Breakfast Presentation at Offshore Wind Power 2017

Transcription

1 Analyst PRESENTATION Delivering renewable energy insight Breakfast Presentation at Offshore Wind Power June 217

2 Contents Introduction by Steen Broust Nielsen Offshore Wind Costs Towards A Zero-Subsidy Era? By Michael Guldbrandtsen Wind of Change in the Baltic Sea by Andrea Scassola Q&A and Discussion 12 June 217 2

3 Introduction MAKE and Wood Mackenzie Combining three powerful power and renewables brands Solar Grid Edge Energy Storage Wind Power Commodity analysis Creating the world s leading power and renewables analysis and advisory firm Technology Costs Regulation & Policy Investment Landscape Supply & Demand Asset Valuation 12 June 217 3

4 Introduction MAKE and Wood Mackenzie We are a global business close to clients and industry contacts GREENVILLE Wood Mackenzie has 29 offices, while MAKE has 8 12 June 217 4

5 Introduction MAKE and Wood Mackenzie Wood Mackenzie is a trusted source of commercial intelligence for the world s natural resources sector Global coverage of the Energy, Renewables, Chemicals and Metals & Mining industries Proprietary information, analysis, insight and advice underpin research and consultancy Subscription-led business model with industryleading renewal rates Strong track record of growth and client value creation 12 June 217 5

6 Renewables NGL Chemicals Upstream Oil & Gas Gas Refining & Oil Products Macro Metals & Mining Economics LNG Power Energy Markets June 217 6

7 Delivering renewable energy insight TM Offshore Wind Costs Towards A Zero-Subsidy Era? 7

8 Offshore Wind LCOE Record low offshore subsidy prices increase confidence in sector Recently awarded subsidies EUR/MWh EUR/MWh LCOE development, e 2 15 East Anglia Strike price Subsidy cap 2 15 Germany UK Netherlands Neart na Gaoithe 1 Horns Rev 3 1 Borselle I & II Borssele III & IV Gode Wind 3 5 Danish Nearshore Tender OWP West 5 Kriegers Flak Borkum Riffgrund West II He Dreiht e Note: Time of award of subsidy 22e 25e Note: LCOE level at FID. Industry s 22 target Year Outcome of the first German tender indicates that Germany and the UK will follow the Netherlands below ~6EUR/MWh in LCOE by 222 on a FID basis 8

9 Offshore Wind LCOE Next generation 12MW+ turbines offer higher energy yield IRR for varying wholesale power price levels (%) EUR/MWh 35 EUR/MWh 3 EUR/MWh LCOE at FID ~222 Turbine rating (MW) Project lifetime (years) OPEX (EUR/kW/year) CAPEX (EURm/MW) Bull Base Bear Availability (%) Bull Base Bear (Scenario) WACC 3.3% 4.% 5.5% LCOE (EUR/MWh) ~25 ~34 ~48 Note: LCOE level at FID. IRR hinges on power price levels being at least 3/MWh to break even on recent zero subsidy bid. Developers could choose to back out of these deals as bid bond is not as high. 9

10 Power price development Key drivers for future power price developments Major impacts Power demand is trending up, due to more use of power for heating and transportation purposes. More power demand Penetration of cheap renewable energy affect prices negatively. More interconnectors lead to convergence in price between markets. Growth in renewables Interconnectors As cheap nuclear and coal are phased out, natural gas will more often set the price. Phase out of coal and nuclear Gas and coal prices will have a huge impact on future power prices. Higher fossil fuel prices ETS price of around 5-7 EUR/t today to around 3 EUR/t in 23. Higher carbon prices Drivers of power price developments vary across markets, but main drivers include RES-E penetration, higher fossil fuel prices and carbon pricing. 1

11 EUR/MWh (Gross electricity generation Index 215=1) Power price development Flattish power demand in EU-28, but upside in key offshore markets Netherlands power prices, 21-23e Electricity generation in Europe, e Historical prices Reference Low price High prices EU-28 Denmark Germany Netherlands United Kingdom e 25e 3e e 225e 23e 235e 24e 245e 25e ; ECN, CBS, PBL, RVO ; European Commission Power prices likely to trend upward in the long term, primarily driven by higher fossil fuel prices. 11

