Dutch offshore wind rollout going well but sector faces significantly higher expected costs

This was reported by outgoing climate and energy minister Rob Jetten this week in a parliamentary letter to the Dutch House of Representatives on the progress of the roll-out of offshore wind power.

The minister began the parliamentary letter by mentioning milestones. For instance, the Netherlands is on course to meet the Energy Agreement’s target of 4.5 GW installed capacity for offshore wind power by the end of this year, well on time and within budget. According to the minister, this demonstrates that the Dutch approach to the realisation of offshore wind energy, in which the central government, in close cooperation with the wind sector, co-governments and the North Sea Consultation Committee, designates wind energy areas, carries out location studies, and prepares and streamlines permit procedures, works.

Looking ahead, the permits have been issued for the construction and operation of wind farms in the Hollandse Kust (west) wind energy area sites VI and VII, and the licensing procedures for IJmuiden Ver wind energy area sites Alpha and Beta will take place in the first quarter of 2024. The IJmuiden Ver sites Alpha and Beta will be awarded using the procedure of a comparative test with financial bidding. In early 2024, it will be decided through which procedure the permits for wind energy areas IJmuiden Ver lot Gamma and Nederwiek I will be granted. Licensing procedures are scheduled for 2025.

International collaborations

Within North Seas Energy Cooperation (NSEC), which the Netherlands chairs this year, the minister is working closely with other countries on offshore wind energy. In this international partnership of ministries, regulators and transmission system operators (TSOs), knowledge is exchanged and cooperation takes place on the future market design and regulation of offshore wind energy. Agreements are also being made on the infrastructure needed to interconnect energy systems.

Large increase in expected costs

Alongside these positive developments, there is also less positive news; the expected costs for offshore wind will be higher than previously estimated. This is evident from the updated cost estimate the minister received from grid operator TenneT. Whereas the total costs for the period 2032-2057 were estimated last year to average over €2 billion per year, they now come to around €3.6 billion per year. This amounts to an average of €0.038 per kilowatt-hour (kWh) transported over the offshore grid.

The increase in expected costs has a number of causes. For instance, higher costs are expected for the construction of the offshore grid due to increased raw material prices, personnel costs and the exclusion of suppliers from high-risk countries. Total investment costs for the offshore grid are now estimated at €35.5 billion instead of €26 billion.

In addition, financing costs are estimated to be substantially higher due to higher interest rates on the capital market. In the updated cost estimate, financing costs are assumed to remain structurally higher, although if capital market interest rates fall, the estimated financing costs could be lower again. Finally, operational costs (maintenance, grid losses and unavailability of the grid) are also estimated to be higher due to updated estimates of future electricity prices and increased inflation.

After 2057, costs decrease substantially in the period up to 2062, as the offshore grid will be fully depreciated by then.

In the Climate Agreement, it was agreed that the costs of the offshore grid will be paid from network tariffs, just like the onshore grids. The pass-through in grid costs cannot yet be determined, the minister said in the parliamentary letter. Among other things, the minister is consulting with TenneT on ways to reduce the costs for the Netherlands of the offshore grid until 2030 – and for the ambitions after 2030 – and in particular to limit the pass-through in grid tariffs in the further future.

Upcoming parliamentary letters on offshore wind

The minister ends the parliamentary letter by listing upcoming parliamentary letters on the subject. These are parliamentary letters on Offshore Wind Energy Development Framework (late October), Offshore Hydrogen Demonstration Projects (early 2024) and North Sea Energy Infrastructure Plan 2050 (in the first half of 2024). Source: Rijksoverheid

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