Poster Offshore Wind Due Diligence

number How country and life-cycle stage impacts what to look for
Andrew Henderson / Matt Gleeson / Udo Kaufmes / Jerome Jacquemin / Colin Morgan
Garrad Hassan, Bristol, United Kingdom, www.GarradHassan.com

Abstract
Abstract Energy
Energy Yield
Yield Risk
Risk
For the Technical part of the Due Diligence process to be undertaken Examining the Energy Yield Risk in greater detail, this can be managed
successfully and efficiently, the seller will have completed a suite of surveys through:
and studies appropriate to the stage, locality and type of project. If insufficient Wake Losses: full examination of offshore wake effects, neighbouring wind
work has been completed, the Adviser needs to provide a rapid assessment to farms
quantify risk associated with any gaps, and this work relies on the technical
competence and breadth of experience of the Adviser. Wind Turbine Availability: accessibility due to wave climate and appropriate
strategy (vessel, port etc.), contractual mitigation
This paper summarises general and country specific
key risks, the preferred stage of completeness of Electrical Network Efficiency Losses: level of detail within assessment
supporting work, how deficiencies in work or Electrical Network Downtime Losses: redundancy, contractual mitigation
knowledge can be reduced through judgment based
on experience and what the potentially resulting Wind Turbine Power Curve: independent verification, warranty
residual uncertainties could be.
Other
Other Selected
Selected Risks
Risks
40
Risk
Risk Identification
Identification and
and Evaluation
Evaluation 35
Wind Turbine Installation Vessel Demand Projected demand of
30
Support Structure Installation Vessels Demand
installation vessels for
Risk can be divided into the following broad categories, with some key risk
25 support structure and turbines

Vessels
reduction actions listed: 20
15
Project Management: experienced team of the appropriate size
10
4.5 Beatrice

Regulatory: site lease, construction permit/consent, grid connection 5

4.0
Operational
Under Construction
Contracted
Alpha Ventus

0 Greater Gabbard

Ground Conditions: comprehensive geophysical and geotechnical surveys of Source: GH

2009 2010 2011 2012
Year
2013 2014
3.5
2015 2016 Thanet

3.0

sufficiently wide scope, successfully and competently completed

Project CAPEX (M / MW)

Princess Amalia (Q7) Rhyl Flats

2.5 Lely LID

Vindeby Tuno Knob North Hoyle Barrow Horns Rev II

CAPEX: credible projection based on careful and realistically assessed 2.0 Bockstigen
Horns Rev Scroby Sands
Nysted
Egmond

Lillgrund
Source: GH Blyth
market-based costs, including appropriate contingencies 1.5
Irene Vorrink UtgrundenMiddlegrundden
Yttre Stengrund
Sams
Kentish Flats

1.0

Energy Yield: data based assessment with appreciation of all uncertainties Publicly reported CAPEX 0.5
Bubble Area represents capacity of wind farm

figures for offshore wind farms 0.0

OPEX: detailed studies, nature of guarantees, experience of service provider 1990 1995 2000 2005 2010

PPA: exposure to market fluctuations; political risk Comparison

Comparison of
of German
German and
and UK
UK Country
Country Specific
Specific Offshore
Offshore Risks
Risks
Programme: contingency, contractor experience UK: Germany:
Other: other important risks will depend on stage, siting and country PPA Volatility (Market and ROCs) Foundations and installation vessels
for deep water sites
Completeness
Completeness of
of Work
Work &
& Residual
Residual Risks
Risks OFTO
Small size of project developers,
Ground Conditions (drilling at some
PROJECT ENERGY SITE limited site availability
COSTS INCOME sites)
STAGE YIELD 1 SURVEYS Grid costs (if support removed)
Exchange rates
Atlas / General
Pre-consent mesoscale map
Desk Study General model Market Study CAPEX (water depth & distance to
Capacity to deliver (in particular UK
shore)
Offshore mast / Geophysical; based capacity)
Consented mesoscale map some Geotech.
FEED 4 based Market Study
Wake losses due to neighbouring
Ports
Contracts & wind farms
Contracted Onsite mast 2 Geotechnical
contingencies
PPA /REFIT 3
6,150

