DONG Energy offshore wind experience Future Tendering Process for Offshore Wind Energy February 10th 2011 Per Hjelmsted Pedersen Head of Project Development DONG Energy Renewables
DONG Energy Renewables Perspectives on tender systems 2
DONG Energy is an integrated energy company and active throughout the value chain E&P Power Renewables Energy Markets S&D Main positions Geographic focus areas Central power plant Waste-to-Energy generation Small-scale CHP plants Thermal power plants under construction Offshore wind Onshore wind Hydro power On- and offshore wind farms under planning/construction Power and/or natural gas customers Gas storage capacity Power and gas sales Gas distribution Power distribution Gas storage Total revenue 2009*: EUR 6.6bn Total EBITDA 2009*: EUR 1.2bn Current market position Strong and growing equity gas position The leading thermal generator on Nord Pool and Market leader in district heating in Denmark Growing renewables portfolio with market leading position in offshore wind power Leading position in power and gas infrastructure. Retail positions in Sweden and Holland Leading seller of power and natural gas in Denmark and active in several other countries * Total numbers after eliminations and unallocated items (but before adjustment for special hydrocarbon tax) Source: DONG Energy 3
Generation Offshore wind contributes to DONG Energy's long-term vision: To supply reliable energy without CO 2 TODAY'S PRODUCTION 85% 15% FUTURE PRODUCTION 15% 85%
With more installed capacity than any other utility, DONG Energy is the global leader within offshore wind power Leading market participants within European offshore wind 966 Within offshore wind, DONG Energy is an 150 established world leader as the energy company 708 705 634 189 467 342 135 in the world having developed, constructed an operated the most offshore wind projects 118 5 142 Under construction Operational assets Source: Companies' annual accounts, Emerging Energy Research, DONG Energy. All figures are in MW 5
DONG Energy is present in key Northern European offshore wind markets The UK is the world's largest market for offshore wind DONG Energy has build more offshore wind parks in the UK than any other developer Denmark pioneered offshore wind and is second only to the UK in terms of installed capacity DONG Energy is the largest operator of offshore wind The Netherlands has set ambitious targets for offshore wind but has yet to implement an attractive incentive system DONG Energy has project rights to three projects in the Netherlands Germany is expected to kick-start significant growth and become the second largest market for offshore wind DONG Energy is developing two projects in Germany 6
DONG Energy has been a front runner in developing offshore wind Total installed capacity by DONG Energy*, (MW) Horns Rev 2 209 MW Burbo 90 MW Barrow 90 MW 1.045 MW Nysted 166 MW 386 MW 5 MW 50 MW 1990 1995 2000 2005 2010 Examples Vindeby Middelgrunden Horns Rev 1 Gunfleet Sands The world's first offshore wind farm The world's first large offshore farm First real large scale offshore wind farm in the world Most recent installed wind farm by DONG Energy Turbine capacity: Nr. of turbines Rotor diameter Distance to shore 0,45 MW 11 35 m 1,8 km Turbine capacity: Nr. of turbines Rotor diameter Distance to shore 2 MW 20 72 m 4,7 km Turbine capacity: Nr. of turbines Rotor diameter Distance to shore 2 MW 80 80 m 18 km Turbine capacity: Nr. of turbines Rotor diameter Distance to shore 3,6 MW 48 107 m 7 km *) Actual ownership share lower due to divestments 7
DONG Energy has a strong track record in project execution... Country Wind park Total MW gross DE share (MW) 2009 1990-2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Vindeby 5 5 Tunø Knob 5 5 Middelgrunden Horns Rev I Frederikshavn Rødsand/Nysted Kentish Flats Barrow Burbo Horns Rev II Avedøre Gunfleet Sands I & II 40 20 160 64 10 10 166 83 90 0 90 45 90 90 209 209 7 3,6 173 173 DONG Energy has pioneered offshore wind and has more than 15 years of experience in developing, constructing and operating offshore wind farms Total 1045 708 8
...and holds a significant portfolio of potential future offshore wind projects DONG Energy offshore wind project pipeline Offshore wind projects under construction (966 MW)* Offshore wind projects under development (approx. 3,000 MW)*,** DONG Energy holds an attractive pipeline with a number of projects towards 2015+ Almost 1,000 MW are currently under construction Wigtown Bay (280 MW) WoDS (165 MW)* Burbo 2.5 (170-250 MW) Lincs (67 MW)* London Array 2 (185 MW)* Walney 1+2 (184 MW)* Walney 2.5 (570-750 MW) London Array 1 (315 MW)* Westermost Rough (240 MW) Anholt (400 MW) Borkum Riffgrund 1+2 (277 MW + 345 MW) Dutch portfolio (approx. 500 MW)* Strong focus on UK but also on other important wind markets in Northern Europe, such as Denmark, Germany and the Netherlands Majority of the projects to be developed together with partners (utilities, financial investors and pension funds) *) Figures represent DONG Energy's share of the projects **) The projects under development are at different development stages. No final investment decisions with respect to the projects under development have been made yet 9
