Lowest-cost Offshore Wind
Kriegers Flak Offshore Wind Farm, a 600 MW offshore wind farm in the Baltic Sea, will be the largest wind farm in the Nordics.
It is approximately 15km east of the Danish coast, within a 132 km2 area in the Baltic Sea consisting of three parts dedicated for wind power development in Germany, Sweden and Denmark.
In November 2016, Vattenfall won the tender to build in the Danish part of the Kriegers Flak area. The window for erecting the offshore wind farm is between 1 January 2019 and the completion deadline of 31 December 2021.
The winning bid was EUR 49.9 per MWh, among the lowest costs in the world for offshore wind power and 58% below the original cap of EUR 120. Analysts have suggested that the expected lifetime levelized cost of energy (LCOE) for the project is around 20% lower than Vattenfall’s winning bid price.
Vattenfall has won all three of the latest offshore wind tenders in Denmark: Horns Rev 3, Danish Near Shore and Kriegers Flak. Kriegers Flak will cost less than half the price Vattenfall agreed in February 2015 for the 400MW Horns Rev 3 project.
Rather than fixed by length of time, the price is fixed for the delivery of 30 TWh, which corresponds to 50,000 full-load hours for a 600 MW power plant. The price is constant in current prices and not indexed.
The Danish energy ministry said Kriegers Flak would cost the government DKK 3.5 billion (€470 million) between 2019 and 2032 (i.e. in subsidy payments above the wholesale market price of electricity).
Vattenfall’s investment in Kriegers Flak is estimated to be €1.1 – 1.3 billion, pending a final investment decision (expected at the end of 2018).
Kriegers Flak is part of the Danish Parliament’s political agreement from 2012 to become an economy entirely independent of fossil fuels by 2050.
Location map (source: Vattenfall)
How is the price so low?
According to Bloomberg New Energy Finance (BNEF), average capex for European offshore wind projects have fallen from a peak of around $6m/MW for projects reaching financial close in 2013, to around $4m/MW in 2016. (On that basis, a 600 MW offshore wind farm in 2016 would cost in total $2.4b; approximately €2.2b).
According to Vattenfall, the selection of bigger turbines is one strong driver for reduced costs. Today some offshore wind farms are still installing 4 MW turbines, but Kriegers Flak and other projects are being designed for much bigger ones. In November 2017, it was announced that Siemens-Gamesa will supply 72 of its 8 MW turbines for the project.
Financing costs are also likely to be much lower than the 10-11% equity return expectations of other quite recent projects. Some analysts have speculated that, based on the numbers for Kriegers Flak, the cost of equity may be as low as 5% or less.
It’s worth noting that projects in Denmark (and the Netherlands) benefit from de-risked development costs and the provision of transmission links; the latter a major cost saving. Another element of project de-risking is that loss due to a reduction or halt in production ordered by the TSO is compensated at a guaranteed rate for any lost production.
Different rules, different investment decisions
In addition to the Danish area, Kriegers Flak also consists of two other parts dedicated for wind power development in Germany and Sweden. At the time of writing (October 2017), the German part has not been tendered. The Swedish area has a construction permit due to expire in 2018.
In the latter area however, it was reported that Vattenfall is reconsidering building a 420MW offshore wind farm. The decision was said to be down to a combination of recent cost reductions in offshore wind and the policy conditions, which differ from those in Denmark. In particular, the company was keen that the grid connection be provided by (i.e. paid for by) the Swedish authorities.
First Offshore Supergrid
One important aspect of Kriegers Flak is that it has been chosen as the first place in the world to have an offshore electricity grid. That means that the wind farm will eventually be able to transmit renewable energy to all three countries: Denmark, Sweden and Germany. In effect the project will act as an interconnection between Denmark and Germany via a 400MW link.
The Denmark-Germany grid interconnection (image source: Draft Tender conditions for Kriegers Flak Offshore Wind Farm, July 2016)
The three transmission system operators involved in the supergrid project are:
- Germany’s 50 Hertz (ex Vattenfall Europe Transmission),
- Sweden’s Svenska Kraftnät
- Denmark’s Energinet.dk.
Germany is constructing the 288MW Baltic offshore wind farm, approximately 32km north of the island of Rügen, as part of the project. A cable will connect Kriegers Flak to this wind farm.
ABB was awarded a contract worth more than $100m for the installation of an AC cable system to integrate and transmit power from the Kriegers Flak offshore wind farm to the mainland grid. The contract includes design, supply and installation of approximately 100km of HVAC submarine cables.
LS Cable and System was contracted to deliver approximately 95km of 220kV cables to connect the offshore wind turbines to two substations within the windfarm.
Routing onshore will cost DKK 3.1 bn (US$ 450m). The accompanying cross-border connection to Germany will cost DKK 1.4 bn (US$200m).
The EU is supporting the Kriegers Flak grid connection project by up to DKK 1.1 bn (US$ 160m), via funding from the European Energy Programme for Recovery.
First Published: April 2017
Updated: November 2017