CAPEX: actual
Newly Full Design
O&M: contracts
Constructed Report 6,100
& plans
Production O&M: actual & Coast
Operational invoices
Northing (UTM) [km]

analysis plans 6,050 12nm Boundary

1 Including detailed and realistic assumptions for losses EEZ Boundary
2 Not necessary if wind farm and candidate met mast both far from coast and at suitable proximity
Islands
3 PPA = Power Purchase Agreement; REFIT = Renewable Energy Feed-In Tariff 6,000
Wake Losses: 0-2%
4 FEED = Front-End Engineering Design Indicative
estimate of wake Wake Losses: 2-4%
Project Management losses due to 5,950 Wake Losses: 4-6%
Regulatory neighbouring
wind farms in the Wake Losses: 6-8%
Ground Conditions
German Bight Wake Losses: 8-10%
CAPEX (fictitious wind 5,900
Energy Yield farms) 250 300 350 400 450 500
OPEX Easting (UTM) [km]
Source: GH
Level of Risk

PPA

GH
GH Offshore
Offshore Wind
Wind Due
Due Diligence
Diligence
Denmark, France, Germany, Ireland, Netherlands, Norway, Sweden, United
Kingdom
>20 projects
>8000 MW

Foundation of GHs Due Diligence expertise is the wide range of offshore

Schematic wind studies and services provided by GH over the last fifteen years totalling
illustration of risk around 200 commercial contracts in offshore wind alone and including
reduction through Pre-consent Consented Contracted New Operational
regulatory studies, market assessments, energy yield analysis, O&M
the development Constructed studies, electrical and structural engineering design
process Project Development Phase

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European
European Wind
Wind Energy
Energy Conference
Conference and
and Exhibition
Exhibition 2009,
2009, Marseille,
Marseille, France
France
 European Wind Energy Conference 2009
Marseille, France

Offshore wind due diligence - how country, and life-cycle

stage, impacts what to look for

Andrew R Henderson
Matt Gleeson, Udo Kaufmes, Jerome Jacquemin, Colin A Morgan

Garrad Hassan & Partners, Bristol, United Kingdom, Tel: +44-117-972-9900

Andrew.Henderson@GarradHassan.com

Abstract: For the technical part of the due diligence process to be undertaken successfully and
efficiently, the sponsor will have completed a suite of surveys and studies appropriate to the
development stage, locality and type of project. If insufficient work has been completed, the
Adviser needs to provide a rapid assessment to quantify risk associated with any gaps, and this
work relies on the technical competence and breadth of experience of the Adviser.

This paper summarises general and country specific key risks, the preferred stage of completeness
of supporting work, how deficiencies in work or knowledge can be reduced through judgment based
on experience and what the potentially resulting residual uncertainties could be.

Risk Identification and Evaluation

Risk can be divided into the following broad categories, with some key risk reduction actions listed:
Project Management: experienced team of the appropriate size
Regulatory: site lease, construction permit/consent, grid connection
Ground Conditions: comprehensive geophysical and geotechnical surveys of sufficiently wide
scope, successfully and competently completed
CAPEX: credible projection based on careful and realistically assessed market-based costs,
including appropriate contingencies
Energy Yield: data based assessment with appreciation of all uncertainties
OPEX: detailed studies, nature of guarantees, experience of service provider
Power Purchase Agreement (PPA): exposure to market fluctuations; political risk
Programme: is the timeframe realistic, including appropriate contingencies
Other: other important risks will depend on stage, siting and country

Progress of Preparatory Work and Associated Risk Reduction

Ideally, a project will have completed a degree of preparatory work, appropriate to the stage and
status of the project, at the time of the Due Diligence work. In general, GH would expect this to be
as summarised in Table 1.