Offshore wind from pioneering phase to industrial production Current status 2012-2015 2015- Project planning, execution, installation and logistics "Ad hoc" stand-alone project planning and execution Vessels available in the market engaged for specific project "Season"-based project specific installation Cross-portfolio planning and continuous execution flow Next generation installation vessel for WTG and foundations Accelerated installation and commissioning concept New optimised installation concepts increasing installation speed Integration between the installation of wind turbines, foundations and electrical infrastructure Large scale sourcing Framework agreement for supply of turbines Project-per-project sourcing of other key components and installation services Cross portfolio sourcing of key components (WTG, foundations, cable/electrical, vessels) Continued cross portfolio sourcing of key components Technological improvements Standard turbine solution through framework agreement with Siemens Basic monopile design adjusted for every project Optimization of turbine to maximise production/output Optimisation of steel monopile design 6-8 MW WTGs Deep water foundations applicable to various sites Optimisation of electrical infrastructure systems O&M, production planning and sales Operations on park-bypark basis Little experience in market with processes/ maintenance/ logistics etc. Portfolio optimization Industrialization of technical, financial and QHSE processes Optimisation of contractual setup & O&M business model Further development of O&M concepts to extract value from geographical O&M clusters 10
DONG Energy Renewables Perspectives on tender systems 11
DONG Energy's experience from the Anholt tender Pros Cons Grid connection and environmental consent in place before tender Significant cost relief for offshore wind parks very far from shore Lower risks Commission deadlines, heavy penalties and short time frame Limited flexibility in the planning process also for our suppliers Risk of an overheated market Fixed price over a period of approximately12 years Predictability Lower risks Geotechnical and environmental surveys were conducted too late Geotechnical survey was insufficient Insecurity and higher risk Unable to use information properly Energinet.dk has ensured location in proximity to end-users Optimal utility of energy 2nd runner up had to abide by their tender for 6 months High risk of delays (no price regulation) Reservation of resources for 6 months 12
Timing and flexibility of offshore wind projects Award of concession: Final Investment Decision (FID): Construction start: Commission of 1st WTG: Commission of all WTG's: 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Anholt 400 MW Q1Q2 Q1 Q4 Q4 Walney 1 183,5 MW Q4 Q2 Q3 Q1Q2 Walney 2 183,5 MW Q4 Q2 Q2Q3Q4 London Array 630 MW Q4 Q2 Q1 Q4 Q1 West of Duddon Sands* 389 MW Q4 Q2 Q1 Borkum Riffgrund 1* 277 MW Q1 Q4 Q2 Q1 * Awaiting FID = Time from concession until commission of all WTG's 13
DONG Energy's experience from UK tender rounds Pros Cons Flexibility on the timing of delivery (to some extent) Sourcing can take place for several projects Round 3 - extremely detailed tender requirements Long process (1½ year from tender announcement to site award) Round 3 approach allows developers flexibility within zone Stakeholder concerns can be addressed without influencing capacity Scottish Territorial Waters - Strategic Environmental Assessment after tender Sites awarded to developers may be excluded by the SEA process We don t know how the support regime works after 2017 Difficult to plan projects on a long term basis Generally good experience with UK tender process DONG Energy have been awarded several sites in Round 1, Round 2, Round 2,5 and Scottish Territorial Waters The UK is DONG Energy largest market with 3 projects in operation, 3 projects under construction (Walney, Lincs and London Array) and several projects under development 14
DONG Energy's experience from the German market Pros Cons Fixed feed-in tariff without limit on production (FLH) Gives predictability within subsidy period Tariff level not on UK level Tariff might be insufficient for projects far offshore Free grid connection Significant cost relief for offshore wind parks very far from shore Grid connection process regulated in non-binding "position paper" Uncertainty about timing of grid connection BSH* as one-stop-shop authority (intention) Fairly structured permitting process Tariff level decreasing from 2015 (commissioning) Difficult to plan projects online after 2015 Fairly attractive tariff, given the level of security in the income stream Good intension but insufficient/unclear legal framework with high degree of uncertainties * Bundesamts fur Seeschifffahrt und Hydrographie (Federal Maritime and Hydrographic Agency) Consenting Authority 15
DONG Energy's experience from the Dutch tender rounds Pros Cons Fixed price feed-in tariff Predictability in subsidy period No "beauty contest" element in the tender Price is only criterion without looking at likelihood of realisation Limit on production (FLH per year) FLH limit discriminates efficient technology Project rights expire if project not awarded in tender Missing security regarding project rights prevents expensive investigations and leads to conservative bids New "anti- subsidy" government in the Netherlands, and therefore new political targets within offshore wind energy. DONG Energy's awaits new regime to be in place DONG Energy spend a lot of time and resource to make a realistic bid only to be outbid by someone with an unrealistic price. Uncertain whether the projects will ever be realised. 16
Effective industrialisation relies on stable and supportive framework (and flexibility to build up a pipeline) Stable framework is key for large scale investment Stable support mechanism Liquid market with transparent price signals Framework for long term investment planning Reduce Cost of Energy 17