Cost benefit Analysis of Developing Offshore Windfarms in Conjunction with InterconnectorsEuropean Offshore WindStockholmSeptember 14th , 2009

Joe Corbett, Head of Asset Engineering

Why Interconnection

• Capacity Factor– Offshore Wind 40%– Expensive Unused Capacity

• Security of Supply

• Lower Risk

• Increased Competition

Interconnection Advantages

• Allowing the variation in renewables output to be smoothed

• Providing the ability to source least cost generation from amongst different countries

• Enhancing security of supply by providing additional sources of power

• Enabling peaks in demand to be met from imports of power

• Providing access to energy storage facilities• Allowing access to more cost effective sources of

ancillary services

Interconnection Example

Marginal Cost of an Interconnection

Item Cost/€ No. Total cost (€m)Cost of additional offshore DC isolators 1 2 2

Cost of DC offshore cabling (per km) 0.8 100 80

Cost of DC onshore cabling (per km) 0.5 0 0

Cost of onshore converter station 120 0 0

Cost of offshore converter station 180 0 0

Total additional capital cost 82

UK Germany

20km 100km100km 50km100km

Potential Revenue GB-DE Interconnection

How Much Would Super Grid Cost?

• Recent UK OFTO valuations provide some context– Just over €350 - 500M per GW of Wind for offshore grid

– Mainstream Model– Assume Super Regulator– Assume Super Operator– Regulated Income = 10% RoE– 21 GW Offshore Wind Connected in Stages– Calculate Use of System (TUOS) if Wind must Pay

Supergrid Phase 1

Base Case Analysis

• Calculate Use of System Charge (TUOS) for 21 GW of Wind assuming:– Standard Project Finance– 70:30 Gearing– 20 Year Debt– 25 year Life– Losses 4%– Inflation 2%

Model CharacteristicsGearing 70/30

Total Capex €34bn

Nameplate Wind Capacity 21GW

Wind Capacity Factor 40%

Return on Equity 10%

TUOS €35 /MWh

Sensitivity Analysis

No Phasing out of Revenue

1% Revenue Inflation

3% Revenue Inflation

1% Capex Inflation

3% Capex Inflation

1% Opex Inflation

3% Opex Inflation

3% Transmission Losses

5% Transmission Losses

Decrease Capex 10%

Increase in Capex 10%

Increase in Capex 15%

Wind Capacity Factor = 41%

Wind Capacity Factor = 38%

Wind Capacity Factor = 39%

65% Gearing

75% Gearing

80% Gearing

6% Debt Interest

8% Debt Interest

9% Debt Interest

11% IRR on Equity

9% IRR on Equity

25 year Debt Tenor

30 year Debt Tenor

€31.0 €33.0 €35.0 €37.0 €39.0 €41.0

TUOS Charge

Work to be Done

• Technical Work• Now there’s a market!• Capacity• Cost• Innovation

• Regulatory Framework• EU Commission• ENTSO-E

Conclusions

• Europe needs:– Energy Security

– Reduce fossil dependence

– Develop where Resource not Constrained

– Deliver to Consumers

• Offshore Wind will be Key• Interconnection makes sense:

– Technically

– Economically

• Competition

• Reduce Cost to End-Users

• Supergrid Costs– TUOS ~ €35 / MWh– Will Reduce when other players given access to Capacity

?European Offshore WindStockholmSeptember 14th , 2009

Joe Corbett, Head of Asset Engineering