12 Financing offshore projects Capital markets will continue to pursue renewable energy assets European interest rates continue to be low (Interest rates and benchmarks - %) 1,2 Although base interest rates in the US have increased recently, debt financing rates remain at historic lows Decreasing WACC for non-merchant projects WACC (in %) 6% 5,5%,9,6,3, -,3 US Fed Funds LIBOR (USD based) Euro area discount rate 5% 4% 3% 2% 1% % 3,99% 3,86% 3,6% 3,47% 3% 3% 3,6% 3,3% 3% 3% 2,58% 25% 25% 2% 7% 212 7% 213 7% 214 7% 75% 75% 8% e nonmerchant project % Financed w/ equity % Financed w/ debt 35% 65% 22e merchant project Note: Monthly averages of ICE LIBOR, Effective Federal Funds Rate and Euribor, Federal reserve data, ICE, Quandl Note: Non-merchant projects assume flat cost of equity and debt interest rate expected to decrease by CAGR of 2%. Merchant Risk premium for merchant projects due to uncertain power offtake and exposure to volatile power prices. 12

13 LCOE (EUR/MWh) LCOE comparison across technologies Larger scale and CAPEX reductions drive down UK LCOE in 22 LCOE comparison, UK, EUR/MWh NGGC Coal Thermal Solar Solar Range Other Note: Unsubsidized LCOE of new construction, Nominal 217 EUR. FX rate of EUR/GBP = 1.17 used for conversion. Wholesale power prices represents Q4/216 averages. Solar LCOE shown for utility-scale systems Onshore OnshoreOffshoreOffshore OPEX Fuel CAPEX -56.4% Average wholesale Price = 66 EUR/MWh LCOE dynamics in the UK Offshore Significant CAPEX reductions expected from a more mature supply chain Projects are expected to be significantly bigger for CfD Round 3 than they will be in CFD Round 2 Onshore 22 estimation yields an upside to offshore relative to onshore due to economies of scale Tip height restrictions prevent average hub height levels from increasing rapidly and thus LCOE levels from coming down further Solar energy After elimination of the Renewable Obligation (RO) program, new annual installations in the UK market decreased significantly Self-consumption will drive some growth; 2-3MW of additions per year are expected Natural gas Sustained low gas prices due to supply glut could reduce the LCOE of gas over the next 3-5 years Strong UK offshore pipeline and long-term policy have prompted investments in the supply chain, making >5% LCOE reductions achievable. 13

14 LCOE (EUR/MWh) LCOE comparison across technologies Subsidy-free auction reaffirms offshore competitiveness in Germany LCOE comparison, Germany, EUR/MWh NGGC Coal 17 Thermal Solar Range Other Solar Onshore OnshoreOffshoreOffshore Note: Unsubsidized LCOE of new construction reported for onshore wind, NGGC, coal, and solar. LCOE levels for offshore wind reported on FiD year. Nominal 217 EUR. Wholesale power prices represents Q4/216 averages 62 OPEX 54 Fuel CAPEX -55.6% Solar auction Price = 65 EUR/MWh Average wholesale Price = 55 EUR/MWh LCOE dynamics in Germany Offshore 17 auction revealed world s first subsidy-free projects won by DONG Energy (48MW) and EnBW (9MW). Bids driven by significant EoS on both OPEX and CAPEX Upcoming projects are 2-3MW in size. Plant size is expected to double to 5MW in 222; this dynamic will provide further LCOE reductions 1.6GW of additional capacity auctioned in 218 with at least 5MW in the Baltic Sea. The regulation tones down similar LCOE reductions in next auction round due to less competition Onshore German auction round reaffirmed cost competitive environment Smaller projects (1-15MW) will prevent economics from fully scaling for onshore wind Solar energy Solar tenders digress prices by 1-15%, driving LCOE level down to offshore 22 expectations Projects from the 6 th round of tenders were awarded 65 EUR/MWh for utility-scale projects Natural Gas Cash cost levels for natural gas are expected to hover around 4. EUR/Mmbtu in the next few years Expectations of next generation turbines (13-15MW) and good site conditions enable offshore to compete on cost with fossils, onshore and PV. 14

15 Offshore Wind SCOE Job creation from offshore wind drives down SCOE level SCOE breakdown, UK, EUR/MWh SCOE comparison, UK, FID at ~222 LCOE 42 Transmission cost Subsidies Integrational cost Job Creation CO2 Avoidance SCOE % PV -25% Onshore -16% Offshore LCOE System cost Social cost LCOE + system cost SCOE Note: LCOE in UK, FiD basis in 222 Consulting Note: No integrational cost or subsidies assumed for onshore or PV Consulting Increasing national security of energy supply is not included in the model yet, however this parameter is expected to further increase renewables position vis-a-vis fossils. 15

