Could 10GW offshore mega-projects work?


July 3, 2017

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Size isn’t everything. I’m sure we’ve all tried to claim this at some time. It is a message that is falling on deaf ears in wind, where bigger is still seen as better.

And with good reason. Taller turbines, larger projects and a bigger industry each play a role in making the industry more competitive, and cutting the cost of wind power. Nowhere is this truer than in offshore wind, where manufacturers have told us for years that we will soon be seeing 10MW wind turbines taller than skyscrapers.

But we can still be surprised, and we were by an idea that came up at the Offshore Wind Energy 2017 conference in London last month. We have been mulling it ever since.

The idea came in a speech by Mark Gainsborough, executive vice president at Shell New Energies. He talked, almost in passing, about a concept for 10GW offshore mega-projects. Yes, 10GW. The largest operational offshore wind farm in the world today is still the 630MW London Array, and even the largest in planning are sub-2GW, like Dong’s 1.8GW Hornsea 2.

Gainsborough started his speech by saying that offshore wind could be the “energy backbone” of northwest Europe, with potential for projects totalling 200GW. That would need a 15-fold increase from the 13GW installed capacity at the end of 2016, and Gainsborough argued that does not fit well how projects are currently tendered.

In Europe, the system relies on governments tendering sites for individual projects, which are still typically in the 300MW to 1GW range each. Germany’s debut offshore auction saw four projects awarded support, with capacity of 110MW to 900MW each. These are big projects, but it takes a lot of them to get near 200GW.

Gainsborough said the industry needed to move on from these smaller auctions, and focus on fewer larger and more integrated projects of up to 10GW each. These would be developed by a consortium of large companies and with an “anchor tenant” that takes on the biggest risk, equivalent to about half the project.

The idea of an ‘anchor tenant’ is taken from the retail sector. A developer will come up with a plan for a shopping centre, but will only take the final investment decision to build it when they have let a certain proportion of the retail floorspace. This forces the developer to try to find tenants for the largest units – typically department stores or large supermarkets – that anchor the scheme and enable construction to begin.

This is not completely analogous with wind. In retail development, signing up those anchor tenants means a developer can start construction on the full project, safe in the knowledge that they have already secured, say, 50% of their total rent payments and can rent out the rest of the shopping space while the project is built. The nearest equivalent to an ‘anchor tenant’ in wind is actually a power purchase deal that gives the developer the guaranteed income – and thus confidence – to build their project.

Now, you could argue I’m being overly technical. You’re probably right: I rarely get the chance to show off the knowledge I gained writing about commercial property. I’m going to take this chance!

However, there is a fundamental difference in how shopping centre owners and wind farm owners sell their ‘product’ – shop space and electricity – that raise questions over how a 10GW mega-project could work. Will it really be much different from the situation now?

And, boring as it sounds, I don’t see huge change. Governments will still control the land offshore. This 10GW model might put more pressure on them to decide what schemes they want before an auction rather than rely on developers to pitch their schemes – but this might just mean more collaboration with developers early on.

Or if this ‘anchor tenant’ concept is simply the idea that a scheme will be built by a group of companies with one taking most financial risk, that is already happening. A 10GW project needs backers with deeper pockets than a 2GW one, but the structure is similar.

Either way, we are right to think about how projects of up-to-10GW could work. Size is important – as much as we sometimes deny it.

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