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TransmissionCostsforOffshoreWind
FinalReport
April2016
ReportintoTransmissionCostsforOffshoreWind
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DISCLAIMER
Whilsttheinformationcontainedinthisreporthasbeenpreparedandcollatedingoodfaith,theOffshoreWindProgrammeBoard(OWPB)andtheauthorsmakenorepresentationorwarranty(expressorimplied)astotheaccuracyorcompletenessoftheinformationcontainedinthisreport(includinganyenclosuresandattachments)norshalltheybeliableforanylossordamage,whetherdirectorconsequential,arisingfromrelianceonthisreportbyanyperson.Inparticular,butwithoutlimitation,theOWPBandtheauthorsacceptnoresponsibilityforaccuracyandcompletenessforanycommentson,oropinionsregardingthefunctionalandtechnicalcapabilitiesofanyequipment,softwareorotherproductsmentionedinthereport.TheOWPBandtheauthorsarenotresponsibleinanywayinconnectionwitherroneousinformationordatacontainedorreferredtointhisdocument.Itisuptothosewhousetheinformationinthisreporttosatisfythemselvesastoitsaccuracy.Thisreportanditscontentsdonotconstituteprofessionaladvice.Specificadviceshouldbesoughtaboutyourspecificcircumstances.Thereporthasbeenproducedbytheauthorsbasedonpublishedinformationandhasnotbeensubjecttoindependentverification.TheOWPBandtheauthorsacceptnoresponsibilityforaccuracyandcompletenessofanycommentson,oropinionsregardingthecostoftransmissionorgeneration.Thereportisnotintendedtobeaninstructional,torequireanyaffectedpartytobehaveinacertainwayortoremovetherightofanysuchpartytotakeitsowncommercialdecisionsontheissuesdiscussedherein.Tothefullestextentpossible,theOWPBandtheauthorsdisclaimanyliabilityarisingoutoftheuseofthereport,includinganyactionordecisiontakenasaresultofsuchuse.
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ABBREVIATIONSUSED
Initials Definition
CRMF CostReductionMonitoringFrameworkCfD ContractforDifferenceCPI ConsumerPriceIndexFID FinalInvestmentDecisionkV KiloVoltkW KiloWattLEC LevyExemptionCertificateLCoE LevelisedCostofEnergyMW MegawattMWhr MegawattHourOFTO OffshoreTransmissionownerO&M Operations&MaintenanceORECatapult OffshoreRenewableEnergyCatapultOWPB OffshoreWindProgrammeBoardpa PerannumPPA PowerPurchaseAgreementRPI RetailPriceIndexTRS TenderRevenueStream
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TableofContents
Disclaimer.....................................................................................................................................2
AbbreviationsUsed.......................................................................................................................3
1 SUMMARYCONCLUSIONS................................................................................................5
2 OFFSHOREWIND–TOTALCOST......................................................................................62.1 TheCostReductionMonitoringFramework.............................................................................62.2 CfDStrikePrices........................................................................................................................82.3 SummaryofTotalOffshoreWindLCoEData..........................................................................11
3 OFFSHOREWIND–TRANSMISSIONCOSTOFIN-SERVICEWINDFARMS.....................13
4 OFFSHOREWIND–FUTURETRANSMISSIONCOSTESTIMATES....................................174.1 DerivationofFormulaforTransmissionCostsUsingExistingTechnology..............................174.2 ValidationofFormulaeforTransmissionCostsUsingExistingTechnology............................184.3 EstimatedTransmissionCostsforExisting-TechnologyFutureProjects.................................194.4 EstimatedTransmissionCostsforNew-TechnologyFutureProjects......................................204.5 CostreductionapproachesinvestigatedbyOWPBGridGroup..............................................22
5 GENERATION-ONLYCOSTS.............................................................................................24
6 CONCLUSIONS................................................................................................................25
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1 SUMMARYCONCLUSIONS
The purpose of this report is to calculate transmission tariffs (in £/MWhr LCoE-equivalentterms) for in-serviceoffshorewindprojects, and toestimate transmission tariffs for futureoffshorewindfarmsuptoprojectswithFIDin2020.TheauthorofthisreportisTransmissionExcellenceLtd.ThereporthasbeencommissionedbytheGridGroupoftheOffshoreWindProgrammeBoard(OWPB),andhasbenefitedfromdiscussionsamongthemembersofthegroup.However,theOWPBGridGroupacceptsnoresponsibilityfortheaccuracyandcompletenessofthereport.Thereader’sattentionisalsodrawntotheDisclaimeronpage2ofthisreport.
Itshouldbenotedthatthereportonlyconsiderscoststhatformpartofthetransmissiontariff.Inparticular,itdoesnotincludethecostimpactoffaultoutagesthatmayreducepowerdeliveriestoconsumers,andhenceincreasethecostoftheenergythatcanbedelivered.Italsodoesnotconsiderthecostofanyenergylossesontransmissionassets,orcostsassociatedwithbalancingsupplyanddemand.
Thereportconcludesthat:
i) Per-MWhrtransmissiontariffsforoffshorewindhavebeenheld(andcancontinueto be held)within a £10-12/MWhr range. This is despite the distance betweenoffshoreandonshoresubstationsincreasingalmostnine-foldfromc.2006to2020.
ii) Theprimaryreasonswhyper-MWhrtransmissiontariffshavenotpreviouslyrisenwith transmissiondistancesare lowerOFTOrevenues relative toassetvalues (a25%reductionin£/MWhrtransmissiontariffs),higherwindfarmcapacityfactors(a30%reduction),andupgradingfrom132-150kVexportcablesto220kVcables(a12-28%savingfortwosampleprojects).
iii) Forthe2020scenariosafurtherreductionof23%1 intransmissiontariffsforfar-
offshore wind farms is estimated to be possible by employing two technicaladvances that are currently under investigation by the OWPB Grid Group:lightweight offshore substations and large-conductor dynamically-rated 275kVcables.
iv) Takentogether,thevarioussourcesofimprovementequatetoareductionofmore
than70%intheper-MWhrtransmissiontariffofafar-offshorewindfarmrelativetothesamewindfarmwiththetechnicalapproachtotransmission,capacityfactorandOFTOrevenuelevelsseenonprojectsthatreachedFIDin2006-8.
v) Whiletransmissiontariffshavebeenbroadlyconstant,theoverallcostsofoffshore
wind have steadily fallen. This combination means that transmission tariffsrepresentanincreasingproportionoftotaloffshorewindcosts:risingfromaround8%in2006to12-15%by2020.
