A wind power landmark on the horizon1 September 2008
Prinses Amalia wind park, which stands 23 km off the coast of the Netherlands in water 24m deep, is now fully operational. This undertaking marks a new approach to offshore wind farm financing – it is the world’s first non-recourse financed facility of its kind, and the first to go into commercial operation.
The groundbreaking 120 MW Prinses Amalia wind park, located in the North Sea 23 km off the coast of The Netherlands, was officially opened in June. Now fully operational, this facility could mark a major shift in the approach to the financing of offshore wind farms, and perhaps also to their design. It is joint owned, and was developed by, Econcern, a sustainable energy company which is also one of the major investors, and Eneco Energie, one of the three leading Dutch energy companies. Originally known as Q7 it was renamed at the official opening in honour of the five-year old princess Catharina-Amalia, grand-daughter of Beatrix, queen of The Netherlands.
Taking this project from the drawing board to through to fully operational status represented a unique engineering challenge. Its location demanded work at the very edge of proven technology and engineering practice, and also has significant repercussions in terms of the operation and maintenance of the site. All of these risks were assessed, explored and mitigated against in minute detail before the construction project could begin, not least to enable a novel financing arrangement to be secured.
As a result, the project plan was incredibly detailed but, even so, the nature of the marine environment around the site meant that uncertainties and contingencies were in abundance. For that reason, the Prinses Amalia wind park is a genuinely pioneering project – the lessons learned during the build process, and those that continue to be learned during the operation of the site, can help establish new standards for offshore wind farm construction, operation and maintenance. Perhaps most importantly, those standards will help to create a new paradigm in offshore renewable energy financing.
A world first
Prinses Amalia wind park is the largest wind farm off the coast of the Netherlands. It is 23 km from IJmuiden, at sea depths of between 19 and 24 metres. At present, it is the only wind farm in the world to be located so far off shore and at such depths.
The site contains sixty 2 MW turbines spaced around an area of 14 square km. In total, it is projected to deliver annual power production of 435 GWh. That is sufficient to power a city the size of Utrecht (where Econcern is headquartered) and will reduce CO2 emissions by 225 000 tonnes per year.
Construction of Q7 began in October 2006, with the installation of monopile foundations, and was completed in just over eighteen months – the 60th turbine was in place on 20th April 2008. A significant milestone was reached at the end of 2007, however, when the wind park exported power to the grid in Holland for the first time.
A new financing model
It is a significant factor in the development of the wind park that it was made possible by the unique financing arrangements agreed with three international banks – Rabobank, Dexia and BNP Paribas.
This arrangement made it the first wind farm in the world to be financed on a non-recourse basis. In essence, this means that the banks rely solely on the project to generate the revenues needed to service the interest costs and repay the investment loans. In this case revenue consists of a feed-in tariff of 97 r/MWh above market price guaranteed for ten years, and ‘grey’ electricity payments under the power purchase agreement with Eneco.
This kind of financing represents a vital development, given that, until now, offshore and renewable developments have been dominated by large energy companies with significant cash reserves.
At the moment few specialist renewables firms are in a position to offer these kinds of guarantees. This, coupled with investors’ cautious approach to what is a relatively new offshore technology risk, has in the past closed the door to finance and ensured that offshore developments have stayed on the drawing board. The hope is that the arrangements for Prinses Amalia wind park can act as a financial engineering template for future funding, at least until investors become more comfortable with the risks.
The fact that Econcern is smaller than the energy multinationals was undoubtedly helpful in securing this financing arrangement. It is an agile business, an innovator, but also able to take a pragmatic view, and there is no doubt that this played a significant role in discussions with investors.
There had to be a recognition that, for the banks and equity partners, the deal rested on the ability to identify and manage risks and include them in the planning process. Negotiations with the banks were entirely transparent in terms of sharing detailed plans and projections. Investors were also closely involved in discussions with suppliers in terms of access to equipment and skills, associated risks and the required contingency strategies.
As a result, the investors had a clear view of the project from top to bottom, and could see that Econcern had taken an extremely cautious approach to planning, risk management and, crucially, the availability of the wind farm in terms of power and revenue generation once completed. Projections for income and operating costs are extremely conservative.
This had implications for a whole range of key planning decisions. For instance, the choice of turbine was dictated by proven reliability in harsh marine environments, rather than innovative design or overall cost. In the end, 60 Vestas V80 2MW wind turbines were specified. They are not at the cutting edge of design, or even the cheapest option, but their track record for reliability addresses a key concern of investors about a wind park’s ability to withstand environmental stresses.
All of these arrangements played their part in helping to lower or at least quantify the risks associated with operating and maintaining the site. However, in terms of the construction phase, the engineering team was breaking new ground and, this being so, it was necessary to plan a vast array of uncertainties and contingencies. In the main this stemmed from the location of the site and the potential knock-on effects of any delays or unforeseen issues.
Of course, the whole team went to great lengths to understand where problems and delays could arise, and to ensure that the right strategies were in place to deal with them effectively.
