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Approach to European Wind Power markets
by Henrik Balle
Senior Project Manager
Markets & Acquisitions – Wind power
DONG – Danish Oil and Natural Gas
Pro
Arc
DONG well situated between Scandinavia and Northern Europe
OsloKårstø
Stavanger
Kollsnes
Lübeck
London
Dunkerque
Dublin
Zeebrugge
Sleipner
Harald
Syd Arne
Den Helder
Tyra
TrondheimOrmen Lange
Easington
København
Göteborg
DONG marketDONG distributionNatural gas pipeline – owned by DONGTransmission net – owned by the Danish state
Natural gas storage owned by DONG
Natural gas pipelines partly owned by DONGGasled natural gas transmission system
250 km
Emden
St. Fergus
Nybro
Oil and gas prod.
Production today
Longer-term production
Near-term production
Bacton
• Currently 100% state-owned
• IPO scheduled for 2007
• State ownership to stay
above 50%
Pro
Arc
Integrated energy company with revenue of EUR 3.6 billion*
E&P
Electr. distribution
Gas distribution
1.2 billion*
0.5 billion*
1.5 billion*
Generation Infrastructure
0.4 billion
Effective and diversified conventional electricity production
6,200 MW capacity (coal, gas, and bio mass)
Reserve base of more than 350 million boe Hereof 40 bcm gas
Three focus areas The Danish part of the
North Sea Mid-Norway West of the Shetland
Isles
Large wind capacity in Denmark and abroad (600 MW)
Significant wind power projects in Denmark and abroad
Hydropower in Norway and Sweden (500 MW)
Two natural gas storages (760 million m3)
Gas distribution 100,000 customers
Electricity distribution 900,000 customers
International gas infrastructure (Sweden, Holland and Germany)
Sale of approx. 8 bn m3
natural gas and significant volume of power
1,000,000 customers in Denmark
Market leader in Denmark and Sweden
Niche player in Germany and Holland
Renewables
* DISCLAIMER: Based on arithmetic calculations. Figures include unaudited figures and DONG’s own estimates
and serve for illustration purpose only. Figures assume all agreed DONG acquisitions are successfully completed
Electr. & gas customers
Gas customers
Sales
INTERGAS SUPPLY
Integrated energy company with revenue of EUR 3.6 billion*
Offshore Wind
Onshore Wind
Hydropower
Pro
Arc
Wind assets following merger with Energi E2/Elsam
As part of the purchase of Elsam shares from Vattenfall DONG will swap assets, including wind farms
Zagorze, Wind power 30 MW
Poland: 30 MW
Wind power 29 MW
Sweden:
Wind power 19 MW
Greece: 19 MW
Vattenfall's assets
Other development projects within wind power
The new company's assets
BorkumRiff. 1, Wind power 360 MW
Germany: 108 MW*
Kentish Flats Wind power90 MW
UK: 90 MW
Wind power 167 MW
Spain: 167 MW
* Vattenfall takes over 30% of the 360 MW development project Borkum Riffgrund 1
Horns Rev*160 MW
Onshore wind power213 MW
Onshore wind power
143 MW
Offshore windpower
109 MW
Offshore windpower16 MW
Vattenfall's wind power assets
The new company's wind power assets
* Vattenfall takes over 60% of Horns Rev, incl. operating responsibility
Vattenfall will take over a number of wind energy assets, but the new wind business
will remain a major player
Pro
Arc
Portfolio of development projects in European growth markets
0
200
400
600
800
1000
1200
1400
1600
DE DK SE UK
MW
Off-shore pipeline for 2006-10 – around 2,300 MW (est.)
Offshore projects under development:
DE: Borkum Riffgrund 161+372 MW
UK: Scarweather Sands 45 MW
Walney 450 MW
London Array 333 MW
Shell flats 90 MW
West of Duddon Sands 167 MW
Burbo Bank 45 MW
DK: Nysted II 100 MW
Horns Reef II 200 MW
On-shore pipeline for 2006 only – around 200 MW (est.)