1Anindicativevaluebasedonspecificscenariosanda170kmtransmissiondistance.SeeSection4.5.
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2 OFFSHOREWIND–TOTALCOST
2.1 TheCostReductionMonitoringFrameworkThetotalcostofoffshorewind(i.e.thecostofthegenerationelementandthetransmission2elementcombined)hasbeentrackedbytheCostReductionMonitoringFramework(CRMF).CRMFisasetofstudiescommissionedbytheOffshoreWindProgrammeBoard3(OWPB)fromthe Offshore Renewable Energy Catapult (ORE Catapult). The first such study started inFebruary 2014 and the results were published in February 2015. A further study wasundertakenin2015,butasthiswaspurelyqualitativeinnatureitisnotrelevanthere.TheCRMFhasmeasuredthetotalcostofoffshorewindintermsofitsLevelisedCostofEnergy(LCoE), which seeks to quantify the average cost over the life of a wind turbine. LCoE iscalculatedusingadiscountedcashflowanalysisasfollows:
i) All development, construction, operating and decommissioning costs of a windfarmarediscountedatthe(real,pre-tax)investmenthurdlerateusedbythewindfarm’sowner.Thisprovidesanetpresentcost.
ii) Anannualcostisthenfoundsuchthatwhenyouhavethiscostfixedoverthewholeoperatinglifeofthewindfarm,andthendiscountthiscostatthesamediscountrateasinstep(i)above,yougetthesamenetpresentcostaswascalculatedinstep(i)above.
iii) Thefixedannualcostcalculatedinstep(ii)aboveisthendividedbytheexpected
annualenergyoutputofthewindfarmtoyieldtheLCoEin£/MWhr.To ensure that thedata used in theCRMF is consistent,ORECatapult provideswind farmownerswithastandardisedspreadsheettocalculateLCoE,buttheinputvalues–includingtheoperatinglifeofthewindfarmandthediscountrate–aredecidedbythewindfarmownersthemselves.The report published in February 2015 found the pattern of reduction in the total cost ofoffshorewindshowninFigure1below.2Forthepurposesofthisstudy“transmission”isdefinedasbeingthoseassetswhicharetransferredtotheOFTO(offshoretransmission owner). Costs associated with array cables, turbine step-up transformers and tower-base switchgear aredefinedasbeingpartofgenerationcosts.
3TheOWPBisajointinitiativeoftheUKgovernmentandtheUKoffshorewindindustrywhichaimstoreducetothecostofoffshorewind.
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Figure1:trendintotaloffshorewindcosts
Source:CRMFSummaryReporttotheOffshoreWindProgrammeBoard,Feb2015
Figure1dividesthesetofwindfarmsanalysedintothreecategorieswhichmap4tothegroupsofactualprojectsshowninTable1below.Eachcategorycollectsprojectswhichwerebuiltataroundthesametime,andeachcategoryisapproximately2yearsaftertheprecedingcategoryTable1:AllocationofwindfarmstocategoriesinFebruary2015CRMFreportCategory
Projects
Workscompletion2010-115 GunfleetSands(complete2010)
RobinRigg(complete2010)
Thanet(complete2010)
Workscompletion2012-14 Walney(complete2012)
SheringhamShoal(complete2012)
Ormonde(complete2012)
GreaterGabbard(complete2012)
Teesside(complete2013)
LondonArray(complete2013)
WestofDuddonSands(complete2014)
4TheCRMFreportindicateswhichprojectsareina“workscompletion”categoryandwhichareinan“FID”category.Specificknowledgeof theprojects isneeded toknowwhichof the two“work completion” categories,orwhichof the twoFIDcategories,aprojectisin.
5TheworkscompletiondatesaretakenfromtheCrownEstateOperationalWindReport(2013)andhavebeenusedtosortprojectsbetweenthetwoworks-completioncategories.
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FID2012-146 HumberGateway(FID2012)
WestermostRough*(FID2013)
Dudgeon*(FID2014)
*Theseprojectsuse6MWclassturbines
According to theCRMF report thedownward trend in total cost seen in Figure1 is drivenprimarilybytheeconomiesofscaleavailablefromlargerwindturbines.Thereportnotesthat:
“Onefactorthatdoesstandoutisthatthe2012-2014FIDprojectsgroupisdominated by projects using 6MW turbines, whilst the other LCoE figuresreflectprojectswithanaverageturbinesizeof3.4MW–3.6MW.Itmaybeinferredthattheestimatedreductionto£121/MWhfortheseprojectsisduetosomeextent(possiblya largeextent)totheanticipatedcapexandO&Mreductionsfromfewerinstallationsandmaintainableunitsplusimprovementsinoutputandreliability.“
Other secondary factors referred to in theCRMFreport include“XLmonopile foundations,improvementsinoperation&maintenanceandextendeddesignlife”.TheauthorsoftheCRMFreport also note that “progress is also being made in finance (cost of debt, equity andinsurance)andacrossthesupplychain”.
2.2 CfDStrikePricesORECatapultexpecttoundertakeanupdatedanalysis in2016whichwillextendthegraphshowninFigure1toincludemorerecentprojects.Unfortunately,theresultsofthisworkwillnotbepublisheduntilearly2017.Intheabsenceofthisupdate,anapproximateviewofthelatesttotalcostsofoffshorewindcan be obtained from the winning offshore wind bids for Contracts for Difference (CfDs)announcedinFebruary2015.Theseare:
i) TheEastAnglia1windfarmatastrikepriceof£119.89/MWhr(in2012pounds).Thisequatesto£116.5/MWhrin2011pounds(theunitusedintheLCoEfigures).
ii) The Neart na Gaoithe windfarm at a strike price of £114.39/MWhr (in 2012pounds).Thisequatesto£111.2/MWhrin2011pounds.
