Johannes Ritter, Solution Matrix
November 01, 2011 | 1 Comments
Many utility companies literally find themselves in deep water when attempting to estimate the risks and returns of setting up an offshore wind park. Measuring the multitude of different factors that impact the planning, construction, and maintenance appears to be a daunting task. Johannes Ritter explores what's involved and discusses the benefits.
"Give me enough money and I can build anything." A bold exclamation made by an engineer with years of experience within the offshore wind industry. But in fact this claim has some truth to it. The number one challenge is not of a technical nature but pertains to persuading the investors and project developers with convincing numbers. Whereas the engineer might be interested in technical details, the investors are interested in numbers only, and not in just any numbers, but only those they can trust.
The trade off between the technologically possible and the financially feasible is constantly being challenged within the renewable energy industry, but the balance between these two often opposing forces remains. So how does one strike the right chord that will resound with banks, insurance companies, and project sponsors alike? The key lies in recognising that technical and financial figures depend on each other and should be treated as parts within a single system.
Harvesting wind power on the ocean is not a new concept; the first offshore wind parks from the 1990s have long since been made superfluous by newer, more efficient models with an even more suitable placement and a better maintenance programme. Nowadays, engineers around the world are constantly competing to design the largest and most efficient wind mills for use at sea, which has resulted in several innovations within generator, nacelle, and wing tip designs.
With an ever increasing amount of players on the global scene in a time of financial crisis, obtaining the necessary funding for new offshore wind ventures has become still more difficult. This is hardly surprising, seeing as they carry with them far greater investment — and maintenance costs than land based alternatives — not to mention a far greater level of uncertainty that never goes down well with investors in an already shaken global economy. Construction projects of this scale must thus be approved by a variety of gatekeepers before the first stones are even laid, and expert advisors to banks and insurance companies are notoriously hard to impress.
Therefore, it is a great differentiator to approach the project from a Business Case perspective in order to establish whether the higher amounts of electricity generated on the sea within a given project compensate for the increase in costs and uncertainty of that project. At the same time, the Business Case unites the technical part of the venture with the business part, which is an objective that many current approaches fail to achieve.
Only when the wind park project is approached from a broad perspective that combines technology and finance can the true value of the project be calculated. For example, oceanographic survey results are translated into construction costs, environmental impact analyses into offset costs, and wind speed frequency distribution into anticipated electrical output figures. Similarly, operational costs are evaluated, while availability and reliability data concerning wind turbines are fed into the model to predict both maintenance costs and the available uptime of the wind farm.
Ultimately, everything is translated into costs and benefits that can be calculated and measured. This way, all the details and consequences of pursuing an investment in a given offshore wind park project are made clear from the outset. When the trade-offs and their repercussions become apparent to both engineer and financial controller, a common understanding arises. Once this is achieved, the project can be efficiently carried out in a spirit of unity, where friction is substituted with common goals.
HOW TO CONDUCT A BUSINESS CASE ANALYSIS
The Business Case takes its starting point in the planning and permit phases that hold particular interest due to the sheer size of the initial investment. With a typical three to six percent of the total project costs relating to simply figuring out where and how to construct the offshore wind park, a strict regimen of cost control and risk evaluation must be adopted. From here, the Business Case moves on to cover the construction and upkeep phases, where different approaches to anything from design to maintenance enter into the equation. Ultimately, the goal is to calculate the lifecycle costs of the project or the total cost of ownership (TCO), broken up into the respective costs relating to acquisition, operation, and scrapping.
Once the various factors, referred to as "uncertainties" in the Business Case language, are determined by the project team, they are placed into the Influence Map. Some will appear as scientific formulae or constants, whereas others take the immediate shape of dollars and cents. Regardless of their expression, all relevant factors must be included for completeness. Their hierarchy and respective influence on the value, i.e. the ultimate object of the calculation exercise (hexagonal shape) can then be established. The values' unit is always a currency. In this particular case, we aim to determine the profit of the offshore wind power plant. The Business Case then comprises the costs and gains of constructing and maintaining an offshore wind power plant. Given these uncertainties, values, and scenarios, the influence map looks as illustrated above.
DETERMINING PROJECT LIFETIME REVENUE
Given the complexity of the Influence Map it is best readable looking at the upper half first. These uncertainties have impact on the revenue. As can be seen, the uncertainty of various wind speeds (expressed in the wind speed distribution) is broken down into smaller pieces, including form parameter, scaling factor, wind speed, hub height, reference height/measuring height, and roughness length. They are the factors that influence the wind speed at the height h, which combines with the air density and rotor disk area to determine the wind power. This uncertainty will then yield a certain amount of gross energy per year, expressed in MWh, and one can compare the trade-offs of different design choices like height and blade type. Deducting further uncertainties such as the wake effect, availability, and electrical efficiency it is possible to arrive at a net energy yield per year in units of MWh. The net energy yield is then multiplied by the feed-in tariff per MWh to establish the revenue per year, to which we add the scrap value and number of operational years for completeness. With the revenue side of the investment well taken care of, we turn our attention to the costs. Once this aspect is in place, reaching the coveted interval of actual project profit becomes a matter of simple deduction.
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