DONG Energy
offshore wind
experience
Future Tendering Process for
Offshore Wind Energy
February 10th 2011
Per Hjelmsted Pedersen
Head of Project Development
DONG Energy Renewables
DONG Energy Renewables
Perspectives on tender systems
DONG Energy is an integrated energy company and active
throughout the value chain
E&P
Geographic focus areas
Power
Energy Markets
S&D
Power and gas sales Gas distribution Power and/or natural
gas customers
Current
market
position
Gas storage capacity Gas storage Power distribution
Main
positions
Renewables
Small-scale CHP plants Central power plant Waste-to-Energy generation
Thermal power plants under construction
Offshore wind Onshore wind Hydro power
On- and offshore wind farms under
planning/construction
Total EBITDA 2009*: EUR 1.2bn
Total revenue 2009*: EUR 6.6bn
* Total numbers after eliminations and unallocated items (but before adjustment for special hydrocarbon tax) Source: DONG Energy
Strong and growing equity gas position
The leading thermal generator on Nord Pool and Market leader in district heating in Denmark
Leading seller of power and natural gas in Denmark and active in several other countries Leading position in
power and gas infrastructure. Retail positions in Sweden and Holland Growing renewables
portfolio with market leading position in offshore wind power
85%
15%
TODAY'S
PRODUCTION
Generation
Offshore wind contributes to DONG Energy's long-term vision:
To supply reliable energy without CO
2
15%
85%
FUTURE
PRODUCTION
Within offshore wind,
DONG Energy is an
established world leader
as the energy company
in the world having
developed, constructed
an operated the most
offshore wind projects
With more installed capacity than any other utility, DONG
Energy is the global leader within offshore wind power
Leading market participants within European offshore wind
Source: Companies' annual accounts , Emerging Energy Research, DONG Energy. All figures are in MW
966 150 634 189 342 135 142 5 467 118 705 708 Operational assets Under construction 5
DONG Energy is present in key Northern European offshore
wind markets
The UK is the world's largest market for offshore
wind
DONG Energy has build more offshore wind
parks in the UK than any other developer
Denmark pioneered offshore wind and is
second only to the UK in terms of installed
capacity
DONG Energy is the largest operator of
offshore wind
The Netherlands has set
ambitious targets for
offshore wind but has yet
to implement an attractive
incentive system
DONG Energy has project
rights to three projects in
the Netherlands
Germany is expected to kick-start significant growth and
become the second largest market for offshore wind
DONG Energy is developing two projects in Germany
Barrow 90 MW Burbo 90 MW 2010 1.045 MW 2005 386 MW 2000 50 MW 1995 1990 5 MW
DONG Energy has been a front runner in developing offshore
wind…
Vindeby
The world's first offshore wind farm Turbine capacity: Nr. of turbines Rotor diameter Distance to shore 0,45 MW 11 35 m 1,8 km Middelgrunden
The world's first large offshore farm Turbine capacity: Nr. of turbines Rotor diameter Distance to shore 2 MW 20 72 m 4,7 km Horns Rev 1
First real large scale offshore wind farm in the world
Turbine capacity: Nr. of turbines Rotor diameter Distance to shore 2 MW 80 80 m 18 km Gunfleet Sands
Most recent installed wind farm by DONG Energy
Turbine capacity: Nr. of turbines Rotor diameter Distance to shore 3,6 MW 48 107 m 7 km Horns Rev 2 209 MW Nysted 166 MW
Total installed capacity
by DONG Energy*, (MW)
*) Actual ownership share lower due to divestments
Examples
2009 2008 2007 2006 2005 2004 2003 2002 2001 1990-2000
DONG Energy has a strong track record in project execution...
90
45
Barrow
40
20
Middelgrunden
166
83
Rødsand/Nysted
160
64
Horns Rev I
90
0
Kentish Flats
173
173
Gunfleet Sands I & II
90
90
Burbo
209
209
Horns Rev II
Total
1045
708
10
10
Frederikshavn
5
5
Tunø Knob
5
5
Vindeby
7
3,6
Avedøre
Wind park Total MW gross
DE share (MW) 2009 Country
8
DONG Energy has
pioneered offshore
wind and has more
than 15 years of
experience in
developing,
constructing and
operating offshore
wind farms
...and holds a significant portfolio of potential future offshore
wind projects
*) Figures represent DONG Energy's share of the projects
**) The projects under development are at different development stages. No final investment decisions with respect to the projects under development have been made yet
DONG Energy holds an attractive
pipeline with a number of projects
towards 2015+
Almost 1,000 MW are currently
under construction
Strong focus on UK but also on
other important wind markets in
Northern Europe, such as
Denmark, Germany and the
Netherlands
Majority of the projects to be
developed together with
partners (utilities, financial
investors and pension funds)
DONG Energy offshore wind project pipeline
Offshore wind projects under construction (966 MW)*
Offshore wind projects under development (approx.