Econcern engineers visited a number of offshore wind farm sites to better understand the issues that affected construction and gathered a great deal of information. However, at the same time it was important to recognise that these other sites were only partly relevant, since none was entirely comparable to the Prinses Amalia wind park because of its unusual location.
In particular, weather and sea conditions so far from the coast present a different set of challenges compared with the vast majority of wind farms already in operation. In order to understand how these issues might affect the project, detailed weather and marine surveys were carried out, and computer models were used to help predict factors such as wave height and weather patterns. These models were invaluable in identifying the kinds of conditions that might bring site work to a halt and which, though sub-optimal, represented conditions under which work might continue.
The preparatory work also informed the selection of vessels and equipment. For instance, marine conditions dictated that only two or three of the available vessels were able to do the job required of them – to provide a stable platform and working area in deep seas. That shortage presented a significant risk in that the vessel had to be available when we needed it, but it was difficult to be certain of when that might be, or for how long, should conditions halt construction for any significant period. As a result, whilst lead suppliers were secured, dialogue with back-up suppliers was also maintained, to ensure access to essential equipment at short notice.
Of course, Econcern also had fixed price agreements with suppliers, and insurance in place, to protect it from the effects of any delays or lack of equipment.
Despite all this careful planning, it was also clear that, given the scale of the engineering, issues would arise that would affect or even halt construction. On these occasions decisions had to be taken on the ground as to the right course of action. For instance, it turned out that, whilst predictions as to wave height were largely accurate, swell was a far bigger issue than anticipated. This caused a delay of almost two months since the A2SEA vessel Sea Energy providing a working platform simply could not cope with the marine conditions. Sea Energy was then replaced by Sea Jack, which managed to complete the job.
Similarly, based on weather modelling, engineers planned to install export cabling during June, when the chances of storms were lower. As it turned out, the team was forced to suspend installation when a severe storm was forecast. The construction team was insured to work in wave heights of up to eight metres, but the forecast was for 12 metre waves and high winds. As a result, the decision was taken to carry out a controlled cut of the cable, seal it against marine ingress and run for the coast with no firm idea of when work might resume. In fact the storm passed quite quickly and the installation was completed without any further problems.
As it turned out, all of the preparatory research and planning, as well as the confidence of investors and contractors, paid off. Prinses Amalia wind park was completed on schedule and is currently exceeding projections in terms of availability, and therefore power and revenue generation.
But almost more important than the power generated by this new wind park are the lessons we have learned from the planning, construction, financing and early operation of the site. Those lessons could be vital to the future of the offshore wind farm industry, stimulating growth and innovation in equal measure.
Econcern has taken its responsibility in these areas very seriously. Workshops involving every partner in the project have so far identified over one hundred exemplary ‘lessons’, both technical and organisational.
One such lesson is that future marine surveys will use wave buoys to assess swell conditions as well as wave height. Swell proved to be the main unforeseen factor during construction of this wind park. It is important that any future developments avoid delay by incorporating an accurate picture of swell heights into project planning from the outset. That will not only help with scheduling, but also with specification of equipment and components.
All the lessons from Prinses Amalia wind park will be acted upon in the future, but perhaps the most concrete example of this lies in the ongoing development of the Darwind turbine (see panel), a machine that is being developed exclusively for offshore use. Every component is designed with the unique challenges of a corrosive environment in mind. It also includes innovations to make maintenance at sea easier. The turbine will be much larger than those used at Prinses Amalia, having a capacity of 5 MW. As a result, fewer turbines will deliver the same power return, which improves everything from capital investment to maintenance costs.
The Prinses Amalia wind park experience has also reinforced a belief that renewable energy projects, particular offshore sites, operate at a disadvantage compared with traditional generation sites. That is, in the case of offshore projects in some countries the cost of exporting power to the grid must be borne by the offshore operator, not by the grid itself, unlike the case of onshore and traditional plants. This adds expense and risk to any offshore development and means that renewable sources do not enjoy a regulatory level playing field in terms of infrastructure costs. This issue must be addressed at government or EC level, for instance with the creation of an ‘offshore grid’ to which new developments can simply and easily be plugged in, or by new regulation shifting the responsibility for export connection costs to the grid. This has already happened in Germany, but the hope is that the lessons from Prinses Amalia wind park will help to speed up similar developments Europe-wide.
Any such development would be a huge boost to the offshore industry, helping to reduce risks and construction costs. Along with the technical and engineering innovations already emerging from Prinses Amalia, creating a level playing field would help make the non-recourse financing model even more viable, by narrowing the risks and lowering costs without compromising on power generation and revenue return.
Consolidating and strengthening the model is a priority for Econcern. It has big plans for the future, which rest on its ability to establish one major new offshore site every year. A dozen projects are already in development, including Belwind, which will be sited 45km off the Belgian coast and is scheduled for 2009/2010, and Godewind, which will be established off the German coast in 2010/2011. The success of Prinses Amalia wind park enables Econcern to approach these projects, including discussions over financing, with an even greater degree of confidence.