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Offshore Wind Journal

Offshore Wind Journal

Dutch tender puts offshore wind on a par with conventional power generation

Thu 21 Jul 2016

Dutch tender puts offshore wind on a par with conventional power generation
Borssele I and II have set a new benchmark for the cost of energy from offshore wind

The award to Dong Energy of the concession to build the Borssele I and II offshore windfarms off the Dutch coast is a major milestone for the offshore wind energy industry as a whole, the deal having been agreed at a price of €87/MWh including the cost of grid connection (€72.2/MWh excluding transmission costs), which is by some distance a record low price for offshore wind. The previous lowest was Horns Rev 3 in Denmark in 2013, where the price was €103/MWh, excluding grid connection.

Wind Europe chief executive Giles Dickson said, “It has been clear for some time that the costs of offshore wind are falling rapidly. This tender goes beyond even the most optimistic expectations in the market. €87/MWh is significantly lower than anything we have seen previously and puts offshore wind in the same cost range as conventional power generation. The wind industry recently committed to making offshore wind cost-competitive by 2025. This tender suggests this is fully feasible – and we seem to be getting there well ahead of schedule.”

The record low price means that the cost of building and operating Borssele I and II is expected to be €2.7 billion less expensive than previously estimated. Moreover, the 700 megawatt (MW) windfarm will generate 22.5 per cent more electricity than anticipated. The lower than anticipated price follows fierce competition between companies responding to the public tender to secure the permit for the concession and subsidy to build and operate the windfarm. Overall, there were 38 bids. Borssele I and II are due to be completed by mid-2020.

Dutch minister of economic affairs Henk Kamp said, “It has never happened before that an offshore windfarm can be built at such a low cost. The Dutch system in which companies have to compete with each other while the government regulates all conditions for building the windfarm has proved to be very successful. This reduction of cost represents a major breakthrough in the transition to more sustainable energy. “[With] offshore windfarms, we are building a new economic sector,” said the minister. “Development of offshore windfarms has already created around 4,000 jobs in The Netherlands in manufacturing, construction and research. This is expected to grow to 10,000 jobs by 2020.” He noted that a greater part of the construction of the new windfarms is expected to be conducted from Port of Vlissingen.

Under the Dutch system, interested parties were asked to bid with a maximum price cap set at €0.124 per kilowatt hour. As highlighted above, Dong Energy submitted the lowest bid with an average of €0.0727 per kilowatt hour. This is €0.051 less than the originally estimated level, resulting in a cost reduction of €2.3 billion over the 15-year period that the subsidy will be provided.

It is expected that a tender for the next round of windfarm projects in The Netherlands, Borssele III and IV, will close in the last week of September 2016, after which, from 2017 onwards, more new windfarms are expected to be developed off the Dutch coast.

On 8 July the Ministry of Economic Affairs in the Netherlands published a ministerial regulation providing details for the tender for the Borssele III and IV offshore windfarms. Publication followed shortly after the recent announcement that Dong Energy had won the tender for Borssele I and II at an unexpectedly low price of just €7.27/kWh. Law firm Loyens & Loeff said the new regulation is similar to the first Borssele tender. The tender for Borssele III and IV will open on 15 September 2016 and will close two weeks later on 29 September 2016. The minimum nominal capacity of the installation is 331 megawatts (MW) for Site III and 351MW for Site IV. The maximum is 360MW for Site III and 380MW for Site IV. The maximum subsidy amounts are €2.4 billion for Site III and €2.6 billion for Site IV. Loyens & Loeff said the maximum tender amount is €11.975/kWh but given the outcome of the first Borssele tender, this figure is unlikely to be relevant any longer. As it pointed out, the question is more likely to be, by how much the tenders for III and IV differ from the winning bid for the first tender? 

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