It isassumedthatcompetitionwillmeanthatanyexcessreturnswillbeeliminated,sothatpricesbecomesynonymouswithcosts.Evenwiththisassumption,however,strikepricesare
6TheCRMFreportprovidesasetofprojectsintwo“FID”categories:2010-11and2012-14.TheresultsfromtheFID2010-11categorywerenotusedinthefinalgraph:itincludedtheGwyntyMor(2010),Teesside(2011)andWestofDuddonSands(2011)project;oftheseonlyGwyntyMorwasnotalreadycontainedinoneofthecategoriesintable1.AsactualFIDdatesarenotalwayspubliclyavailable,thedateofplacingtheexportcableorder–whichisfrequentlyoneofthefirstmajorordersplaced–wasusedinsteadtoprovidetheindicatedFIDdates.
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notdirectlyequivalenttoLCoE.DECCindicatesthefollowingdifferences7:
i) TheCfDstrikepricesapplyforaperiodof15years,whiletheLCoEiscalculatedoverthelifeofthegeneratingasset.AftertheCfDexpiresthewindfarmwillreceivethewholesaleelectricityprice,sothelevelofthiswillaffecttheLCoEcalculation.
ii) TheCfD strikepricedoesnotnecessarily reflect the amountofmoney that thegeneratorwillreceive.Ifthegeneratorsellsitspowerthroughapowerpurchaseagreement(PPA),thena“PPAdiscount”willapply.Thishasbeenestimatedtobe5%8,orroughly£5-6/MWhr.Inotherwords,thisfactorwouldreducetheLCoEby£5-6/MWhrrelativetothestrikeprice.
iii) A further reduction in the price for energy actually achieved by thewind farm
resultsfromthetransmission lossmultiplier, i.e.thefactthatthewindfarmwillhavetopayforitsshareofgridlosses.Thiswillreducetheeffectivepricereceivedby the wind farm by around 0.8%9, and reduce the LCoE by around £1/MWhrrelativetothestrikeprice.
iv) Atthetimethatbiddingtookplacewindfarmswereexpectedtohaveanadditional
revenuestreamfromLevyExemptionCertificates(LECs).AlthoughLECshavesincebeenabolishedtheypresumablyplayedaroleindeterminingthevalueofthebidsmade for the CfD’s awarded in early 2015. Since LECs represent an additionalincomesourceforthewindfarm,theireffectwouldhavebeentoreducethestrikepricebidsby£5-6/MWhr10relativetotheLCoE.
Takingthesefactorstogether,itappearsthatLCoEcanbeestimatedfromstrikepricewithreasonableaccuracyifonlyfactor(i)above–therelativelyshortdurationoftheCfD–isconsidered;theotherfactorsaboveareminororapproximatelycanceleachotherout.Differencesinindexation(i.e.RPIversusCPI)havenotbeenconsidered–giventhesmallnumberofyearsinvolvedandthegenerallylowlevelofinflationanydifferencesinindexationareunlikelytoaccumulatetoalargediscrepancy.Sincethewindfarmwillreceivethestrikepricefor15years,andfollowingthisthewholesaleelectricitypriceforthebalanceofthewindfarm’slife,calculatingtheLCoEfromthestrikepricerequiresthatassumptionsaremaderegardingthemarketpriceandthewindfarm’slife.Thisthengivesaper-MWhrrevenuestreamwhosepresentvalue(calculatedusingthedeveloper’scostofcapital–whichmustalsobeestimated)isthesameasthatfromreceivingtheLCoEovereveryyearofthewindfarm’slife.Forthepurposesofthisstudy,thefollowingvaluesareassumedfortheparametersreferredtoabove:
7From“ConsultationonthedraftElectricityMarketReformDeliveryPlan.AnnexB-StrikePriceMethodology”,July20138FromNationalGridAnalyticalReport(supportingdocumentto2013EMRconsultation).9Elexonestimateoftransmissionlossmultiplierfor2014/15.10FromApril2015untiltheirabolitionLECswereworth£5.54/MWhr.
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i) Thepost-CfDwholesalepricewasassumedtobe£60/MWhrin2011pounds.Thisishigherthancurrentforward-marketprices,whichequatetolessthan£54/MWhrin2011pounds11.Ontheotherhanditislowerthantheforecastforpricesinthe2020sofroughly£70±5/MWhr(in2011pounds)producedbyNationalGridin2013usingDECCscenarios12.
ii) Thelifespanofawindfarmhasbeenassumedtobe25years.IntheCostReductionPathwaysStudy13a20yearoperationallifeisassumed,butitisnotedthat“feedbackfromprojectparticipantssuggestedthatthelifetimeofwindfarmscouldbeincreased,andthiscouldbeadriverofcostreduction”.Itseemslikely,therefore,thatovertheperiodsincethisstudywascompleteddeveloperswillhaveextendedtheirexpectedlifetimesto25years.ThisappearstobeconfirmedbyrecentDecommissioningProgrammesandbytheCRMFreportofprogressextendingassetlife.
iii) Thedevelopercostofcapitalwassetto8.7%(pre-taxreal)basedonadvisefrom
ORECatapultthatcostsofcapitalwereonlypart-waythroughthereductionsforecastintheCostReductionPathwaysStudy14.
Applyingtheseparameters,itisfoundthattheLCoEforEastAnglia1andNeartnaGaoitheare£106.1/MWhrand£101.3/MWhrrespectively(in2011pounds).Theauthorunderstandsthatsomeforecastersnowbelievethatannualbaseloadpricesinthe2030s and2040swill bemuch lower than suggestedabove:perhapson theorderof £40-50/MWhr.Theseforecastsarebasedonanassumptionthattherewillbeveryhighlevelsofrenewablepenetrationbythistime,whichwoulddepressmarketpricesandcausethemtoregularlycollapsetozeroattimesofhighwindand/or lowdemand.Asensitivitystudywasthereforeundertakenwhichhadapost-CfDpriceof£40/MWhr;thiswasfoundtoreducetheLCoEvaluesbyabout£5/MWhr.
11TheEnergyUKWholesaleMarketReport,January2016,givesthepriceforatwoyearaheadannualbaseloadcontractas£58/MWhrinnominalpounds.