16 Delivering renewable energy insight TM Wind of change in the Baltic Sea 16

17 Introduction There is more to cost reduction Support schemes Politics Market Cost reduction Industry Innovation Standardization Planning frameworks R&D Cooperation Best practices Cost reduction depends on many interrelated factors, including economies of scale, high capacity volumes, investor confidence and strong regulatory frameworks. 17

18 Water depth (m) Status of the Baltic Sea offshore wind market The Baltic and the North Seas have different natural conditions Key features of operational projects in the Baltic and the North Sea Gravity Jacket Monopile Tripod 53% 8% 39% 4% 87% 8% 5 Baltic Sea North Sea North Sea Baltic Sea 1MW Distance from shore (km) 18

19 Water depth (m) Status of the Baltic Sea offshore wind market The Baltic and the North Seas have different natural conditions Key features of operational projects in the Baltic and the North Sea Gravity Jacket 53% Monopile 8% Tripod 39% 5 Baltic Sea 4% 87% 8% North Sea Downside Upside Condition Baltic Sea North Sea Low waves Low water depth Short distance to shore 4 3 Weak tidal currents High wind speed 2 North Sea Low water salinity 1 Baltic Sea 1MW Rare icing Irregular seabed Distance from shore (km) Impact Easier access, lower installation and O&M costs Higher AEP and revenue generation Wind of change in the Baltic Sea 12 June

20 Water depth (m) Status of the Baltic Sea offshore wind market The Baltic and the North Seas have different natural conditions Key features of operational projects in the Baltic and the North Sea Gravity Jacket 53% Monopile 8% Tripod 39% 5 Baltic Sea 4% 87% 8% North Sea Downside Upside Condition Baltic Sea North Sea Low waves Low water depth Short distance to shore 4 3 Weak tidal currents High wind speed 2 North Sea Low water salinity 1 Baltic Sea 1MW Rare icing Irregular seabed Distance from shore (km) Impact Easier access, lower installation and O&M costs Higher AEP and revenue generation Natural conditions and project features across the two seas are not so strikingly different as to influence project viability. The real barriers are elsewhere 2

21 Status of the Baltic Sea offshore wind market 1.4GW connected in the Baltic Sea, 8.9GW in the North Sea GW online in the Baltic Sea, 24GW in the North Sea, 217e to 226e (GW) Cumulative connected capacity Until % 1.3 GW 15% North Sea Baltic Sea Baltic Sea (cum.) North Sea (cum.) (GW)

22 Status of the Baltic Sea offshore wind market 1.4GW connected in the Baltic Sea, 8.9GW in the North Sea 4.4GW online in the Baltic Sea, 24GW in the North Sea, 217e to 226e (GW) Cumulative connected capacity 85% 1.3 GW 15% North Sea Baltic Sea Baltic Sea (cum.) North Sea (cum.) (GW) The main Baltic Sea markets are Germany and Denmark, where developers have concentrated their efforts mainly in the North Sea Lack of stable support frameworks has brought limited development in Sweden and in Finland, and held it back in Estonia, Latvia, Lithuania and Poland There is substantial potential for knowledge transfer from experience in the North Sea to the Baltic Sea Until

23 Status of the Baltic Sea offshore wind market 1.4GW connected in the Baltic Sea, 8.9GW in the North Sea 4.4GW online in the Baltic Sea, 24GW in the North Sea, 217e to 226e (GW) Cumulative connected capacity 85% 1.3 GW 15% North Sea Baltic Sea Baltic Sea (cum.) North Sea (cum.) (GW) The main Baltic Sea markets are Germany and Denmark, where developers have concentrated their efforts mainly in the North Sea Lack of stable support frameworks has brought limited development in Sweden and in Finland, and held it back in Estonia, Latvia, Lithuania and Poland There is substantial potential for knowledge transfer from experience in the North Sea to the Baltic Sea Until Early support from pioneering states has laid the foundations for established supply chains in the North Sea, which will host >8% of the market volume in the next 1 years. 23

24 Status of the Baltic Sea offshore wind market A diverse power supply Most Baltic states have already achieved their EU 22 targets 1% 8% 6% 4% 2% % Others Hydroelectricity Renewables Nuclear Natural gas Coal Petroleum Dominance of hydro and nuclear, and lack of support deteriorate the case for offshore wind in Finland and Sweden High shares of fossil fuels and strong support for future nuclear reactors in PL, LT, EE and LV Future interconnections will be crucial to integrate RES generation PL LT LV EE DE DK SE FI, PSE, LitGrid, BMWi, Energimyndigheten, Finnish Energy, Energistyrelsen, IEA 24

