Offshore Transmission Buzz

Another investor for Atlantic project

Bill Opalka | Jul 19, 2011


Another investor has appeared for an Atlantic coast transmission backbone that would facilitate offshore wind.  This time, it’s the fourth-largest grid operator in Europe.

The Belgian Elia System Operator NV is investing in the $5.5 billion power transmission project off the U.S. Atlantic coast that will link 6,000 megawatts of offshore wind farms.

The company acquired a 10 percent stake in the first segment and 5 percent of the remaining segments of the Atlantic Wind Connection. The size of the investment was not disclosed. Just as important, perhaps, the company is experienced in the offshore transmission markets in Europe, which the American partners lack.

The undersea power lines off the coasts of New Jersey, Delaware, Maryland and Virginia will be developed in five segments.

But just this month, the Department of Interior issued its draft environmental impact assessment for offshore wind that proposes to govern much of the area that the proposed transmission backbone would serve.

The project, first proposed last fall, generated instant buzz in part because of the partnership backing the $5.5 billion plan, which includes Google. Tokyo-based trading company Marubeni Corp. Swiss-based clean energy investor Good Energies are also backing the project, and Google Inc. is providing 42 percent of the pre-construction equity.

“We look forward to joining the shareholders of, and to bringing our expertise to, this challenging and innovative project. We share their vision regarding the strategic importance of carbon-free production of electricity and massive integration of wind energy into the grid. The cooperation and synergies that we will develop together will benefit a greener planet”, said Daniel Dobbeni, CEO of Elia, and also chairman of the European Network of Transmission System Operators for Electricity (ENTSO-E).

The Federal Energy Regulatory Commission in May granted a 12.6 percent return on equity for the project, less than the 13.6 percent sought by the developers.

The Elia Group is the fourth largest Transmission System Operator (TSO) in Europe and operates the electricity transmission system in Belgium and the electricity transmission system in the North and Eastern part of Germany through its daughter company 50Hertz Transmission.

Elia simultaneously entered into a long term consultancy contract with the AWC project developer, Atlantic Grid Development (“AGD”). Under this contract, the group will bring to the AWC project its expertise in the design and development of offshore/electricity-highways in Europe; expertise gained namely in the North and Baltic seas, off the shores of Belgium and Germany.

Elia is also one of the founding parties of a consortium between seven major European companies all active in offshore transmission, which provides unique turnkey solutions for offshore transmission.

A recent study just released extols the potential of offshore wind energy with a potential for 127 gigawatts, at a reasonable costs and with significant economic development. The potential using very conservative methods, to show that offshore wind on the Atlantic coast could provide much greater energy potential than offshore oil and gas combined.

Some Euro knowledge would needed to come close to that potential.

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Gas price?

Gas prices are running about $4.50/million BTU.

Energy storage runs about $1 million per MW for a 1 hour storage package.  To extend the MWh of storage without increasing the power input, is about $650K/MWh.  Then one has to add in the extra generation capacity to charge the storage while still delivering 6,000MW to shore.

Please explain the economic logic in offshore wind

I guess I must be really stupid because I just have a lot of difficulty understanding the economics of all this push to offshore wind.

This offshore transmission line is planned to handle 6,000MW of offshore wind development if I read the article correctly.  Offshore wind is projected to cost $5,500/KW (nameplate capacity) with a projected capacity factor of 42%.  The investment in 6,000MW of wind generating facilities will be roughly $33 billion.  6,000MW at 42% capacity factor is 22.1 million MWh per year.  Over a 20 year life, the capital cost for just the generating facilities alone represents $74.66 per MWh. 

Let's take a look at the transmission line.  If the investors are allowed a 12.6% return on their investment of $5.5 billion and we ignore any operating and maintenance costs for the transmission, the cost per MWh is $31.36/MWh that the ratepayers will have to pick up.

If we put the two capital costs together, the investment for just the offshore generating and transmission is $38.5 billion.  At 42% capacity factor and a 20 year projected life, the capital cost alone (again no O&M, no taxes, no other costs at all) is $87/MWh.

Now one can argue the wind energy will be so green--no ecological impact.  Beg to differ--if onshore wind farms are killing birds and bats, I wonder how many more marine bird kills there will be?  The structures for the turbines will become attractive places for the birds to roost.  As has been found around offshore oil rigs, the rig structures attract fish and crustaceans, ie food for the marine birdlife, baiting the killing zone.

Oh, don't forget, somewhere either on- or offshore, there has to be 6,000MW of fossil-fuel backup or humongous energy storage for the 6,000MW of offshore wind making the true investment more like $44.5 billion assuming the backup is a combination of simple-cycle and combined-cycle gas turbine facilities.

I am sure DOE will be happy to plunk down a 30% cash-in-lieu-of-production-tax-credit grant for the wind generation and transmission facilities using taxpayer money.  So, let's see, 30% of $38.5 billion is $11.55 billion.  That will build about 10,500MW of CCGT power capable of putting about 87 million MWh on the grid per year if need be.  Or, lets go the other way--for 6,000MW of gas fired CCGT and SCGT, the investment is about $6 billion--so, we can give the taxpayers back $5.55 billion, provide power very reliably, and not kill hundreds of marine birds every year.

What about fuel costs?

Offshore wind critic-

In your lifecycle cost example above, you forgot to include the ~$245 billion in natural gas fuel costs (over 20 years) in the CCGT scenario.


CCGT plant size: 6,000 MW (assume 50% efficiency)

20 year energy produced: 788 million MWh (assuming 75% capacity factor)

Natural gas cost (year one): $3.75/therm (100,000 Btu) & assume 2% annual escalation

Total 20 year fuel cost (no NPV considered): $245.1 billion.

Perhaps in lieu of a CCGT plant, offshore energy storage plants could be built to "firm" the intermittent nature of offshore wind: