Grids ‒ Paving the way forward

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Delegates of the EWEA OFFSHORE 2011 conference in Amsterdam were left in little doubt that an offshore super grid has to be the way forward if European ambitions are to be realised. But while a super grid may be coveted by the industry, there are still a number of major hurdles to overcome. And if there was any uncertainty left in delegates’ minds about the merits of an integrated grid a recently concluded Intelligent Energy Europe study “OffshoreGrid” appeared to prove the benefits beyond question.

Jan De Decker, 3E Project Manager and coordinator of OffshoreGrid, outlined the findings of the project that concluded in October 2011 after two and a half years. The €1.4m project set out to examine different grid design options, along with a cost benefit analysis. The project took on the mammoth task of considering the advantages and disadvantages of connecting all of the planned wind farms due to be constructed by 2030, representing 150GW, to the shore individually or via hubs.

When examining the hubs case, the arguments appeared pretty conclusive with possible saving benefits of €14bn on the total 150GW. However, Mr De Decker added that given these benefits it is essential that political and regulatory strategies were adapted to foster this hub development. International and national offshore goals should be better coordinated and areas, particularly with large wind farms, need to be defined, he said. Currently, every country is looking at its own wind farms in its own area but there are possibilities for hubs over country borders, he pointed out. “National borders should not be a barrier for a hub connection solution.”

There needs to be well-coordinated hub planning and timing of installations, he emphasised. And even given a risk of delay or cancellations of a wind farm, there is still a strong argument for the hub systems, he argued. Cases had shown that even if one of three wind farms were delayed for up to 10 years, a hub system is still beneficial.

Based on the analysis, an overall grid design was developed but the findings speak clearly in favour of an offshore grid, stressed Mr De Decker. When considering the radio case, where all of the wind farms are connected individually to shore, the total cost of connection for all wind farms up to 2030 is €83bn. Then the cost of the 10-year network development interconnectors of €9bn needs to be considered, leading to a total of cost of €92bn. If hubs are used instead of individual connections cost savings of €14bn are made. This overall grid design costs about €7.4bn but over the depreciation time of around 25 years this would save €21bn, so it is clearly highly beneficial, he pointed out.

Ultimately, the project found that an interconnected offshore grid is highly beneficial from an economic perspective; it contributes to reaching the 2020 target and would increase the security of supply. A grid is also a significant step towards an integrated electricity market and it can help make further connections to northern storage capacities. “The advantages are clear.” But now policy and regulatory support, as well as a EU coordinated review of regulatory regimes is needed to implement innovative design solutions and create this beneficial offshore grid, he stressed.

New set of regulations

Olivia Woolley from the University of Groningen’s Centre of Energy Law, asked if an adequate legal framework can be developed to support a North Sea offshore grid and crucially, whether the existing European regulatory electricity transmission framework is a benefit or a constraint for offshore wind development.

One of the main legal challenges is that current laws are designed to regulate the existing national transmission systems with some interconnection between them. With a North Sea grid a very different type of infrastructure is evident that transcends the national. Transnational may not fit very well with the existing regulatory framework, she stressed. The industry should be looking at what legal framework would be required to support this development rather than trying to “shoehorn them into an existing regulatory framework that was not designed to support developments of this type and on this scale”.

Admitting to taking a typical lawyer’s approach, Ms Woolley said that currently it is difficult to say what a supportive legal framework would look like in advance of the political decisions been made. Action may well be needed at several levels of governance, she said. Investors in the sector would likely want to see treaties binding states to their political commitments. One, not inconsiderable, challenge is that these developments take place offshore and are subject to the international law of the sea where, “it was not always clear who has the right to do what and where and who can exercise jurisdiction over infrastructure.”

The sooner the better

Although many of the major issues surrounding a super grid were highlighted, perhaps the most important question raised was what is likely to be the progress over the next five years. Speed is very much of the essence.

Alison Kay, Commercial Director of National Grid in the UK, said essentially all European countries are facing the same challenges and many of the same solutions. It was imperative to work out how to meet the 2020 targets but it was a huge benefit to seek out possibilities to integrate networks, she said. From the UK’s perspective we have to get a regime for offshore wind that is compatible with the rest of Europe and we have to have an integrated offshore network, she stressed. Referring to the British Chancellor’s announcement made about exploring an offshore grid initiative, it was reassuring to hear that the need for an offshore network had been recognised, she added.

There are now four major offshore wind developments going on which provide ideal places to test all of the components and look at potential solutions in the next five years, Ms Kay said. We have a really good opportunity over the next five years, if  we don’t take this chance then we’ve missed it, she said. There are also many initiatives such as Friends of the Super Grid and other organisations where people are working together; the building blocks of such a grid development are in place.

Of course, there are still some “thorny issues” such as the planning regulations. These have got to be solved and there are other questions such as whether we need one European regulator, she said. But it is crucial to put the building blocks in, make the anticipatory investment, perhaps over sizing certain transmission lines so a super grid can evolve, she stressed. “The next five years are absolutely crucial.”

Supply & demand

Wilfried Fischer, Grid Extension manager from 50Hertz Transmission, addressed several possible barriers to the super grid’s development. Firstly, he stressed there is a huge amount of money that needs to be invested. A transmission operator may need an equity of €lbn but they would have to take loans of €5bn, he emphasised, and as well as this, interest rates have a nasty habit of going up.

Secondly, projects are likely to face organisational problems simply because there are not so many engineers and project managers in Europe to work on these interconnecting projects, he added. Another problem was that once leaving the “easy” technology behind and travelling 50-60km offshore switching to HVDC, there are “a limited number of suppliers capable of producing this technology”. It is an “oligarch market”.

Given the technological and operational risks, investors will expect higher compensation, he argued. “Rates must be higher in order to cover these huge risks!” In Germany the near 7% cost of capital rate was acceptable “if you would have a continuously stable situation”. However, “this is not business as usual”, there are great and big expansion plans that require a lot of investment up front.

This innovative new technology increases the risk to fail and to be delayed, and then companies are forced to compensate those that will finally benefit from the transmission line. “Rates must increase!” However, having outlined the many challenges ahead, Mr Fischer said he is still confident that there will be an offshore grid in the North Sea connecting all the neighbouring countries and electricity markets.

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Not a case of if but how and when

Guus Schellekens of Pricewaterhouse-Coopers succinctly summed up that without the grid none of the ambitious plans set out would happen. There are opportunities in the next five years to do something right but there needs to be regulatory certainty and clarity for investors, he said. It is also crucial to break down barriers and think regionally not nationally, he said. There is good work being done in the third energy package but countries need to push harder to implement it.

Fay Geitona of the Agency for the Cooperation of Energy Regulators (ACER) agreed and said that the third package gives many tools needed for greater integration and cooperation that “is vital for the next stage”. There are also positive signs that there are changes from a national to a European mindset, she added. “I am optimistic.”
Ms Kay felt that we will see the backbone of a super grid by 2020 however, she added “there is an awful lot to do to get to those 2020 targets and our main commitment has got to be to focus on those”.

They all agreed that the grid is a must but conference-goers were left with a nagging doubt that things are not going quite as speedily as they need to.

Helen Hill