In summary, Norway’s planned wind farm in the North Sea, Sørlige Nordsjø II, may be more expensive than similar projects abroad. Three main factors contribute to the high costs: the depth and distance to land where the wind turbines are to be located, less support from the state compared to the UK, and the fact that the companies themselves have to pay for the grid system. The depth and distance to land make the project technically challenging and expensive. The wind turbines will be located 140 kilometers from land and at a depth of approximately 60 metres. The depth will be a new world record for bottom-fixed offshore wind. The Norwegian state will not spend more than a maximum of NOK 23 billion on the project, which is less than what other countries, such as Great Britain, have contributed to similar projects. In Norway, the developer must pay for the grid, which increases the project cost. In addition, Statnett can take over the network facility free of charge, which can create increased uncertainty for potential developers. The summary is made by an AI service from OpenAi. The content is quality assured by news’s journalists before publication. For Norway, much is at stake. Wind power in the North Sea will ensure that we Norwegians get the electricity we need in the future. And then offshore wind will contribute to creating a new green industry and that we reach the climate targets. But what if nothing comes of it? In turn, companies have withdrawn from the project, which is called Sørlige Nordsjø II. Five players are still involved. On 18 March, we will get an answer as to whether any of them will actually build the wind farm. Research carried out by news suggests that our plans in the south of the North Sea will be much more expensive than similar projects abroad. Here are three reasons why. Deep and far away The depth where the wind turbines will be located and the distance to land have a lot to say about how expensive a wind farm in the sea will be. The southern North Sea is extreme on both. The Norwegian wind farm will be located 140 kilometers from land. If we look at the steady sea wind in the North Sea today, the average is 33 kilometers. And the wind turbines will be located at a depth of approximately 60 metres, which will be a new world record. Average depth for bottom-fixed offshore wind farms in the North Sea: approximately 25 metres. Bottom fixed offshore wind farms in the North Sea compared to the planned Southern North Sea II. See how we have calculated, at the bottom of the case. According to Norway’s Directorate of Water Resources and Energy (NVE), depth is the biggest cost driver. Due to deep sea areas, Norway is generally not suitable for bottom-fixed sea winds, according to NVE. There are several reasons why it is challenging to get the Southern North Sea to turn a profit. Less support from the state The Norwegian state will not spend more than a maximum of NOK 23 billion. There are many indications that the British are more generous with the subsidies. The financial support for offshore wind applies for 15 years, regardless of what electricity prices are during the relevant period. The subsidies are paid out when the electricity price is below a certain level. This acts as a guarantee for the developer. The Dudgeon offshore wind farm off the east coast of England is operated by Equinor. Photo: DARREN STAPLES / REUTERS In Norway, on the other hand, the support of NOK 23 billion can be used up long before 15 years have passed – if the electricity price is low enough. Then the rest happens at the developer’s expense and risk. In Great Britain, seven offshore wind projects have received a total of over NOK 62 billion in support. And that in just seven years. That means close to three million kroner per megawatt (MW) per year on average. MW is the measure of how much electricity the offshore wind farm can produce. In comparison, Norway has a cap on subsidies of NOK 23 billion, and the money must last for 15 years. This amounts to approximately NOK one million per MW per year. Average subsidies to seven UK offshore wind farms compared with planned subsidies to Southern North Sea II. See how we have calculated, at the bottom of the case. Despite the state aid, three of the seven British offshore wind farms have been in the red for all the years they have been in production. Among the four that have a profit, Equinor’s Dudgeon can boast the best results. However, the agreements with the British parks were concluded several years ago. Today, the British offer lower prices for electricity than back then. But there are also several risk factors with offshore wind in Norway: The companies will not receive financial support from the state if the electricity price falls below 5 øre per kilowatt hour. This is to avoid the turbines producing electricity when Norway does not need the power. And we are talking about quite a few days: since 2019, we have had 132 days with an average price of less than 5 øre, according to Nordpool. In the UK it has been common for this limit to be set below zero. There, the electricity price must therefore be negative for subsidies to disappear. The state made money in just one year Norway has chosen the same type of agreement between the developer and the state as the British, a so-called bilateral contract for difference. This means that the developer receives support when the market price of electricity is below the agreed price in the contract. Conversely, the developer must pay the state when the market price exceeds the contract price. The agreed price between the state and the developer will be set through an auction. For the seven British offshore wind farms, the market price has been lower in all years – except for 2022. The companies have therefore collectively received billions in payments from the state. Despite these subsidies, three of the seven offshore wind farms have been in the red for all the years they have been in production. This is shown by a review news has made of the accounts. Norway’s project stands out in several ways that can create uncertainty for potential developers. The companies themselves have to pay for the network. The long distance from the wind turbines in the sea to the mainland requires miles of cables in the billions range. These cables bring the electricity from the Dudgeon offshore wind farm ashore. Photo: Equinor A huge electrical installation at sea is also used. See how big such a network is. At Aibel’s shipyard in Haugesund, this net system was made ready for the task off the coast of England. Photo: Øyvind Sætre/Aibel Equipment like this is not off the shelf and costs a lot of money. The price of a large grid facility Dogger Bank A is a large offshore wind farm that Equinor and its partners are building off the east coast of England. Like the Southern North Sea, lies more than 130 kilometers from land. According to the plan, the British authorities are to pay the companies over NOK 13 billion for the grid system with