Henderson: Offshore Wind Due Diligence 1

 European Wind Energy Conference 2009
Marseille, France

PROJECT 1
ENERGY YIELD SITE SURVEYS COSTS INCOME
STAGE

Atlas / General
Pre-consent Desk Study General model Market Study
mesoscale map
Offshore mast / Geophysical; some 4
Consented FEED based Market Study
mesoscale map Geotechnical

2 Contracts & 3
Contracted Onsite mast Geotechnical PPA /REFIT
contingencies
CAPEX: actual
Newly
Full Design Report O&M: contracts &
Constructed
plans

Operational Production analysis O&M: actual & plans Invoices

1
Notes: Including detailed and realistic assumptions for losses
2
Not necessary if wind farm and candidate met mast both far from coast and at suitable proximity to each
other
3
PPA = Power Purchase Agreement; REFIT = Renewable Energy Feed-In Tariff
4
FEED = Front-End Engineering Design

Table 1: Appropriate Completeness of Development Work

Of course, the individual circumstances of the wind farm may provide a good reason to deviate from
the above, however in general, the above schedule would result in minimised risk and hence
maximised risk-adjusted return and value for the offshore wind farm.

This risk reduction process is illustrated in a simplified manner within Figure 1. As the project is
progressed, key risks need to be identified, analysed and assessed in terms of the impact on the
overall economics and indeed viability of the project.

For the example shown in Figure 1, it is concluded that the key risks initially are Energy Yield and
CAPEX, hence effort should be invested in installing a mast on site and identifying methods to
reduce procurement, fabrication and construction costs. This might be achieved through
framework-contracts and currency hedging however since the investments at early stages will be
low and the option of abandonment will remain, it may be preferable to have completed a thorough
engineering study providing definitive guidance over support structure, electrical infrastructure and
wind turbine options.

For other projects, at other locations and countries, the risk profile might be very different. For
example in the German North Sea, the presence of a publicly funded mast with good quality data
may mean wind resource is well understood at an early stage. Likewise shallow waters with stable
sand means monopiles will be the preferred option and contractor choice and appetite will be
relatively good.

In other countries, the regulatory regime might have a history of frequent and major changes, which
could result in that being the main risk factor.

Henderson: Offshore Wind Due Diligence 2

 European Wind Energy Conference 2009
Marseille, France

Project Management
Regulatory
Ground Conditions
CAPEX
Energy Yield
OPEX
Level of Risk

PPA

Pre-consent Consented Contracted New Operational

Constructed
Project Development Phase

Figure 1: Risk Reduction through the Development Phase

In many cases, the developer will not have undertaken a sufficient range of studies and surveys.
This could be for a wide range of reasons, including lack of financial and managerial resources, or
because the ground conditions at the site were found to differ significantly from what could be
reasonably anticipated at the early stages. In that case, the Potential Investor will need to make an
informed decision on level of risk. This is a situation where the Potential Investor will benefit greatly
from having selected an experienced and broadly skilled Technical Advisor.

Energy Yield Risk

Examining the Energy Yield Risk in greater detail, this can be managed through:
Wake Losses: full examination of offshore wake effects, including state-of-the-art methodologies
based on experience at Horns Rev and Nysted; also an assessment of potential impacts due to
neighbouring wind farms, bearing in mind the inherent uncertainty
Wind Turbine Availability: wave climate and appropriate strategy (vessel type, port details etc.)
will drive the accessibility levels realisable; contractual mitigation
Electrical Network Efficiency Losses: level of detail within assessment; reliability statistics would
suggest that downtime due to the export system would be low, however these statistics are
invariably based on very different circumstances and the limited experience of operating offshore
wind farms suggests that failures have occurred at some sites more frequently than expected
Electrical Network Downtime Losses: degree of redundancy of the electrical assets; contractual
mitigation with grid operator and maintenance contractor for offshore substation; call-off
arrangements for spares of critical components, such as sub-station transformers
Wind Turbine Power Curve: independent verification, appropriate warranty

