Towards an integrated offshore transmission system

Abstract

In earlier times the climate crisis was ignored. However, these days it is acknowledged as one of the most important challenges the world is facing. With increased awareness of anthropogenic emissions, most sectors are changing rapidly. One of those sectors is the offshore wind energy sector. As a consequence of the Paris Climate Agreement, the European Commission adoptedan offshore renewable strategy that aims to install at least 60 GW of offshore wind by 2030 and up to 300 GW by 2050. With the increasing capacity of offshore wind being constructed, new wind farms will move gradually further offshore. This, therefore, requires a need for significant investments in large-scale wind farms and in the required grid infrastructure to be able to transmit the large amounts of electricity produced offshore to the consumers onshore.Thus the need for cost-efficient integration of the North Sea transmission arises. Currently, existing offshore wind farms are being investigated as potential gateways in order to achieve this offshore transmission network integration in a cost-efficient manner.In this master thesis project, the effects of various future connection schemes and market setups on the business cases of offshore wind farms were investigated. The study focuses on a location in the North Sea close with similar geographical characteristics as a large sandbank called the Doggerbank. First, a literature study was performed to obtain background knowledge about the offshore situation. Relevant assets were identified, multiple offshore gridtypologies were found and different offshore governance models and market setups have been identified. In addition, the theoretical background of constructing a business case for offshore wind farms from a Dutch and British perspective was explored. The main cost drivers were identified and can be distinguished in capital expenditures and operational expenditures. In addition, these cost categories were quantified in order to set up a business case for an offshore wind farmat a specified location. The cost category taking up most of the investment was found to be the grid connection, taking approximately 30% of the total investments. In addition, British built wind farms require more initial investment with respect to the Dutch wind farms, due to a difference in governance models between the countries. Next, the methods by which a wind farm can collect income was explored. Various categories were identified being; revenueby selling the commodity, power purchase agreement, financial support schemes and green certificates. Historical wind data was used to determine a wind profile. In addition, the historical market data was added to quantify the cash flow of an offshore wind farm. Last, an expression of the Levelized Cost of Energy (LCOE) was found for a Dutch and British constructed offshore wind farm respectively.To obtain insights into the effects of the North Sea transmission integration on the business case of offshore wind farms, a scenario-based modelling & simulation approach was adopted. First, a conceptual model has been developed. This was done by, first, identifying the situationin which the problem occurs and second, determining the modelling scope. Next, the in- and outputs were explained and the simplifications used for the model were presented accordingly. Various scenarios were developed in order to be able to simulate distinct future situations in which a wind farm may be required to operate. These system changes are predominantly caused by different connection scenarios or by a change in market setups. First, a base model was developed, to understand the basic operations of a wind farm. Next, the reference case using a Dutch and British wind farm connected to their own national electricity market was simulated that represents the current situation of existing offshore wind farms. Then, a cross-border connection was added to the reference case under the current home market setup. Subsequently, a change in market setup, the offshore bidding zone, was introduced.The first insights were obtained through simulation of the reference case, which represents the current situation. Large wind farm projects far from shore were found to be most likely still dependent on support through subsidy schemes. This holds for both a Dutch and British perspective regarding the construction. The first scenario on which the effects were simulated, describes a situation in which a connection to a foreign market is introduced to the reference case. The results of these simulations show no substantial changes in the cash flow of theoffshore wind farms. However, large amounts of costs imposed on society were identified under this scenario. When the offshore bidding zone was introduced as a new market setups in a cross-border connection various results were found. First, for a Dutch wind farm in this connection and under this market setup, the revenues tent to increase with respect to the reference case. However, for a British wind farm a clear decline in the collected revenues by the wind farm developers was observed. Nevertheless, due to the regulatory conflicts thatwere identified in the cross-border connection scenario under the current home market setup, a change to the offshore bidding zone market setup seems desirable. This implies that under current regulation, the offshore bidding zone market setup shows no issues being compliant with EU legislation and National regulation.An additional step was performed in this master thesis project, that adopts the objective to identify instruments that could mitigate these declines in revenues under an offshore bidding zone market setup. These instruments are regarded as mitigation options or mitigation schemes. The academic method of a policy scorecard was adopted, and additional desk research was performed to identify current proposals for mitigation schemes in the literature. Eight mitigation schemes were found from which seven were applicable to an offshore biddingzone market setup. These could be distinguished into support through operations and through regulatory changes. It was found that, within the scope of this research, which is looking into the economic effects and the feasibility of the identified mitigation schemes, the Contract for Difference scheme seems to be the best choice as it provides stability for the wind farm developers, and is the most cost-efficient option with respect to society. Good alternatives were identified to be the redistribution of congestion income and granting windfarm developers a so-called "Transmission System Operator -light" certificate that allows for a share in the congestion income. However, there is a broader political impact, in terms of financial budget requirements on a member state level, general public support for support schemes and overall effectiveness of support schemes in broader policy objectives. As a consequence, it is recommended for future research to further investigate different domains than the economically and feasibility domains that have been presented in this research. In order to solve the current issue, thesedomains require additional investigated to obtain this broader perspective and to eventually be able to make political decisions.