25 Status of the Baltic Sea offshore wind market A diverse power supply Most Baltic states have already achieved their EU 22 targets 1% 8% 6% 4% 2% % SE EE LT FI DK PL EU-28 DE PL LT LV EE DE DK SE FI % 1% 2% 3% 4% Others Hydroelectricity Renewables Nuclear Natural gas Coal Petroleum 5% 6% Reached On track Dominance of hydro and nuclear, and lack of support deteriorate the case for offshore wind in Finland and Sweden High shares of fossil fuels and strong support for future nuclear reactors in PL, LT, EE and LV Future interconnections will be crucial to integrate RES generation Lack of regulatory framework in place to support offshore wind Most Baltic Sea Member States have already delivered on their EU 22 targets utilizing mainstream renewable energy technologies Early/timely achievement of 22 targets may indicate lack of political will to engage before the 22s Note: Countries sorted based on progress on compliance. Updated as of YE/215, PSE, LitGrid, BMWi, Energimyndigheten, Finnish Energy, Energistyrelsen, IEA, Eurostat 25

26 Status of the Baltic Sea offshore wind market The lack of a strong regulatory framework is the main barrier Project development pipeline in the Baltic Sea Pre-project Proposed Planned Under construction DE 7.1 DK 1. Established markets FI SE One-off markets EE 3.9 PL 2.2 LV.8 Potential markets LT (GW) 26

27 Status of the Baltic Sea offshore wind market The lack of a strong regulatory framework is the main barrier Project development pipeline in the Baltic Sea DK 1. FI SE LV.8 LT.2 Pre-project Proposed EE 3.9 PL 2.2 Planned Under construction DE 7.1 Established markets One-off markets Potential markets Sweden s large power surplus deteriorates the case for adding offshore wind to the country s power mix Finland adopted only one-off investment support for innovative technologies. The country has no offshore wind strategy or targets and is planning a technology-neutral tender system Estonia is planning a tech-neutral tender scheme but has no support in place for offshore. EIA in 217 could lead to a building permit for 7-1,MW for Hiiumaa. With support by 219, projects could come online in 222. Lithuania has no offshore wind support so far. Tenders for research areas could start in 218. If support is secured by 221, first commissioning (GW) might occur in

28 Status of the Baltic Sea offshore wind market The lack of a strong regulatory framework is the main barrier Project development pipeline in the Baltic Sea DK 1. FI SE LV.8 LT.2 Pre-project Proposed EE 3.9 PL 2.2 Planned Under construction DE 7.1 Established markets One-off markets Potential markets Sweden s large power surplus deteriorates the case for adding offshore wind to the country s power mix Finland adopted only one-off investment support for innovative technologies. The country has no offshore wind strategy or targets and is planning a technology-neutral tender system Estonia is planning a tech-neutral tender scheme but has no support in place for offshore. EIA in 217 could lead to a building permit for 7-1,MW for Hiiumaa. With support by 219, projects could come online in 222. Lithuania has no offshore wind support so far. Tenders for research areas could start in 218. If support is secured by 221, first commissioning (GW) might occur in Outside Denmark and Germany, projects are at an early development stage. The level of uncertainty over support does not make it possible to foresee capacity before

29 Market forecasts and future opportunities North Sea to remain the hot spot for growth Deployment gap expected to persist in the coming 1 years Finland Sweden Poland Germany Denmark (GW) e 18e 19e.6 Baltic Sea.3 2e 21e e 23e 24e.5 25e (GW) e 29

30 Market forecasts and future opportunities North Sea to remain the hot spot for growth Deployment gap expected to persist in the coming 1 years Finland Sweden Poland Germany Denmark Belgium Netherlands UK (GW) Baltic Sea (GW) (GW) North Sea (GW) e 18e 19e 2e 21e 22e 23e 24e 25e 26e 17e 18e 19e 2e 21e 22e 23e 24e 25e 26e 3

31 Market forecasts and future opportunities North Sea to remain the hot spot for growth Deployment gap expected to persist in the coming 1 years Finland Sweden Poland Germany Denmark Belgium Netherlands UK (GW) Baltic Sea (GW) (GW) North Sea (GW) e 18e 19e 2e 21e 22e 23e 24e 25e 26e 17e 18e 19e 2e 21e 22e 23e 24e 25e 26e 35% of the new capacity connected in the Baltic Sea will be located in Denmark, followed by Germany with 28%. The UK will dominate the North Sea market with 41%. 31