connection to the electricity grid on land. If we use this sum as the basis for the first phase of Sørlige Nordsjø II – which is slightly larger than Dogger Bank, it means that the companies will have to spend over NOK 15 billion on the grid alone. In that case, the network will absorb just over 65 percent of all state aid of a maximum of NOK 23 billion. Developing offshore wind requires an enormous amount of capital upfront, long before the income arrives. All the wind turbines must be purchased and installed using expensive special vessels. In addition, there are sea-based grid systems and connection to the power grid on land. The special thing about Norway is that the developer must both build and pay for the network facility. – We have consistently recommended that the network should be financed by Statnett, says project manager Ånund Nerheim in Lyse. Lyse, in collaboration with Shell and Eviny, has applied for the opportunity to participate in the competition for the Southern North Sea. It remains to be seen whether they will submit a bid in the auction, which is scheduled to take place before Easter. In the UK, the companies are reimbursed for the costs of such grid systems, before the electricity users ultimately end up with the bill. This is not the case for Norway’s upcoming offshore wind farm, where the developer must pay for the grid system, which will only be connected to Norway. In addition, Statnett can take over the grid completely free of charge. Statnett confirms to news that a takeover may be relevant, but clarifies that it is basically the developer who will own the facility for its entire lifetime. – I have never heard of this before. Quite unique, says partner Tom Harries in Nardac to news about the Norwegian model. Harries has analyzed the offshore wind market for years. In Europe, it is common for grid companies to finance and develop the power grid for offshore wind farms. In such cases, there are examples of offshore wind companies that have managed without state aid. Some have even been willing to pay to develop offshore wind. The Hohe See offshore wind farm in the German part of the North Sea. Photo: Enbridge / Reuters Another option is, as mentioned, for the developer to be responsible for grid facilities and to be reimbursed for the expenses, as in the UK. The distinctive Norwegian variant can result in increased project costs. Chief analyst Thina Saltvedt at Nordea points out that higher project costs mean higher uncertainty. – And then the risk increases that profitability will not be good enough. The financial market will not finance projects that appear to have poor profitability. Nobody enters a new project if it looks like they will lose money on it, says Saltvedt. The Minister of Energy: – A good arrangement news has asked Energy Minister Terje Aasland (Ap) why Norway has chosen a funding model that stands out, and whether it is appropriate to make changes. “It is not relevant to adjust the financial framework for Sørlige North Sea II now.”Terje Aasland Minister of Energy He emphasizes that the financial framework has been adopted by the Storting, and that the model has been approved by ESA. – There is broad agreement on the solution. A good arrangement, says Aasland. The minister points out that the government received seven applications from companies that wanted to qualify for the auction, despite the cost increases that have occurred. Then he refers to, among other things, inflation and interest rate jumps. – Has it been relevant for Statnett to finance the grid system? – We have no desire to transfer costs for this project to Norwegian online customers through increased internet rent, Aasland replies. Soon the minister and the rest of us will get answers to some fundamental questions: Does anyone actually want to build offshore wind in Norway? Although several companies have thrown in the towel, some are still in the competition. The ministry has decided that five players have what it takes to build offshore wind and can therefore take part in a bidding round. The bidding round itself will be held on 18 March. If bids are received, a winner will be chosen. And if everything goes according to plan, the offshore wind farm will be completed in 2030 – at the earliest. This is how we have calculated Depth The figures for existing wind power plants and plants under construction are taken from MapStand. To get an average depth per wind power plant, we calculated the average of the deepest and shallowest point in each of the 131 offshore bottom-fixed wind power plants that are currently in operation and under construction in the North Sea countries. The North Sea countries mean Great Britain, Denmark, Germany, Belgium and the Netherlands. We then averaged all these facilities to arrive at an average depth of 25 metres. For Sørlige Nordsjø II, we found the average depth on Statkraft/BP/Aker Horizon’s website about the project. Subsidies for offshore wind in Great Britain The figures for contracts for difference are taken from the Low Carbon Contracts Company (LCCC). The first wind farms in the data set started receiving subsidies on 11 April 2017, the last ones started receiving on 31 March 2023. We have looked at subsidies for Burbo Bank Extension, Dudgeon, Walney Extension, Beatrice, Hornsea, East Anglia One, Triton Knoll. These wind power plants did not start production all at once, but in phases. LCCC reports daily subsidy payments for each facility and phase separately. Since each phase has a different start date and different installed power, we calculated the annual subsidies per MW separately for each phase. We then used two methods to combine data across wind farms and phases. In the first method, we took an average directly across all phases. In the second method, we first combined the phases from each park into an average and then the average across parks. This is to prevent parks with several phases from having a stronger impact on the total. When using method 1, the average across parks is NOK 2,700,097 per MW per year. When using method 2, the average is NOK 2,920,081 per MW per year. We then calculated an average of the figures from the two methods: NOK 2.8 million. Currency: LCCC reports subsidies in British pounds. To convert to kroner, we used the daily historical pound rate reported by Norges Bank. Dogger Bank The price of the network facility for Dogger Bank A is obtained from Ofgem, which is the regulatory authority for energy in Great Britain. To convert 1 billion British pounds into Norwegian kroner, we took as a starting point the average pound exchange rate that Norges Bank has reported for 2023: NOK 13.1348. We then calculated the price level based on installed capacity: 1200 MW for Dogger Bank and 1400 MW for Sørlige Nordsjø II. This is how we arrived at NOK 15.3 billion for Southern North Sea II, which amounts to 66.5 per cent of the Norwegian subsidy pool of NOK 23 billion.
ttn-69
Three reasons why offshore wind in Norway can be extra expensive – Climate
