Can the Grid Deliver?
Recent years have seen significant reductions in the commercial viability of UK wind farm development as a consequence of factors such as limited availability of turbines, increases in metal prices, reduced availability of skilled support for construction operations and grid access constraints. Despite this, the excellent wind resource and shallow waters around the UK ensure that offshore development is seen by government and the renewables industry as the most significant opportunity to realise very ambitious renewable energy targets and aspirations.By James Hunt, Econnect, UK .
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The renewable energy targets now include an EU Directive, which requires the UK to provide 15% of its energy from renewable sources by 2020. The amount of renewable electrical generating capacity required to produce this amount of energy would need to be in the region of 30 to 50% of all UK generating capacity. This assertion is supported by Chris Veal, Director of Airtricity and Chairman of the BWEA Future Offshore Working Group, who predicted that between 15 and 25GW of offshore wind could need to be built by 2020 to meet this target (BWEA Offshore Wind Conference 2007). Recognising the UK's offshore potential as the most viable option for attaining this target, John Hutton, the UK Energy Secretary, announced in December 2007 to the European Energy Industry in Berlin the UK government's proposals to open up the UK's seas to up to 33GW of offshore wind energy; this amounts to 25GW beyond the already planned 8GW. Since then, The Crown Estates have published the areas of opportunity for development of offshore wind and invited developers to express an interest in applying for licences to develop in these areas with a view to licence offers being made in late 2009. If such levels of offshore wind development are to be attained by 2020 then the issue of addressing the aforementioned constraining factors takes on critical status.To achieve this in the next 12 years it is safe to assume that future offshore wind farms are likely to be large (e.g. the London Array at 1GW) and will require high voltage grid connections to the transmission network. Establishing such grid connections will require that a number of challenges are overcome, including the identification of ‘technically feasible’ engineering solutions and the establishment of a commercial and regulatory framework that deals with the associated costs in a way that supports the economic development of offshore wind farms.
The technical solutions for offshore grid connection are already starting to be addressed by the industry. While enhancement to the onshore transmission network is required, large-scale enhancement is likely to be inhibited by planning constraints, as demonstrated by the ongoing permission challenges of the Beauly–Denny transmission line in Scotland. Recognising the offshore opportunity, The Crown Estates recently published a report undertaken by Econnect Consulting Ltd investigating the technical and economic feasibility of an offshore interconnector along the east coast of the North Sea that would facilitate the connection of both onshore and offshore renewable projects (www.econnect.co.uk/news/published_reports.html). The report identifies the technical feasibility of Voltage Source Converter (VSC) High Voltage Direct Current (HVDC) technology as the most appropriate transmission medium as a consequence of a number of factors including its flexibility in terms of connectivity, its size (in terms of diameter and weight) of conductor (relative to equivalently rated alternating current (AC) conductors), low electrical losses over large distances (relative to AC), and the fact that it brings operational and system support benefits to the onshore AC system.
Importantly, VSC technology also complies with existing British security and quality of supply standards as overseen by National Grid. In addition, this solution offers the potential opportunity to support the development of a 'European Supergrid’ (Trademark of Airtricity) as it is readily interconnected with other links if utilising the same voltage level throughout. While the confirmation of the feasibility of such development would require further investigation, the report highlights that the cost of a 'Supergrid' in the North Sea would be in the order of £5 billion and therefore presents a very attractive and realistic proposition that can facilitate the attainment of European renewable energy targets beyond 2020.
From the commercial and regulatory perspective, the development of offshore projects remains challenging. High costs associated with construction and operations at sea are, according to offshore developers, only marginally offset by the increase in revenue as a result of the greater resource availability and the prospect of a 1.5 x Renewable Obligation Certificate (ROC) for offshore wind from April 2009. With capital expenditure in the order £1.5–2 million per megawatt installed, the level of investment required to make large-scale projects happen is a challenging scenario for investors. During his opening address to the Offshore Wind & Transmission Investor Conference on 18 February 2008, the Minister of State for Energy, Malcolm Wicks, confirmed that Ofgem will be given additional powers to administer an efficient and effective regulatory regime that will enable the offshore industry. The policy under development addresses the licensing and regulation of offshore electrical transmission and is being undertaken by Ofgem and BERR with continued consultation on final releases of policy changes throughout 2008. However, until the mechanisms of transmission access – particularly the regulated pricing approach – are clear, not only is the development of an investable business model challenging but there is a risk that projects invested in today could become the stranded assets of tomorrow. For these reasons, the outcomes of the policy changes are critical to the development of the offshore industry and Mr Wick's statements suggest that the regulatory framework contained therein will be an industry enabler that will clear the ‘fog’ presently surrounding commercial and regulatory decisions.
To summarise, the technical solutions for transmission networks that will enable the delivery of large-scale, target-exceeding, offshore renewable energy projects are being developed today; however, while the banded ROC makes offshore projects more investable, the commercial and regulatory mechanisms remain unclear and are presently acting as inhibitors to industry development. Until investors have clarity on transmission ownership, pricing regimes and the regulatory system, assessment of Return on Investment is a largely 'blue sky' process that is difficult to commit to! In order for the 'grid to deliver', government needs to work in concert with industry (developers and grid operators) to deliver a commercial and regulatory framework that is a market enabler. Without this, little will change and the potential for offshore renewable energy will remain just that!
Biography of the Author
James Hunt is Managing Director at Econnect Consulting Ltd & Econnect Ireland. James Hunt entered the renewable energy sector in 2004 after 16 years as a meteorologist and oceanographer in the Royal Navy. His industry expertise includes developing energy strategies and assessments of renewable and alternative energy technologies. James is a strong advocate of climate change mitigation in all its forms; from a renewables perspective he champions the future potential for offshore energy.{/access}