0
50
100
DE DK E F NO
MW
Existing pipeline is focused on European growth markets
Onshore projects under development:
Pipeline consists of several medium to large scale projects (>20 MW)
Pro
Arc
Strategic Market Approach / Risks
1. priority
2. priority
Home market
Basis will be a perception of markets in North West Europe:
A Central Nordic Footprint
Pro
Arc
Relevant market overview ~ Risk perspective
Factor
Market
Offtake Onshore/Offshore Wind Permitting process
Denmark +
Market based – terms not attractive at the
moment
++
Only option is offshore
++
Good and well known
regime
++
Known procedure – understanding
authorities
UK +++
Market based – terms attractive at the
moment
+++
Onshore and offshore potential
++
Good wind conditions in
general
++
Many interests involved
Germany ++
Feed-in tariff by law – Fixed price for 20 year
Expensive developments
+++
Onshore short term and offshore long term. Potential for
both
+/++
Onshore/-Offshore
++
Known procedure, but depending of local
influence
Norway + Market based – terms not attractive at the
moment
+
Only potential for limited nos. of
onshore
+++
Good wind conditions
++
Known procedure for concessions
Sweden +
Market based – terms not attractive at the
moment
+
Few large onshore-projects and only few
single offshore-projects
+
Offshore wind will be
more attractive
+
Very cumbersome procedure – more than
12 MW to high level decision
7 +
9-10 +
9 +
7 +
4 +
Total rating
Medium/high
Medium/low
Low
High
High
Risk rating
Pro
Arc
Other markets ~ Risk perspective
Factor
Market
Offtake Onshore/Offshore Wind Permitting process
France ++
Feed-in tariff - with correction factor
++
Only real option is onshore – so far
++
Regionally good, but
new regime
+
New procedures for authorities –
bureaucracy?
Spain +++
Feed-in tariff by law – Choice of regime High entry costs
++
Only onshore – but large potential
++
Regionally good
++
Recognised, but regional proces
Greece ++
Feed-in tariff by law
++
Only onshore
++
Regional differences
+
Known procedure, but locally influenced
7 +
9 +
7 +
Total rating
Medium/low
Low
Medium
Risk rating
Pro
Arc
WACC – Weighted Average Cost of Capital / Hurdle rates
Risk assessment
Systematic/generic risks (external risks)
Non-systematic / Project specific risks (internal risks)
To what extent does project survive relevant hurdle rate – if at all??
IRR
No Yes
Define WACC for each market Build into cash-flow projections
Pro
Arc
Definition of WACC/Hurdle rate
The definition of WACC for each market includes :
Impact of generic wind risk
Impact of Offtake/market risk (income)
General/average O&M risk (costs)
Relation/sensitivity between fixed and variable costs
General construction/completion risk
Average lending to investments (50-80%)
Long term interest risk impact
Credit risk margin
Pro
Arc
Stages of Project and relevance of risks
Phase 1Early Development
Phase 3Construction
Phase 4Operation
Phase 2Late Development
Wind
Technology
Political
O & MConstruction offshore
Grid interconnection
Construction onshore
Off-take
Wind
Political
Counterpart/-Credit
Grid interconnection
Technology
Counterpart/-Credit
Technology
Off-take
O & M
Photo by Gunnar Britse: Nysted Offshore Wind farm, Denmark
Pro
Arc
Examples of WACC/Hurdle rates
IRR/Return on relevant markets - Risk assessment/WACC = CREATION OF VALUE on investment !!
Country Project Phase IRR
(Total investment)
WACC Creation of Value
(IRR-WACC)
UK Onshore II/IIIpre-construction
8.5-9% 7.5-8.5% +++
Offshore II/IIIpre-construction
8.5-10.5% 8-9% +++
Germany Onshore II/IIIpre-construction
8-9% 6.5-7.5% ++
Onshore IV in operation
7-8% 6-7% ++
Offshore II/IIIpre-construction
8-10% 7.5-8.5% ++
Norway Onshore II/IIIpre-construction
9-9.5% 8.5-9% +
Sweden Onshore II/IIIpre-construction
9-9.5% 8.5-9% +
Pro
Arc
Thank you for listening!
?
Henrik BalleSenior Project Manager
DONG Renewables
Tel. +45 4517 1582Mob. +45 2096 1065 Fax. +45 4517 1282