financing offshore transmission – a transmission...
TRANSCRIPT
Offshore Wind & Transmission Forum
Financing Offshore Transmission – A Transmission Owners’ Perspective
Overview
• Transmission Capital
• Financing Offshore Transmission – An Emerging Issue in Europe?
• UK Offshore Transmission Regime – A Transmission Owner’s Perspective
Transmission Capital
Leading Offshore Transmission Experience
• New company but very experienced staff• Over 50 years experience in the
development, procurement, construction and operation of offshore wind and transmission
• Led several major successful offshore wind and transmission projects now in construction:
– Greater Gabbard OWF– BritNed Interconnector– Robin Rigg OWF
• Other roles on many other offshore transmission projects now operational:
– Basslink Interconnector– Isle of Man Interconnector
• Managing a team of international experts providing project management and specialist technical expertise
Offshore wind farms (under construction)
Submarine cable (in service or under construction)
Round 3 wind farms (initial development recently completed)
Onshore power stations (in service)
Design, Development, Investment & Asset Management
• We offer a full design & development service in relation to transmission assets:
– Front end engineering and design– Environmental Impact Assessment– Stakeholder consultation– Land right acquisition– Crossing agreement negotiations– Sea-bed survey (and other site investigations
as necessary)– Connection application and connection
agreement negotiation– Liaison with TSO and onshore transmission
companies– Advice on performance targets– Advice on regulatory transmission issues
• Full service for equity investors, working with specialist advisers to provide:
– Bid management– Development and Design– Technical and legal due diligence– Arranging debt finance– Procurement and construction management– Operational management– Insurance– Industry and stakeholder liaison– Health & safety compliance– Regulatory compliance
Financing Offshore Transmission –An Emerging Issue in Europe
Offshore Wind Farm Connections … or …
… Offshore Transmission Grids?
Growth in Capex Requirements for Offshore Transmission
• Offshore wind industry has grown sporadically to date
• But the pace is picking up and even conservative estimates envisage 20-40GW by 2020
• Rule of thumb of €500m capex on offshore transmission for every 1000MW of offshore wind capacity (15-20% total capex)
• So minimum of €10bn by 2020• UK government /Ofgem estimating UK
offshore transmission market may be worth €15bn-€20bn on its own
• Greater interconnection will increase capexrequirements, and benefits even more so
Installed European Offshore Wind Capacity (GW)
05
1015202530354045
2006 2010 2015 2020
Delivering Offshore Wind Power in Europe, Offshore Wind Industry Group, EWEA, 2007
New Challenges for Transmission Companies
• Onshore grids largely built by state owned monopolies• Many grids now in private hands• Private finance required to fund offshore transmission expansion• Investment requirement may be greater than existing asset base (cf UK)• Investors may not be willing to fund or at least to commit to funding expansion• Particularly in current climate• Hence different models required …. UK first of these …
UK Offshore Transmission Regime -An OFTO Bidder’s Perspective
Transitional Projects
Project Developer Size (MW) Exp. Completion
1. Barrow Dong Energy / Centrica 90 Operating
2. Robin Rigg E.ON 180 Jul 09
3. Gunfleet Sands I & II Dong Energy 172 2009
4. Thanet Vattenfall 300 *
5. Greater Gabbard SSE / RWE Innogy 504 Mar 11
6. Ormonde Vattenfall 150 Nov 10
7. Walney 1 Dong Energy 178 *
8. Sheringham Shoal Statoil Hydro / Statkraft 315 Jun 10
Project Developer Size (MW)
9. London Array E.ON / Dong / Masdar 1000
10. Lincs Centrica 250
11. Gwynt y Mor RWE Innogy 750
12. Docking Shoal Centrica 500
13. Race Bank Centrica 500
7. Walney 2 Dong Energy 183
Projects likely to qualify for First Transitional Tender (£750m - £1.0bn)
Projects that may qualify for Final Transitional Tender (up to £1.5bn)
1
2
34
5
67
9
1011
1213
8
Scope of OFTO
Offshore Platform
Offshore Transmission Owner (OFTO)Onshore TO Generator
Connection to onshore
network
132 kV Cable 33 kV Inter Array Cables
Onshore Substation
Industry Relationships
OFTO
GBSO
O&M Contract
Ofgem
Offshore Generator
Crown Estate
Lease
Sale and Purchase
Agreement
Transmission Licence
Bid revenue stream
Transmission Use of System Charges
Insurance
Financing
Offshore Transmission – Financial & Bid
• Cost of capital key• Financing requirement
– Balance sheet: net assets of 120% of RAV; or
– Project finance: net assets or evidence of raising100% required equity and debt spend
– Turnover test?