12Fromsection6.1.5oftheNationalGridEMRAnalyticalReport,July2013.Thispricerangeappliestomostofthescenarios.13Publishedin2012byTheCrownEstate,buttheoutcomeofanindustry-wideanalysisprocess.14Footnote3intheCostReductionPathwaysStudyindicatesthatthebaselinecostofcapitalforprojectswithFIDin2011was9.2%pre-taxreal(footnote3).TheCostReductionPathwaysStudyalsoforecaststhatthecostofcapital“willdropbyaroundonepercentagepoint”by2020(seepage32ofthestudyandexhibit3.28).IthasbeenassumedforthepurposesofthisreportthatthecostofcapitalforEastAnglia1(reachedFIDinearly2016)andNeartnaGaoithe(duetoreachFIDin2016)wouldberoughlymidwaythroughthisprocessofreduction,i.e.9.2%-(1%/2)=8.7%.
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2.3 SummaryofTotalOffshoreWindLCoEDataThetablebelowsummarisestheoffshorewindLCoEvaluesobtainedfromthe2015CRMFreportandfromthe2015CfDbids.ItalsoincludesthetargetsetbytheOffshoreWindProgrammeBoardofanLCoEof£100/MWhrforaprojectreachingFIDin2020.Table2:ProjectsandLCoE-listedbydateProject
FIDdate(approx15) LCoE(2011pounds)
RobinRigg 2006 £136/MWhr
(weightedaverage)GunfleetSands 2007
Thanet 2008
Walney 2008&201016
£131/MWhr(weightedaverage)
SheringhamShoal 2008
GreaterGabbard 2008
Ormonde 2009
LondonArray 2009
Teeside 2011
WestofDuddonSands 2011
HumberGateway 2012
£121/MWhr(weightedaverage)
WestermostRough 2013
Dudgeon 2014
EastAnglia1 2016 £106.1/MWhr
NeartnaGaoithe 201617 £101.7/MWhr
OWPBtarget 2020 £100/MWhr
ThedatashowninTable2isalsorepresentedbelowinFigure2.
15AsactualFIDdatesarenotalwayspubliclyavailable,thedateofplacingtheexportcableorder–whichisfrequentlyoneofthefirstmajorordersplaced–wasusedinsteadtoprovidetheindicateddatesforallbutthelasttwoprojects.
16Walneywasbuiltintwophases17NeartnaGaoithehasnotreachedFIDyet,butitsCfDsisbasedonitdoingsoin2016.
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Figure2:LCoEplottedasafunctionofprojectFIDdate.
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3 OFFSHOREWIND–TRANSMISSIONCOSTOFIN-SERVICEWINDFARMS
Thissectionexaminesthetransmissioncostfacedbyoffshorewindfarms.Forthepurposesofthisreport,“costoftransmission”isthedefinedasthetransmissiontariffsthatmustbepaidbyawindfarm.Itdoesnotinclude:
i) Anycostsrelatingtothearraycables,asthesearenotclassedastransmission.
ii) Coststhatarenotpassedthroughtothewindfarmaspartoftheirtransmissiontariff.(Aswillbeexplainedbelow,theOFTOreceivesallofitsrevenuefromNationalGrid,butnotallofthisrevenueispassed-throughtothewindfarmthroughthetariffsthatthewindfarmpaystoNationalGrid).
iii) Coststhatareincurredbythewindfarmwhenitbuildstheproject’stransmissionassets,butwhichOfgemsubsequentlydoesnotallowthewindfarmdevelopertorecoverthroughtheTransferValuepaidbytheOFTO.(i.e.costsdisallowedonthegroundsofnotbeingefficientlyincurred).
iv) Thecostimpactoffaultoutagesoncablesorothertransmissionequipmentthatmayreducepowerdeliveriestoconsumers,andhenceincreasethecostoftheenergythatcanbedelivered.
v) Thecostofenergylossesontransmissionassets,sincethesecostsaresocialised(paidbyallgeneratorsanddemandcustomersacrossBritain).
vi) Costsassociatedwithbalancingsupplyanddemand.
ThetransmissiontariffsforthoseoffshorewindfarmsthathavealreadytransferredtheirtransmissionassetstoOFTOsaredisclosedthroughtheStatementofUseofSystemCharges,publishedannuallybyNationalGrid.Thisprovidesfourtariffs,allmeasuredin£/kWpa,whichareaddedtogethertogiveawindfarm’stotaltariff:
i) Thelocalcircuittariff.Thisisdifferentforeverywindfarmandrepresentsafull18pass-throughoftheportionofthechargeleviedonNationalGridbytheOFTOthatrelatestotheexportcable(whetheronshoreandoffshore)andanyreactivecompensationorharmonicfiltersownedbytheOFTO(whetheronshoreoroffshore).
ii) Thelocalsubstationtariff19.Thisisalsodifferentforeverywindfarmandrepresentsapartial(typically2065±5%)pass-throughoftheremainderofthechargeleviedonNationalGridbytheOFTO.
18Theremaybeasmalltariffdiscountincaseswherewindfarmsareconnectedbyasinglecircuit.19The“localsubstationtariff”isprimarilytopayfortheoffshoresubstation.Thecostofonshoresubstationiseitherincludedinthecircuittariff(thereactivecompensationandharmonicfilterspart)ornotpaidbytheoffshoregeneratoratall(thetransformersandswitchgearpart).Furthercomplexityarisesbecausenotalloftheoffshoresubstationcostswillbepassedthroughifthereisexcesstransformercapacity,andbecauseofaso-called“civilworks”discountwhichexistssothatoffshoregenerationisnottreatedunfairlyrelativetoonshoregeneration.
20 There are a few wind farms where the proportion passed through differs substantially from the typical level. Lower
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iii) Theonshoretariff.Thisvariesdependingontheonshoregenerationzonewhere
thewindfarmconnects.Theonshoretariffcanbefurtherdividedintoanelementthatisindependentofthewindfarm’scapacityfactor21andanelementthatisproportionaltoit22.
iv) Someolderoffshorewindfarmshave132kVassetsbelongingtoonshore
distributionnetworkslyingbetweentheOFTOassetsandtheNationalGrid.Thesewindfarms(allofwhichreachedFIDbefore2010)mustpayanadditionaltariffforuseofthedistributionnetworks23.