3,000 MW)*,**
Borkum Riffgrund 1+2 (277 MW + 345 MW) Walney 1+2 (184 MW)* London Array 1 (315 MW)* London Array 2 (185 MW)* WoDS (165 MW)* Westermost Rough (240 MW) Wigtown Bay (280 MW) Dutch portfolio (approx. 500 MW)* Lincs (67 MW)* Walney 2.5 (570-750 MW) Burbo 2.5 (170-250 MW) Anholt (400 MW) 9Offshore wind – from pioneering phase to industrial
production
•Cross-portfolio planning and continuous execution flow
•Next generation installation vessel for WTG and foundations
•Accelerated installation and commissioning concept Project planning, execution, installation and logistics Current status 2012-2015
•"Ad hoc" stand-alone project planning and execution
•Vessels available in the market engaged for specific project •"Season"-based project specific installation •Optimization of turbine to maximise production/output •Optimisation of steel monopile design •Operations on park-by-park basis
•Little experience in market with processes/
maintenance/ logistics etc. O&M, production
planning and sales Technological improvements Large scale sourcing
2015-•New optimised installation concepts increasing installation speed
•Integration between the installation of wind turbines, foundations and electrical infrastructure
•6-8 MW WTGs
•Deep water foundations applicable to various sites
•Optimisation of electrical infrastructure systems
•Continued cross portfolio sourcing of key components
•Further development of O&M concepts to extract value from geographical O&M clusters
•Framework agreement for supply of turbines
•Project-per-project sourcing of other key components and installation services
•Standard turbine solution through framework agreement with Siemens
•Basic monopile design adjusted for every project
•Portfolio optimization
• Industrialization of technical, financial and QHSE
processes
• Optimisation of contractual setup & O&M business model
•Cross portfolio sourcing of key components (WTG, foundations, cable/electrical, vessels)
10 Current status
DONG Energy Renewables
Perspectives on tender systems
DONG Energy's experience from the Anholt tender
12
Pros
Cons
Commission deadlines, heavy penalties and
short time frame
Limited flexibility in the planning process – also
for our suppliers Risk of an overheated
market Geotechnical and
environmental surveys were conducted too late Geotechnical survey
was insufficient
Insecurity and higher risk
Unable to use information properly Grid connection and
environmental consent in place before tender
Significant cost relief for offshore wind parks very
far from shore Lower risks
Fixed price over a period of approximately12 years
Predictability Lower risks
2nd runner up had to abide by their tender for
6 months
High risk of delays (no price regulation)
Reservation of resources for 6 months Energinet.dk has
ensured location in proximity to end-users
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Anholt 400 MW Q1Q2 Q1 Q4 Q4 Walney 1 183,5 MW Q4 Q2 Q3 Q1Q2 Walney 2 183,5 MW Q4 Q2 Q2Q3Q4 London Array 630 MW Q4 Q2 Q1 Q4 Q1
West of Duddon Sands*
389 MW Q4 Q2 Q1
Borkum Riffgrund 1*
277 MW Q1 Q4 Q2 Q1
Timing and flexibility of offshore wind projects
13
Award of concession: Final Investment Decision (FID): Construction start: Commission of 1st WTG: Commission of all WTG's:
= Time from concession until commission of all WTG's * Awaiting FID
Generally good experience with UK tender process
DONG Energy have been awarded several sites in Round 1, Round 2, Round 2,5 and Scottish Territorial Waters
• The UK is DONG Energy largest market with 3 projects in operation, 3 projects under construction (Walney, Lincs
and London Array) and several projects under development
DONG Energy's experience from UK tender rounds
14
Pros
Cons
Round 3 - extremely detailed tender requirements Long process (1½ year from tender announcement to siteaward)
Scottish Territorial Waters - Strategic Environmental Assessment after tender
Sites awarded to developers may be excluded by the SEA
process Flexibility on the timing
of delivery (to some extent)
Sourcing can take place for several projects
Round 3 approach allows developers flexibility within zone
Stakeholder concerns can be addressed without influencing
capacity
We don’t know how the support regime works
after 2017
Difficult to plan projects on a long term basis
Fairly attractive tariff, given the level of security in the income stream
Good intension but insufficient/unclear legal framework with high degree of uncertainties
DONG Energy's experience from the German market
15
Pros
Cons
Tariff level not on UK level
Tariff might be insufficient for projects
far offshore
Grid connection process regulated in non-binding
"position paper"
Uncertainty about timing of grid connection Fixed feed-in tariff
without limit on production (FLH)
Gives predictability within subsidy period
Free grid connection
Significant cost relief for offshore wind parks very
far from shore
Tariff level decreasing from 2015 (commissioning)
Difficult to plan projects online after 2015 BSH* as one-stop-shop
authority (intention)
Fairly structured permitting process
New "anti- subsidy" government in the Netherlands, and therefore new political targets within offshore wind energy.
DONG Energy's awaits new regime to be in place
DONG Energy spend a lot of time and resource to make a realistic bid – only to be outbid by someone with an
unrealistic price. Uncertain whether the projects will ever be realised.
DONG Energy's experience from the Dutch tender rounds
16
Pros
Cons
No "beauty contest" element in the tender
Price is only criterion without looking at likelihood of realisation Limit on production (FLH per year) FLH limit discriminates efficient technology Fixed price feed-in tariff Predictability in subsidy
period
Project rights expire if project not awarded in
tender
Missing security regarding project rights
prevents expensive investigations and leads
Stable framework is key for large scale investment
Stable support mechanism
Liquid market with transparent price signals
Framework for long term investment planning
17