How low can you go? Why the Dutch offshore tender could hit €100/MWh
Published February 2016
Last week the Dutch Government approved an amended offshore wind farm bill setting the stage for the next offshore wind tender to be held in May. Developers will be squaring up to see who can deliver (or at least who will say they can deliver) Borssele 1 and 2 the cheapest. Just how low are prices going to go? Everoze Partner Paul Reynolds give his take…
Last year the Dutch Government, industry and civil society came together and signed the “Energy Agreement”. This ground breaking document saw the Government commit to a rolling programme of annual tenders for 5 years, with the aim of installing 3,500MW of new offshore wind capacity by 2023. In exchange, the industry committed to reducing unit costs by €5/year to hit a €100/MWh target in 2020, excluding grid costs. In parallel, the government took over pre-development activity and consenting of the zones, while the Dutch Transmission System Operator, TenneT is now responsible for developing and operating the transmission system up to and including the offshore substation. In short, the Dutch have adopted the Danish model, with the sensible addition of a rolling programme to give confidence to the supply chain. Good news for cost reduction.
First up for auction: Borssele 1 and 2
The first tender in the programme is for the Borssele 1 Zone – two 350MW projects located 30km offshore, with 9.6m/s mean wind speeds and water depths between 18-38m. The ceiling price for the auction is €124/MWh. The first tender is expected to open in April and close at the beginning of May, with the second tender closing in September.
Most attractive tender this year?
The Dutch Government has done its best to serve the project up on a silver platter. It is close to shore, suitable for monopiles and with a decent wind resource. The grid connection is provided by Tennet who have already begun development at the site. With the possible exception of tight delivery timelines,this is probably the most attractive large scale tender available in 2016. Success in this tender should also put the winner in a good position for future auction rounds.
Lots of competition
As a result, competition will be fierce. There are lots of developers looking to fill their pipelines, with strong consortia starting to form. For reference, the 600MW Krieger’s Flak project in Denmark, which is arguably a more difficult site, has attracted seven pre-qualified bidders. Borssele is likely to get more. On the supply side the low oil price will mean fierce competition amongst contractors, while financing projects has never been easier: super low interest rates and high competition are driving down required returns. Put simply, there has never been a better time to build.
So, how low will it go?
Well, it would be wrong of me to put a number on it but sub-€100/MWh seems within reach. The Danes got close and the winds of competitive pressure are blowing in the Dutch direction. Best of luck to all those bidding.