InordertoconvertthistariffdataintoaformcomparabletoLCoEvalues,thefollowingconversionsarenecessary:
i) TheOFTOshavelicencesthatallowthemthelevyessentiallythesame24annualchargeonNationalGridfor20years.Attheendofthisperiodtheannualchargeisassumedtofallto10%ofitsoriginalvalue25,reflectingthefactthattheassetwouldthenbefullydepreciated.Overthe25-yearlifeassumedforthewindfarmLCoEcalculation,therefore,therewillbe20yearsoffulltariffand5yearsofreducedtariff.Usingadiscountedcashflowanalysisatthegenerator’scostofcapital,itisfoundthat–fromthegenerator’spointofview–theexpected20-years-high-then-5-years-lowtariffpatternisequivalenttoaflat25-yeartariffabout7%lowerthanthecurrenttariffsreportedbyNationalGrid.
ii) AllvaluesreportedbyNationalGridintheirmostrecentStatementofUseofSystemChargesarein2015pounds.Theseneedtobeconvertedto2011poundstobecomparablewiththeLCoEvalues.Thishastheeffectofreducingthevaluesbyafurther7%.
iii) Thetariffsneedtobeconvertedfrom£/kWpato£/MWhr.Forthisthecapacity
factorofthewindfarmneedstobeestimated.CapacityfactorsweretakenfromthegraphshownasFigure3below,withthefirstpowerdateofeachprojectassumedtobe2yearsafterFID.Thiscapacityfactorisalsousedtocomputethecapacity-factor-dependentpartoftheonshoretransmissiontariff.
percentagepass-throughoccursinsituationswherethenon-reactive-compensationpartoftheonshoresubstationisalargeproportionoftheproject’stotalsubstationcostand/orwheretheoffshoretransformersareoversized.
21The“yearroundnon-sharedelement”plusthe“residualelement”22The“yearroundsharedelement”23 In addition, there is currently adiscount for small 132kV-connectedgeneration. This hasbeenneglectedas it is tobediscontinuedshortly.
24Withinflationindexing.25OfgemhasnotannouncedhowitwilldealwithOFTOrevenuesaftertheendoftheinitial20yearperiod.However,ifthewindfarmisduetobedecommissionedattheendof25years(theLCoEassumption)thenitwouldseemlikelythattheOFTOwould receivea significantly reducedamountover thisperiod: as the costof acquiring theassetswouldbe fullyamortisedthisamountwouldonlyneedtosupportextendedmaintenance,repairandassetmanagementoftheassets.Notethatthe10%figureisapproximateandisnotbasedonadetailedanalysisofOFTOcosts.
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iv) Forlateryearsthegraphwasextrapolateduptoamaximumcapacityfactorof50%26.
Figure3:AssumedCapacityFactorsSource:2015OperationalWindReport,TheCrownEstate.Basedonastudythatcorrectsactualwindenergyoutputstotheirvaluesgivenlong-termexpectedaveragewindspeeds.
26TheCostReductionPathwaysreportsuggestsayearlyaveragewindspeedof10.0m/sforfar-offshorewindfarms(“siteD”).Withmodernturbinesthisequatestoagrosscapacityfactorinexcessof50%(forinstancethepublisheddatafortheV164shows10m/sathubheightequating toa54%grosscapacity factor)–however real-world factors suchaswake losses,equipmentbreakdownsandarraylosseswilllimitreal-worldnetcapacityfactorstobealevellikelytobearound50%.
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Thisthenyieldstheresultsshownintable3below:Table3:£/MWhrtransmissioncostsofin-servicewindfarmswithpublishedtariffsProject
FIDdate(approx.)
TransmissionTariffs(2011£/MWhr)
AverageTransmissionTariffs(2011£/MWhr)
RobinRigg 2006 na27 £11.8/MWhr
(weighted-by-MWaverage)
GunfleetSands 2007 £9.4/MWhr
Thanet 2008 £13.2/MWhr
Walney-1 2008 £16.2/MWhr
£12.4/MWhr(weighted-by-MW
average)
SheringhamShoal 2008 £12.8/MWhr
GreaterGabbard 2008 £12.0/MWhr
Ormonde 2009 £17.0/MWhr
LondonArray 2009 £10.7/MWhr
Walney-2 2010 £14.7/MWhr
WestofDuddonSands 2011 £10.9/MWhr
27RobinRiggdidnottransferitsoffshoresubstationtoanOFTO,soitstransmissiontariffsarenotcomparabletootherwindfarms.
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4 OFFSHOREWIND–FUTURETRANSMISSIONCOSTESTIMATES
4.1 DerivationofFormulaforTransmissionCostsUsingExistingTechnologyInordertofacilitatetheestimationoffuturetransmissioncosts,ananalysiswasundertakenofthedataavailablefromin-serviceprojects.Asnotedabove,themoneythattheOFTOchargestoNationalGrid(alsocalledtheTenderRevenueStream,orTRS28)canbebrokendownintotwocomponents.
i) “CircuitCost”.ThisportionoftheTRSissupposedtorelatetocables,harmonicfiltersandreactivecompensation.Asmentionedabove,thevalueofthelocalcircuittariff(in£/kWpa)ispublishedbyNationalGrid;multiplyingbythewindfarmcapacitygivesthevalueinmillionsofpoundsperannum.
ii) “SubstationCost”.ThisistheremainingportionoftheTRS,relatingtotheoffshoreplatform(s),thetransformersandHVswitchgearontheplatforms,andtheonshoretransformers,HVswitchgearandcivilworks.TheSubstationCost(in£mpa)canbereasonablyapproximatedbytakingthefullTRSvalue–whichispublishedbyOfgem–inflation-adjustingittocurrentpounds,andthensubtractingtheCircuitCost.
TheCircuitCostandtheSubstationCostarethenplottedagainsttheirprimarycostdrivers:theCircuitCostisplottedagainstthelengthofexportcable29inkm,andtheSubstationCostisplottedagainstthewindfarm’sMWcapacity.Figure4:EstimatedCircuitCostafunctionofcablelength
28TheamountchargedtoNationalGridactuallyincludessomeotherelementsinadditiontotheTRS,buttheTRSisdominantanditaloneisconsideredhere.