• Low financial risks as:– Credit risk minimal (see opposite)– 20-yr fixed revenue stream subject only to:
RPI indexation (full) and availability (capped at 90%)
– Exchange rate risk minimal
• Likely sources of equity:– Established utilities– Infrastructure funds– Pension funds– Others?
• Likely sources of debt– Commercial banks– Capital markets– EIB– Others?
Wind Farm associated with OFTO
The OFTO revenue is fixed in accordance with the amount bid, but the cash actually comes
from all consumers and generators (via National Grid). There is no direct contract with the wind
farm and so minimal credit risk
National Grid Electricity Transmission plc(in its role as “GB system operator”)
OFTO
All GB generators & consumers
Offshore Transmission – Regulatory & Legal
• Timing– Regime first consulted on in 2004, first licence
award not before Q2 2010– 12 month tender process …. due to start in Q3
2009
• Complex industry codes & licences– Transmission Licence– SO-TO Code: governance arrangements and
code change procedures– TO Construction Agreement– Technical: GBSQSS, Grid Code, STC
• Unbundling– Directive due to enter force in summer 2009– Post transposition into national legislation will
require ownership unbundling of generation and transmission
– Complicated, exemptions allowed, not particularly clear
– But intention is to prevent control of one and influence in other:
• Appointment of directors of supervisory and administrative boards
• Exercise of control or any right including voting rights
Current Regulatory Framework
Setting detailed obligations for licensees in generation, transmission, distribution,
supply
LicencesGovern detailed
commercial arrangements between industry parties
Industry Codes
Sets overall industry framework
Primary Legislation
Regulates monopoly networks through
incentives
Ofgem’s role
Offshore Transmission – Technical: All projects
• Health & safety (Health & safety at Work Act 1974 and underlying regulations):– The Construction (Design & Management) Regs 2007– Management of Health & safety at Work Regs 1999– The Diving Regulations 1997– Electricity at Work Regulations 1989– Working at Height Regs 2005– … and numerous others …
• O&M, insurance– OJEU process for procurement (Utilities Contracts Regulation 2006)– Timing and cost of obtaining bids during tendering process– Some repairs may require OEM– Repairs: spares, access, vessels – needs a well-thought out strategy– Insurance, few brokers experienced in this area, significant recent claims history
• Decommissioning– Cables can be left in situ, offshore structures to be removed– Decommissioning plan as part of tendering process
Offshore Transmission – Technical: Enduring only
• Design & Development– Regime still being devised in this area– Level of development risk to be taken not clear – who takes consent risk?– How much design and development has the offshore wind developer done?– Who takes design standards compliance risk: GBSQSS, Grid Code, Industry standards etc.?
• Procurement– OJEU process (Utilities Contracts Regulation 2006)– Suppliers non-exclusive: implications?– Timing and cost of obtaining bids during tendering process– Limited suppliers in some areas (cables, VSC etc.)
• Construction– Significant ground risk and weather risk to be managed– Requires experienced offshore transmission procurement and construction mgt– Requires experienced installation contractors, poor recent history on offshore cables– Turnkey v multi-contract: pricing, interface risk, delay risk etc.
Conclusions
• Financing offshore transmission is an emerging issue for Europe• UK has structured a potentially attractive short-term opportunity for investment
– Structured well for financial investors that can access offshore transmission management expertise– Transitional regime provides opportunity for entry into the market without construction risk
• Longer term opportunity should be attractive also– Large scale investment opportunity– Regime broadly the same offering revenue certainty, but …– Bidders need to be brought in at the right stage– If asked to take on too much development risk and cost uncertainty will reduce number of bidders interested
• Experienced partners/advisers required:– Financial risks low– Regulatory and legal risk low but some aspects will need active management– Significant technical issues to be managed, limited available expertise
• UK could provide the model for other countries …
