
UK to reap rewards of offshore wind strategy, says Dong's Leupold
Britain is going to reap the profits of early tendering strategies for its offshore wind development, despite its 2020 build-out targets having slipped by almost half to 10GW in the past five years, says Samuel Leupold, chief executive of Danish developer Dong Energy’s offshore wind division.
The UK feed-in tariff system, which led on to the 2013 Contracts for Difference (CfD) scheme, will have a long-term benefit in that it provided “an additional dimension” of competition among potential project sites that will help reduce future costs.
“It is my feeling that there are a lot of developers working on Round 2.5 and 3 projects that are warming up and keenly looking at the next couple of rounds of CfD,” says Leupold.
“I think the UK will now start to harvest the benefits from being an early mover — factories are being built [by Siemens and MHI Vestas] that can deliver volume to the coming projects and this in turn will have benefits to the UK consumer.
“Now with the next group of projects — our Hornsea projects but also East Anglia zone projects and others — this gives scale to the UK as a market and keeps the industry thinking about how it could bring costs down further.”
Dong recently announced it would build a major operations base in Grimsby, east England that would “transform the way wind farms are supported”, starting with its 580MW Race Bank project, and then its 1.2GW Hornsea 1 and 1.8GW Hornsea 2 mega-developments from 2020.
The UK’s strategy has differed from that of countries such as the Netherlands and Denmark, in which the government selects the site to be tendered and shoulders the cost of export infrastructure and grid connection.
This recently resulted in Dong winning the tender for the 700MW Borssele 1 and 2 projects with a bid of €72.70 per MWh — the first time an offshore wind farm will be built for under €100/MWh.
Though Leupold believes the “social cost” of the UK and Dutch models to have “an equivalency”, he concedes that “if the government picks the site there is naturally some question as to whether you lose out the site-versus-site competition [that the UK has through its tendering model] which means only the best sites will be competitive”.
“With Borssele 1 & 2 there were good reasons why our bid price could be so aggressive,” he adds.
“By combining the two you got scale — [there were] significant synergies there in structuring the two as one project — and in fact there could be more still if we can combine them with [the not yet tendered] Borssele 3 & 4, which would make almost 1.5GW.
“The Dutch authorities should be commended here too because they have worked the timing of the grid connections in such a way that all four projects can be developed to benefit from these scale advantages.”
Dong was a signatory of a joint declaration by 11 developers in June to drive the average levelised cost of energy (LCoE) for offshore wind under €80/MWh by 2025, but he feels this target though “meaningful, is not the end — far from it”.
“This LCoE cannot be [the lowest reached] and I think Borssele shows where we are currently as an industry — and indeed reflects what is in developers’ “desk drawers” and in the R&D labs. We will go beyond [to a still lower LCoE] and we have to if offshore wind is to become mainstream.”