29Thelengthusedisthetotallengthofbothonshoreandoffshorecablecircuits.Onmostprojectstheonshorecablelengthisrelativelylow,andevenwheretherearesignificantlengthsofonshorecable,onshoreandoffshoreper-kmcostswerefoundtobecloseenoughthatconsideringbothtogetherdidnotgiverisetolargeerrors.
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Figure5:EstimatedSubstationCostafunctionofwindfarmcapacity
ThedatapointsshowninFigures4and5werethenconvertedintoformulaebyfittingthelinesshownoneachFigure.Thelineswerefittedmanuallyinordertoavoidtheresultbeingimpactedbyoutliers30andinordertoensurethatthelinegivesagoodmatchforlongcablelengthsandhighpowerlevelsasthesearetheareasmostrelevantforestimatingthecostoffutureprojects.Theresultingformulae(bothinwhichyieldresultsin2015pounds)are:
i) AnnualCircuitCost=£2.5mpa+((£90kpaperkm)x(cablelengthinkm))
ii) AnnualSubstationCost=(£24kpaperMW)x(windfarmcapacityinMW)NotethatthegoodcorrelationofCircuitCosttocablelengthshowninfigure4above,despitecableratingsthatvarybetween90MWand200MW,suggeststhatcableratingisnotamajorcostdriver.Thisisasexpectedgiventhatallofthecablesinthedatasethaveasimilardesign(allare3-corecablesinthe132-150kVvoltagerange),andallareinstalledinthesamewaybythesametypeofvessel.
4.2 ValidationofFormulaeforTransmissionCostsUsingExistingTechnologyTheformulaesetoutaboveweretestedbyusingthemtopredictthetenderrevenuestream(TRS)foralloftheprojectslistedinTable3above,plusfouradditionalprojects:Lincs,Gwynty Mor, Westermost Rough and Humber Gateway31. Figure 6 shows the good agreementbetweentheestimatedandactualTRSs:onallbuttwoofthethirteenwindfarmsexaminedtheactualTRS(OFTOrevenue)levelwaswithin±12%oftheestimatedamount.
30ThenotableoutlierabovethelineinFigure4andbelowitinFigure5istheWestofDuddonSandsproject.Thefactthatthecostisunexpectedlyhighinonecaseandlowintheothersuggeststhatitisthecostallocationbetween“circuit”and“substation”onthisprojectthatisunusualratherthantheactualcosts.31 TheTRS forHumberGatewayhasyet tobeenpublishedbyOfgem,but ithasbeenestimatedbasedon theestimatedtransfervalue(whichhasbeenpublishedbyOfgem)andtheratioofTRStotransfervalueseenonrecentprojects.
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Figure6:EstimatedandactualTRS
4.3 EstimatedTransmissionCostsforExisting-TechnologyFutureProjectsUsingtheformulaederivedabove,transmissiontariffscannowbeestimatedforexisting-technologyprojectsthathaveyettobecompleted,alongwithprojectswhicharecompletebutforwhichNationalGridhasyettopublishtarifffigures.Thisisdoneasfollows.
i) Exportcablelengthsandwindfarmcapacitiesarefoundfrompublic-domainsources(typicallythedeveloper’swebsite).
ii) Usingtheformulaederivedin4.3aboveabove,theannualcircuitandsubstationcostsareestimated.
iii) Theoffshorecircuittariffisassumedtobeequalto100%oftheannualcircuit
costandtheoffshoresubstationtariffisassumedtobe65%oftheannualsubstationcost.(The100%and65%valuesarebasedonthetypicalpass-throughportionsdiscussedatthestartofSection3).
iv) Theonshoretariffisthenadded,basedonthezonewherethewindfarm
connectsandthe2016/17tariffssetoutforeachzoneinNationalGrid’spublications.
v) Furtherconversionsareappliedtoyieldaresultbasedona25-yeartariff,in2011
pounds,andin£/MWhrterms.Theconversiontoa“25-yeartariff”isdonebylevelisingatariffstreamthatisbasedontheOFTO’srevenuebeingat100%ofthepublishedTRSvaluefor20yearsfollowedby10%for5years.
Table4belowshowstheestimatedtransmissiontariffs,in2011£/MWhrterms,forallprojectsusingexistingtechnologythatareeitherin-serviceorunderconstructionbutwhosetariffshaveyettobepublishedbyNationalGrid.
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Table4:Estimated£/MWhrtransmissioncostsforwindfarmsusingexisting132-150kVtransmissiontechnologybutwithoutpublishedtariffsProject
Capacity Exportcablestotallength
FIDdateapprox.
TransmissionTariffs
(2011pounds)HumberGateway 219MW 78km 2012 £13.1/MWhr
WestermostRough 210MW 27km 2013 £8.1/MWhr
Dudgeon 402MW 178km 2014 £12.4/MWhr
Rampion 400MW 85km 2015 £8.1/MWhr
Galloper 336MW 92km 2015 £9.6/MWhr
4.4 EstimatedTransmissionCostsforNew-TechnologyFutureProjectsTheprojectslistedinTable4abovealluse“existing”technology.Theremainingprojectsintroduceoneormoreofthefollowingnewapproaches:
i) Theexportcablevoltageisincreasedfromthe132-150kVrangeseenonexistingprojectsto220kV.
ii) Theoffshoresubstationplatformsarereducedinweightsothattheycanbeinstalledonthesametypeoffoundationasthewindturbines.Thelighterweightalsoallowsthemtobeinstalled,usingasingleliftoperation,bythesamevesselthatinstallstheturbines.TheOWPBhaspreviouslypublishedareportthatexploressuchlightweightsubstationsinmoredetail32.
iii) Placingshuntreactorsonanoffshoreplatformatthemidpointoftheexport
cablesinordertoallowACcablestobeusedoverlongerdistancesthanpreviously.
Toestimatethecostofsuchprojectsassumptionmustbemaderegardingthecostimpactofthesechanges.Asaresult,anycostspresentedinthissectionareinevitablymorespeculativethanthoseshownpreviously.Forthepurposesofthisreport,thefollowingassumptionsaremaderegardingthecostimpactofthethreenewtechnologiesdescribedabove:
i) Basedonasimplifiedanalysis33theannualcircuitcostforakmof220kVcableisassumedtobe16%higherthantheequivalentcostfor132-150kVcables.
