phases. Completion is expected in the first half of 2011 for the first phase and late 2011 for the second.

Dong's expansion of its wind portfolio comes as the company begins a shift away from coal towards greener forms of generation. It has withdrawn from a project to build a new coal-fired power station at Greifswald in Germany and is shelving plans for coal-fired plants in the UK and Germany. In Denmark the company's programme of coal plant closures continues with the shutdown of two further units this year, following the closure of two last year.

- The latest on UK offshore Round 3 licences can be found on


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