Henderson: Offshore Wind Due Diligence 3

 European Wind Energy Conference 2009
Marseille, France

Critical Risks by Country

As acknowledged earlier in the paper, the risk profile of a project can vary significantly, depending
on the stage of development and the individual characteristics. However there are also particular
risks that projects may be particularly vulnerable to, for example due to their country. Table 2 lists
some key national risks specifically related to the United Kingdom and German markets.

United Kingdom Germany

PPA Volatility: the value of both the
electricity as well the ROCs is volatile; to a
certain extent, the two risks are uncorrelated,
however both are complex and require effort
to understand and assess
OFTO: it is proposed that in future the
transmission assets for UK offshore wind
farms will be owned and operated by
independent third parties; the regime
continues to be developed and hence the
details, including any potential for derogation,
are not fully defined
Ground Conditions: specifically drilling at
sites with hard substrates present
Exchange Rates: due to the euro-zones
dominance of the European wind energy
industry, pricing has been driven by that
currency; countries outside the euro-zone
whose currency does not track that Euro are
susceptible to fluctuations in cost of imports
Capacity to Deliver: the projected build
rates cannot be completed by the current
contractor capacity, in particular there is a
shortage of UK based companies
Ports: it is acknowledged that many UK
ports have not been set up for serving the
industry, hence in some cases more distant
continental ports have been used; this issue
is being actively addressed hence should
change in the coming years
Notes 1 ROCs Renewable Obligation Certificates (green certificates)
Foundations: for deep water sites,
conventional monopile solutions cease to be
applicable; although numerous technical
solutions have been developed, including
jackets, tripods and tri-piles, the cost,
deliverability and installability remains to be
demonstrated in practice
Installation Vessels: similar to foundations,
the installation vessels used for offshore wind
farms to date have been developed for
shallower sites and smaller lighter wind
turbines
Project Developer Size: in general and until
recently, German offshore wind projects have
been developed by small project developers,
some of whom had limited technical and
financial resources; hence a greater degree
of risk than expected may remain
Grid Costs: grid connection costs for distant
offshore projects will be considerable;
currently the utility provides a grid connection
at the wind farm site at no cost to the project
owner; clearly if this requirement were to
lapse, some projects would cease to be
viable
CAPEX and OPEX: generally high and
uncertain costs due to water depth and
distance to shore
Neighbouring Wind Farms: due to the high
density of consented and planned projects,
wake losses due to neighbouring wind farms
will have a significant impact on energy yield
at the most susceptible sites if all projects are
realised

Table 2: Comparison of German and UK Specific Risks

Henderson: Offshore Wind Due Diligence 4

 European Wind Energy Conference 2009
Marseille, France

Selected Critical Risks

In this section, three important and widely applicable risks are illustrated. Firstly, it is widely
acknowledged that there are insufficient wind turbine and support structure installation vessels
available to construct all planned projects, even if a healthily sceptical discount is applied to project
build rates, Figure 2. This has led to conventional offshore engineering crane ships being
contracted for some projects at offshore engineering day rates, these being significantly higher than
the offshore wind energy industry had been used to. Installation vessel ownership and operation is
a variable business and indeed owners need to make healthy profits in the good times to ensure
survival during lean periods.

40
Wind Turbine Installation Vessel Demand
35
Support Structure Installation Vessels Demand
30
25
Vessels

20
15
10
5
0
2009 2010 2011 2012 2013 2014 2015 2016
Year

Figure 2: Projected Turbine and Support Structure Installation Vessel Demand

Second considered here, is the risk of capital cost escalation. Figure 3 summarises available public
CAPEX figures for offshore wind farms. It shows that costs have risen significantly in recent years.
A common and simple mistake for inexperienced developers has been to assume that historic costs
could be assumed for current build plans.

