Tennet says it cannot carry alone the financial burden of connecting all Germany’s planned offshore windfarms to the electricity grid.
The company, which owns one of Germany’s four regional high-voltage grids, is investing €5.5 billion (£4.4 billion) to connect windfarms in the North Sea to the grid and estimates that a further €5 billion will be required for Germany to reach its 2020 target for offshore wind.
It is also investing €2.5 billion in new onshore transmission lines to carry power generated offshore to regions of demand in the south of Germany.
Sharing the load
“We need more shoulders to carry these investments,” says Jelle Wils, spokesman for Tennet, which is responsible for connecting windfarms in the German North Sea. The company does not want to increase its debt for fear of harming its A-grade investment rating, and so needs access to equity.
Tennet inherited a pipeline of offshore wind connection projects when it bought the grid from Eon in 2010. However, the breakneck pace of offshore wind development in the country has given rise to financial and technical challenges.
The result has been project delays that could have long-term implications for the offshore wind energy industry, not only in Germany, but also elsewhere in Europe.
Tennet is currently building nine offshore grid links to connect 5GW of wind capacity.
“The delays are substantial, they could cause long-term damage by shattering investor confidence,” says Paul Wilczek, senior regulatory affairs adviser at the European Wind Energy Association (EWEA). “The German offshore pipeline was known in 2009, so this makes it unfortunate. cannot handle the volume but it has not come out of the blue.”
Wils rejects this. “Development of offshore windfarms in Germany is going very quickly,” he says. “And because of the energy transition they are being built more quickly than originally planned.”
Tennet says it will not start developing any new offshore grid connections until some important issues have been addressed, such as the reliability of offshore converter stations.
“This is a new business and the connection of this amount of capacity … has not been done before anywhere in the world,” says Wils. “We are building converter stations offshore and this is a technical challenge. We have no previous experience, and we have decided that there will be no new projects until we have gained better experience.”
BorWin and HelWin
According to Tennet, only two of its nine current offshore connection projects are behind schedule and it is working with Siemens, the contractor for these two projects, to find ways of speeding up work in other areas to reduce delays. The company told Utility Week that the delays on these two projects – BorWin 2 and HelWin 1 – would be “several months”.
Tennet could face demands for compensation for any delays. “We have agreed to build the connections within a certain timeframe,” says Wils. “If we don’t achieve this, then we will have to see the consequences. It may be that we’re not responsible for all the delays.”
Technical issues, financing and questions about liability are all on the table at discussions being held between government, wind energy companies, regulators and the financing sector. For its part, Tennet is seeking co-investors to provide the equity it needs.
Equity partners
“We have already sold stakes in two offshore connections to Mitsubishi,” says Wils, speaking of the €240 million deal announced in February under which the Japanese firm will take a 49 per cent stake in BorWin 1 and BorWin 2. “We could do this in the future for other connection projects, and we are investigating other prospects, such as the creation of a new transmission system operator responsible for offshore grid connections.”
Establishing an offshore transmission system operator regime in Germany would reflect the model for offshore grid connection in the UK, which has a comparable offshore wind investment volume but no reports of delays, says Wilczek. “This model is supposed to be more cost-effective, but the negative side is that you are inviting a third party into the project and this creates risk.”
Wilczek is also sceptical about the prospects for investment in offshore links. “There is no appetite for equity providers to get into the regulated electricity business even though they are solid. They are low risk but low return,” he says.
This article first appeared in Utility Week’s print edition of 13 July 2012.
Get Utility Week’s expert news and comment – unique and indispensible – direct to your desk. Sign up for a trial subscription here: http://bit.ly/zzxQxx