32 Opportunities for development in Poland Poland is a potentially emerging offshore market Poland offers concrete development opportunities in the 22s S W Port infrastructure Supply chain Regulatory framework Coal-reliance O Jobs GDP growth Ongoing dialogue Local content Nuclear T Poland needs new capacity as old coal plants are phased out and demand for electricity increases. A dialogue has recently started between the industry and the government. 32

33 Opportunities for development in Poland Poland has a major role to play Project pipeline and expected development timeline Total Total Polenergia PGE 6 1,2 1,8 2,4 2,246 (MW) Connection agreement Environmental permit 1,2 1,46 2.2GW with connection agreement Allowing for construction of 2.4GW 33

34 Opportunities for development in Poland Poland has a major role to play Project pipeline and expected development timeline Total Total Polenergia PGE 6 1,2 1,8 2,4 2,246 (MW) Connection agreement Environmental permit 1,2 1,46 2.2GW with connection agreement Allowing for construction of 2.4GW BAŁTYK II BAŁTYK III EIA/spatial planning Building permit Support secured Construction Commissioning With EIA approved for 1.2GW and a potential of 6GW by 23, MAKE expects Poland to commission 1.1GW from 222 to 226, to be delivered largely through local suppliers. 34

35 Opportunities for development in Poland An offshore wind industry without a market A local supply chain ready to deliver Active in offshore wind Potential players, StoGda, FNEZ 35

36 Opportunities for development in Poland An offshore wind industry without a market A local supply chain ready to deliver Attractive local content opportunities Active in offshore wind Potential players, StoGda, FNEZ 36

37 Opportunities for development in Poland An offshore wind industry without a market A local supply chain ready to deliver Attractive local content opportunities Active in offshore wind Potential players, StoGda, FNEZ A supply chain focused on BOP, vessels and shipyards gives local players higher shares of local content and better chances to maximize their turnover. 37

38 The role of regional cooperation Opportunities for EU-wide and regional cooperation EU cooperation mechanism 29/28/EC supports financing renewable energy through the budget of a third Member State that could benefit from return on RES statistics % 5% 1% 15% 2% 25% Potential partners BE LU IE UK FR NL Statistical transfers help target compliance. Estonia is exploring statistical transfers and could commission as early as 222 Note: Updated as of YE/215, Eurostat 38

39 The role of regional cooperation Opportunities for EU-wide and regional cooperation EU cooperation mechanism 29/28/EC supports financing renewable energy through the budget of a third Member State that could benefit from return on RES statistics % 5% 1% 15% 2% 25% Regional cooperation Learning from the North Sea experience Potential partners BE LU IE UK FR NL Policy coordination Meshed grid solution (PCI) Power Link Island Statistical transfers help target compliance. Estonia is exploring statistical transfers and could commission as early as 222 Cost reduction (CAPEX & OPEX) Note: Updated as of YE/215, Eurostat Source:MAKE Cooperation mechanisms so far unexploited could represent an upside by 22. Toward and beyond 23, new policies could ensure a steady pipeline of offshore wind projects. 39

40 Delivering renewable energy insight TM Q&A and Discussion 4

41 Final remarks MAKE s Offshore Subscription The optimal offshore tool box Wind Turbine Trends Report Offshore Wind Power Market Report Wind Turbine O&M Report Renewable Energy Ownership Strategies Report 5 Databases > 6 Research Notes Offshore related Flash Notes Offshore related Analyst Presentations 4 Wind Power Market Outlook Updates The Offshore subscription is specially designed for the specific intelligence needs of our offshore wind power clients 41

42 Contact Steen Broust Nielsen Michael Guldbrandtsen Andrea Scassola consultmake.com 217 MAKE Consulting A/S. All rights reserved. Reproduction or distribution of this report in any form without prior written permission is strictly forbidden. Violation of the above restrictions will be subjects to legal action under the Danish Arbitration Act. The information herein is taken from sources considered reliable, but its accuracy and completeness are not warranted, nor are the opinions, analyses and forecasts on which they are based. MAKE Consulting A/S cannot be held liable for any errors in this report, neither can MAKE Consulting A/S be liable for any financial loss or damage caused by the use of the information presented in this report. Denmark Sønder Allé 9 DK-8 Aarhus T U.S. 117 N. Jefferson Street Suite 4 Chicago, IL 6661 T U.S. 33 Bradford St Concord MA 1742 T China No. 19, 47 Shaanxi Bei Road, Jing an District Shanghai 241 T Germany Neuer Wall Hamburg T