Solution found for grid connections?

Anne-Katrin Wehrmann, 4 Feb 13
The day the offshore wind industry has long been waiting for is here: the Bundesrat and Bundestag have finally passed the Third Act Revising the Legislation Governing the Energy Sector. The sector welcomes the amendment, but remains sceptical.

Slowly but surely, Germany is making progress in expanding its offshore wind capacity. For a long time, the country’sonly signs of wind power were the Alpha Ventus offshore test field, the first turbines in the Bard Offshore 1 wind farm in the North Sea and the EnBW Baltic wind farm in the Baltic. But now construction is underway on a number of new projects – Trianel Windpark Borkum, Riffgat, Nordsee Ost, Global Tech 1, Meerwind Süd/Ost and Dan-Tysk – and is scheduled to begin soon on several others.

But that’s only half the story. The other half goes like this: when these farms are ready to begin operating, not all of them will be able to feed power into the grid. That’s because North Sea grid operator Tennet won’t have the connections set up in time.

This means that the operators stand to lose a lot of money. As well as missing out on profits, they will face additional costs since the turbines will need a constant supply of electricity while they sit idle. Until now, it was unclear who would have to pay for the losses. These incalculable risks have led companies such as RWE, EnBW and Dong Energy to put off planned decisions on investing in subsequent projects. The offshore sector is now facing a sharp drop in orders that has already resulted in several bankruptcies.

Now that the Third Act Revising the Legislation Governing the Energy Sector has been passed, the sector hopes that things will pick up. A little over a year ago, Tennet announced it would not award any further contracts for connecting offshore farms to the grid until the conditions had been “substantially improved”. It said that none of those involved had enough staff, materials or finances to continue setting up connections at the current rate. Ever since then, sector representatives have been working with policymakers to try and find a solution. The latest result is the newly passed amendment, which centres on Article 17 of the Energy Industry Act.

Among other things, the amendment settles the question of liability for losses. In cases of delays in connecting farms to the grid or of long-term problems with power lines, wind farm operators can, starting on the eleventh day, claim compensation from transmission grid operators amounting to 90 percent of feed-in tariffs lost.

The grid operator responsible for farms in the Baltic Sea would be 50Hertz Transmission GmbH. However, it is unlikely the area will see delays on the same scale as those plaguing farms in the North Sea. This is because far fewer projects are planned and approved for the Baltic Sea, and those that are going up are being built closer to the coast. That means the voltage of the electricity just needs to be increased and then it can be fed into onshore grids as three-phase current. If that current has to travel over longer distances, so much power is lost that it makes more economic sense to convert it to direct current. Tennet has to provide the converter stations necessary for this in the North Sea. The problem is that not only does Tennet have to contend with a financial bottleneck, but production of the high-tech platforms is also taking much longer than anticipated.

So it seems likely we will soon be seeing the first liability cases brought under the new Article 17. While the German government anticipates claims of around EUR 1 billion overall, other sources expect the total to exceed that sum considerably. One thing is certain: grid operators will have to foot part of that bill themselves. The amount depends on the degree of their culpability, but the maximum each company can be forced to fork over is limited to EUR 17.5 million per damage event and EUR 110 million a year. Provided that they are not guilty of intent, grid operators can shift the costs for any claims exceeding those amounts to power customers.

This proviso caused outrage among consumer protection groups in the runup to the passing of the amendment. Germany’s economics minister, Philipp Rösler (FDP), responded to the concerns by stating that “we will distribute the burden fairly” and reassured citizens that they would not have to pay more than EUR 0.25 per kilowatt hour (kWh). For a family of four consuming an average of 3,500 kWh per year, that could amount to an additional cost of EUR 8.75.

Another key element of the amended Energy Industry Act is the switch to a new system for connecting offshore farms to the grid. The German Offshore Wind Foundation was among those calling for the change. Up to now, any offshore farm that met certain criteria wasentitled to be connected to the grid. Inthe future, the framework will be a binding long-term plan that is based on regions and set schedules and that stipulateswhich turbines can be connected as part of a group. Germany’s Federal Maritime and Hydrographic Agency (BSH) is in charge of regional planning and will, in agreement with the Federal Network Agency, draw up an offshore grid plan and update it annually. Among other things, the plan specifies the transmission lines and the locations of the converter platforms. The draft version was available for perusal by the public until the end of November 2012. Using current planning by wind farm operators, the BSH has identified an initial 13 clusters that are suitable for joint connection to the grid. Of those, eight are to be realised by 2022 and five by 2030. Christian Dahlke of the BSH explained that it developed the plan based on the Federal Network Agency’s lead scenario for the power grid development plan and on the government’s target of reaching 25 gigawatts (GW) of installed offshore capacity by 2030.

Dahlke doesn’t anticipate that the agencies will have to contend with squabbling about who gets access first: “I think that everyone involved will be able to plan investments better and get outside investors on board more easily now that the prospects for grid accessare laid out in a binding plan.” Dahlkealso welcomes the fact that the new regulations specify performance standards for converter platforms. He believes this will mean the platforms can be producedmore quickly and economically. The final offshore grid plan is to be published before the end of January, once all the relevant opinions and findings have been incorporated.

The plan will be used to produce a time frame for completing the individual connections. This schedule will be drawn up according to an offshore grid development plan that transmission grid operators must submit, along with the national grid development plan, by 3 March each year. The first of these offshore plans is dueon 3 March 2013. Each plan will cover a period of ten years and specify the planned completion dates and binding dates for the start of implementation. Grid operators will also have to work with wind farm operators to produce roadmaps outlining the time frame and steps necessary for building a farm and connecting it to the grid.

Tennet’s director of corporate development, Lex Hartman, hopes that this long-term planning and the new rules on liability will provide more planning and investment security for grid operators, wind farm operators and suppliers.

He believes that limiting liability to EUR 17.5 million in cases of minor negligence will make it easier to calculate the risk involved in offshore connections. Tennet says that it has commissioned connections for 5.5 GW, which has triggered investments totalling EUR 6 billion. And the coming projects will cost billions more. Calls for tenders for three connections – BorWin 3 and 4 and DolWin 3 – were issued some time ago. Calls for three others – BorWin 5, DolWin 4 and SylWin 2 – were set to be issued sometime after mid-December 2012. Hartman is optimistic that the amendment will lower the barrier for new investors: “We’re going to use this as a basis to attract investors. Ultimately, it will be the investors who determine whether the new liability rules are a success.”

The German Offshore Wind Foundation welcomes the amendment because it offers scope for taking an overall approach to tackling existing problems with grid connections. But it is unhappy that there is currently no answer as to where the funds for the required expansion work will come from. “If there isn’t a solution to Tennet’s funding problems soon, no amount of amendments will help,” says the foundation’s chairman, Jörg Kuhbier. Thus it believes there is an urgent need for German development bank KfW to be involved in the next three or four connection projects. It has also called for the government to step in if Tennet does not commission the long overdue connections very soon.

The wind energy agency WAB has adopted a similarly ambivalent position. “It’s good that the issue of liability is settled,” says managing director Ronny Meyer, “but that doesn’t mean Tennet automatically has more money. It’s time to consider involving the government.” Meyer sees a further problem in the current political debate about amending or even repealing Germany’s Renewable Energy Sources Act: “No one can afford to invest EUR 1.5 billion in an offshore wind farm if they don’t know what feedin tariffs they can expect or if the Act will even still exist in 2017.” Meyer predicts that the industry is likely to be reluctant to invest any further before the future of the Act is settled.

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