Germany just announced some spectacular tender results in their 7 GW offshore wind tenders, with more than EUR 12 billion in lease payments committed by the winners:
Very interesting article! One question, isn't the money of the bid intended for the investment in the required offshore HVDC platform and transmission lines? Otherwise, the TSO would have to invest and pass on these costs via grid tariffs to the consumers increasing electricity tariffs regardless.
What would be the benefit of leaving this as a cost to the TSO, besides avoiding potential delays in oil-funded projects, as well as avoiding the possible negative publicity for the offshore sector (which, admittedly, are significant considerations)?
Agreed. In my view the transmission assets should be part of the project and paid by it. That would be reflected in a higher cost but that's the real cost of that electricity.
In this case the bid money does go back to the TSO and/or the consumers, but the issue is that as it needs to be paid by the projects under a merchant regime, that creates a strong incentive for the owners to ensure that merchant prices are higher and more volatile - i.e. they will lobby against anything that would tend to dampen merchant prices, and in particular the link with gas prices.
Thanks for the article! It gives an interesting flavour to P. Pouyanné’s words pronounced in Aix-en-Provence early July:
« Si tu fais un investissement, tu prends sans doute pas 50 euros le MWh comme hypothèse, mais sans doute beaucoup plus. On n'investit pas dans l'éolien offshore en Europe à 50 euros le MWh, ce n'est pas vrai ! »...!
an excellent analysis and I hope policymakers will read it and take it to heart! Thank you!
Maybe another reason for oil&gas supermajors pouring money into offshore wind beyond any reasonable economics is that they are sitting on vast profits that need to be invested before too much tax has to be paid? Any views on this thought?
Not really - they can always buy back shares, or pay dividends.
For some, it's an option, for some it's a way to appease shareholders and others putting pressure on them, but for most of them it's still a small part of their investments.
Very interesting article! One question, isn't the money of the bid intended for the investment in the required offshore HVDC platform and transmission lines? Otherwise, the TSO would have to invest and pass on these costs via grid tariffs to the consumers increasing electricity tariffs regardless.
What would be the benefit of leaving this as a cost to the TSO, besides avoiding potential delays in oil-funded projects, as well as avoiding the possible negative publicity for the offshore sector (which, admittedly, are significant considerations)?
Agreed. In my view the transmission assets should be part of the project and paid by it. That would be reflected in a higher cost but that's the real cost of that electricity.
In this case the bid money does go back to the TSO and/or the consumers, but the issue is that as it needs to be paid by the projects under a merchant regime, that creates a strong incentive for the owners to ensure that merchant prices are higher and more volatile - i.e. they will lobby against anything that would tend to dampen merchant prices, and in particular the link with gas prices.
Thanks for the article! It gives an interesting flavour to P. Pouyanné’s words pronounced in Aix-en-Provence early July:
« Si tu fais un investissement, tu prends sans doute pas 50 euros le MWh comme hypothèse, mais sans doute beaucoup plus. On n'investit pas dans l'éolien offshore en Europe à 50 euros le MWh, ce n'est pas vrai ! »...!
Interesting article, thanks for that.
Honest question, could you please clarify how did you get to the 70-80 EUR/MWh figures?
I was wondering: supposing total costs of EUR 4 billion per GW I would get (28*10^9)/(20*30*10^6) = 46.7 EUR/MWh over 20 years.
There's the cost of capital to add, plus the O&M (at least 10 EUR/MWh), but it was just a rough estimate
Thanks! Maybe another way to look at this is that recent auctions for onshore wind cleared at around 60~70 EUR/MWh (the "Anzulegende Wert").
https://www.next-kraftwerke.de/wissen/anzulegender-wert
Hi Jerôme,
an excellent analysis and I hope policymakers will read it and take it to heart! Thank you!
Maybe another reason for oil&gas supermajors pouring money into offshore wind beyond any reasonable economics is that they are sitting on vast profits that need to be invested before too much tax has to be paid? Any views on this thought?
Cheers,
Ole.
Not really - they can always buy back shares, or pay dividends.
For some, it's an option, for some it's a way to appease shareholders and others putting pressure on them, but for most of them it's still a small part of their investments.
Thank you Jerome
Great article. Thanks for sharing.
Excellent article, as usual. To be widely shared.