32OWPBreport“LightweightOffshoreSubstationDesigns”,January2016.33Thisisbasedongenericcablecostestimatingrelationships,anditassumesthatreactivecompensationcostsrisebroadlyinproportiontotheinstalledcablecosts.Itshouldthereforeberegardedasaninitialapproximation.
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ii) TheOWPBreportintolightweightsubstationsundertakesacostanalysisthatverifiesthefeasibilityofthecontractcostreductionof£23.5mfigureputforwardbyasubstationvendorasthesavingavailablebyconvertinga500MWwindfarmtousestandalone34lightweightsubstationsratherthanaheavyconventionalplatform.Usingtheapproachsetoutinsection8.6ofthatreport,thisreductionincontractcostsisfoundtoequatetoareductioninannualsubstationcostof£2.3mpafor500MW,or£4.6/kWpa.
iii) Thecostofamidpointshuntreactorplatformisconservatively35assumedtobe
thesameasthecostofaconventionaltransformerplatformservingthesameamountofgeneration.Thereport“AGuidetoanOffshoreWindFarm”36suggeststhata500MWoffshoretransformerplatformwouldcost£50mtofabricateand£10mtoinstall.Assumingthesame£60mcostforashuntreactorplatformservinga500MWwindfarm,andapplyingthecalculationmethodologydescribedin(ii)above,yieldsanannualcostof£11.7/KWpa.Thisisthenaddedtotheproject’sannualcircuitcost.
Usingtheseassumptions,Table5belowwascalculated.Itshowstheestimatedtransmissiontariffs,in2011£/MWhrterms,forprojectsareusingoneormoreofthesenewapproaches.Table5:Estimated£/MWhrtransmissioncostsforwindfarmsusingnewtechnologyProject
Capacityandexportcable
length
Newtechnologiesincluded
FIDdateapprox.
TransmissionTariffs
(2011pounds)BurboExtension 256MW36km 220kV 2014 £8.3/MWhr
RaceBank 546MW172km 220kV 2014 £11.1/MWhr
WalneyExtension 649MW167km 220kV 2015 £10.3/MWhr
Hornsea1* 1200MW513km 220kVShuntplatform
2016 £15.5/MWhr
EastAnglia1* 714MW244km 220kV 2016 £11.5/MWhr
Beatrice 580MW160km 220kVLightweightsub
2016? £12.3/MWhr
NeartnaGaoithe 448MW90km 220kVLightweightsub
2016? £9.3/MWhr
*theconnectionarrangementsfortheseprojectshaveyettobemadepublic;forthepurposeofthisreporttheyareassumedtobeatthecurrentstateoftheartforACoffshorewindfarmconnections:220kVcablesofupto400MWcapacityeach.
34 A “standalone” lightweight substation is one that sits on its own jacket ormonopile, as opposed to the “integrated”lightweightsubstationwhereasubstationandaturbinesharethesamesubstructure.
35Noinformationonthecostofshuntreactorplatformswasavailable,butitislikelythattheircost(percable)isbetween50%and100%ofthecostoftheassociatedtransformerplatform(s).Ifcostisatthelowendofthisrangethenthesavingsdescribedinsection4.5belowwouldbereducedbyapproximately£0.5/MWhr.
36WrittenbyBVGforTheCrownEstate,2010.Thisdocumentisnotintendedtoprovideprecisecostestimationdata,butitdoesprovideauseful,andpublic-domain,sourceforapproximatecapitalcostinformation.
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4.5 CostreductionapproachesinvestigatedbyOWPBGridGroupThe2015actionplanoftheOWPBGridGroupfocussedinparticularonthetwoareaswhichthegroupbelievedtohaveahighpotentialforcostreduction:reducingcablecostbyusinghigher-capacitycablesandreducingoffshoresubstationcostbyusinglightweightoffshoresubstations.InordertoquantifythepotentialbenefitsoftheapproachesbeinginvestigatedbytheOWPBGridGrouprelativetothestateoftheartinwindfarmconnectionthefollowingscenarioswereinvestigatedforanoffshorewindfarm170kmfromitsonshoreconnectionpoint.
i) The“StateoftheArt”scenarioemployedthree220kVcableseachcapableofcarrying400MWwithdynamicratingsandashuntreactorplatform.
ii) The“OWPB-InvestigatedTechnologies”scenarioemployedapairof275kVcableswithenlargedconductors37,eachcapableofcarrying550MWwithdynamicratings.Theshunt-reactorplatform(s)areofthe“lightweight”designdiscussedinsection4.4above,andthetransformerplatformsareofthe“integratedlightweight”designwhereasinglewind-turbine-typesubstructurecarriesbothalightweightsubstationandawindturbine.
Costsforthe“StateoftheArt”scenariowerebasedonthesameassumptionasweresetoutinsection4.4above.Costsforthe“OWPB-InvestigatedTechnologies”scenariowereassumedtobeasfollows:
i) Thelarge-conductor275kVcablewasassumedtocost37%morethana132-150kVcable.ThiswasbasedonthesamegenericcablecostestimationapproachaswasusedinSection4.4.
ii) Thecostreductionfromusingalightweightdesignfortheshunt-reactorplatformwasassumedtobe£4.6/kW(thesameasisestimatedforstandalonelightweighttransformerplatforms;seeSection4.4above).
iii) Thecostreductionfromusingintegratedlightweightsubstationsforthe
transformerswastakenfromtheOWPB’slightweightsubstationreport:thiscalculatedacontractcostsavingof£34.1mbyusingintegratedlightweightsubstationsona500MWwindfarmratherthanaheavyconventionalsubstationplatform.Usingthesameapproachaspreviously,thisequates£6.8/kWpa.
TheresultsforeachscenarioareshowninTable6below.
37TheOWPBGridGrouphascommissionedstudiesofa275kV2000mm2cable.