4.5 Beatrice
Operational
Alpha Ventus
Under Construction
4.0 Contracted
Greater Gabbard
3.5
Thanet

3.0
Project CAPEX (M / MW)

Princess Amalia (Q7)

Rhyl Flats

2.5 Lely LID

Vindeby Tuno Knob North Hoyle Barrow Horns Rev II
Bockstigen Egmond
2.0 Scroby Sands
Horns Rev
Nysted
Blyth Lillgrund
1.5 Kentish Flats
Irene Vorrink UtgrundenMiddlegrundden
Sams
Yttre Stengrund
1.0

0.5
Bubble Area represents capacity of wind farm

0.0
1990 1995 2000 2005 2010

Based on public announcements

Figure 3: Historical Offshore Wind Farm CAPEX

Henderson: Offshore Wind Due Diligence 5

 European Wind Energy Conference 2009
Marseille, France

Third specific risk considered is that of wake effects from large neighbouring projects. Large
concentrations of wind farms, either offshore or onshore in locations such as Texas or Inner
Mongolia, are unprecedented, hence certainty regarding the impact can not be gained until real life
measurement and analysis has been undertaken. However our current knowledge and experience
clearly suggests that there will indeed be an impact and that this impact could be significant. In
order to make an initial assessment of the potential extent of these wake losses, GH has analysed
wind speed deficit measurements in and around the Danish offshore wind farms at Horns Rev and
Nysted and implemented a model capable of analysing arbitrary layouts and different sensitivity
scenarios. The results for a fictitious wind farm layout in the German Bight are shown in Figure 4.
For this fictitious but potentially realistic scenario, the most severely affected offshore wind farms
could suffer wake losses, additional to those generated within the wind farm itself, in the order of
10%.

6,150

6,100

Coast
Northing (UTM) [km]

6,050 12nm Boundary

EEZ Boundary

Islands
6,000
Wake Losses: 0-2%

Wake Losses: 2-4%

5,950 Wake Losses: 4-6%

Wake Losses: 6-8%

Wake Losses: 8-10%

5,900
250 300 350 400 450 500
Easting (UTM) [km]

GH Neighbouring Wind Farm Wake Model: Central Wake Loss Scenario (only inter-project effects shown)
German Bight: fictitious layout of offshore wind farms

Figure 4: Indicative Estimate of Wake Losses due to Neighbouring Offshore Wind Farms

Conclusions

In order to undertake the Due Diligence Review of offshore wind farms, a wide range of expertise
and knowledge needs to be applied. Risks are diverse in nature, type and extent although there
are also commonalities across all projects, for example by development stage, or country.

Illustrations of the added value that GH can bring to the process through its wide-ranging
knowledge and experience, in both offshore wind energy as well as Due Diligence itself, have been
provided, in terms of examples looking at Market Knowledge regarding competition for installation
vessels as well as realistic CAPEX budgets and Technical Knowledge and Judgement, in this case
making a preliminary examination of wake losses due to the presence neighbouring wind farms.

Henderson: Offshore Wind Due Diligence 6

 European Wind Energy Conference 2009
Marseille, France

GH has undertaken over 8,000MW of Due Diligence work, to various degrees of detail, including
1,500MW to the detailed level. This has covered over 20 wind farms spread throughout Europe: in
Denmark, France, Germany, Ireland, Netherlands, Norway, Sweden and the United Kingdom.
Projects have ranged from those in early development to those with substantial operating
experience.

The foundation of GHs Due Diligence expertise is the wide range of offshore wind studies and
services provided by GH over the last 15 years totalling around 200 commercial contracts in
offshore wind alone and including regulatory studies, market assessments, energy yield analysis,
O&M studies, electrical and structural engineering design, all in tandem with 25 years experience in
wind energy onshore including the analysis and design of wind turbines.

Henderson: Offshore Wind Due Diligence 7