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Table6:Alternativescenariosforfar-offshorewindfarmconnection.ScenarioName
Scenariodescription Newtechnologiesincluded
TransmissionTariffs(2011pounds)
StateoftheArt
1200MWwindfarm
170kmfromconnectionpoint
3x400MWcables
220kV
Shunt-reactorplatform
£15.5/MWhr
OWPB-investigatedtechnologies
1100MWwindfarm
170kmfromconnectionpoint
2x550MWcables
275kV
Largeconductorcables
Integratedlightweighttransformerplatforms
Lightweightshunt-reactorplatforms
£12.0/MWhr
Itisworthnotingthatthetwoscenariosaboveinvolveslightlydifferentwindfarmsizes,eachintendedtominimisetransmissioncostbyensuringthatthewindfarmcapacitywouldbeanintegralmultipleofthelargestcablecapacityavailableineachscenario.Whilethepracticeofsizingwindfarmstominimisetransmissioncosthasnotbeennotedpreviously,itseemslikelythatitwillbecomeincreasinglyevidentasthecompetitiveCfDprocessprioritisescostminimisationoveroutputmaximisation,andastransmissioncostsgrowasaproportionoftotaloffshorewindcosts(seeSection6below).
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5 GENERATION-ONLYCOSTS
Abenefitofbeingabletocalculatethecostoftransmissioninthesametermsasthetotalcostofoffshorewind(i.e.asthelevelisedcostovertheturbinelife,in2011poundsperMWhr)isthatbysubtractingthecostoftransmissionfromthetotalcostofwindthecostofgenerationisobtained.Figure7belowshowshowthecostofgeneration(whichincludesthecostofthearraycables)haschangesovertime.ThethreehorizontalbarsontheleftarethethreegroupsofprojectswhosecostsarepresentedintheFebruary2015reportoftheCRMF(seefigure1).Thepairofdiamondsin2016representthetwoprojectsthatweresuccessfulinthe2015competitiveCfDroundandarescheduledtoreachFIDin2016.Ascanbeseenthecostofgenerationisalreadyinthe£90-100/MWhrrangeand,oncurrenttrends,shouldbeinthe£80-90/MWhrrangeby2020.Figure7:Estimatedcostofoffshorewindgeneration(excludestransmission)
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6 CONCLUSIONS
Figure8belowshowsummarisesthetransmissiontariffcalculationsandestimatespreviouslypresented.ThethreehorizontalbarsontheleftarethethreegroupsofprojectswhosecostsarepresentedintheFebruary2015reportoftheCRMF.Thefourthbarrepresentsthesetofprojects that reached FID in 2014-2015 (Dudgeon, Burbo-2, Race Bank,Walney Extension,Rampion andGalloper). For 2016 the two competitive-CfD projects are shown. Finally, for2020,thetwoscenariosfora170kmconnectionareshown.Figure8:TransmissiontariffsasafunctionofprojectFIDdateItisnoteworthythatthecostoftransmissionhasgenerallybeenheld(andcancontinuetobeheld)withinthe£10-12/MWhrrangedespitetransmissiondistancesincreasingbyalmostanorderofmagnitudefromanananaverageof20kmfortheleftmostbarto170kmforthe2020scenarios.Theprimaryreasonswhythishasbeenachievedareasfollows:
i) TherevenuesreceivedbyOFTOshavedeclinedfromover10%oftheassetvalue38onearlyprojectstoaround7%39oftheassetvalue(seefigure9).Thishastheeffectof reducing transmission tariffsbyover25%.This reduction in revenues reflectsincreased competition between OFTOs, lower interest rates in the economygenerally,economiesofscaleinthefinancingandoperationoflargerprojects,andtheintroductionofmoreefficientfinancialstructures.
38ThevalueofanOFTO’sassetsaredecidedbyOfgemandpublishedastheFinalTransferValue(orFinalCapitalValue).ThisistheamountthatanOFTOpaystoacquirethetransmissionassetbuiltbyandforaparticularwindfarm.
39NotethatthisistheOFTO’s20-yearannualrevenueexpressedasapercentageofthetransfervalue,nottherateofreturn(whichwillbelower).
EA-1
NnG
170km,StateoftheArt
170km,OWPB-GGimprovedtech
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ii) Increasinggenerationcapacityfactors,whichhaverisenfrom35%forprojectswith
anFIDin2006to50%forthelatestprojectswith7-8MWwindturbines.Thishastheeffectofreducingtransmissioncostsbyover30%.
iii) Upgradingfromcableswithvoltagesinthe132-150kVrangeto220kVcablesallows
the number of cables to be reduced, although this is somewhat offset by theincreasedcostpercable.Forinstance,usingthecostestimationassumptionssetoutinthisreport,itwasestimatedthatbyusingapairof220kVcablesratherthanthree132kVcablestheRaceBankwindfarmwouldhavereduceditstransmissiontariffsby12%.Thebenefitsofusing220kVincreaseasprojectsgofurtheroffshoreandcablesgetlonger:forinstance,ontheEastAnglia-1projectusingtwo220kVcablesinplaceoffour132kVcableswasestimatedtoreducetariffsby28%.
iv) Forthe2020scenariosafurthertariffreductionof23%isestimatedtobepossible
byemployingtwotechnicaladvancesthatarecurrentlyunderinvestigationbytheOWPB Grid Group: lightweight offshore substations and large-conductor 275kVcables.
Figure9:OFTOProjectsRevenue/CapitalValueandCapitalValue
Source:Ofgem.Bubblesizeandthenumberoneachbubblearethecapitalvalue.ProjectsareshownfromlefttorightintheorderinwhichtheirtransmissionassetsweretransferredtoOFTOs.
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Takentogetherallofthesesourcesofimprovementequatetoareductionofmorethan70%intheper-MWhrtransmissioncostsofafar-offshorewindfarmrelativetoascenariowhereOFTOefficiency,capacityfactorandtechnologyhadneverimproved.Inotherwords,withoutthese improvements thecostof transmission– far fromremainingbroadlystablebetween2006and2020–wouldhaveincreasedmorethanthreefold.Overthis2006-2020periodthetotalcostofoffshorewindshouldhavefallen,accordingtoFigure 2, from £140/MWhr to a target level of £100/MWhr. Since transmission tariffs areexpectedtostaybroadlyconstantoverthisperiod, it followsthatthescaleoftransmissionrelativetothetotalcostofoffshorewindwillrisefromaround8%in2006to12-15%by2020.
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