Choosing (not) to choose: savings or delayed bill for offshore wind

Background

The Princes Elisabeth energy island off the Belgian coast aims to increase offshore wind capacity off the Belgian coast by 3150-3500 MW and provide an offshore connection point that would allow further reinforcements to the UK. The expansion would consist of a three-phase development. Phase one, with a concession for a plot for 700 MW of wind, that would be connected to the mainland via two AC cables. Phase two, with a concession of two times 700 MW lots, also provided with four AC cables to the inland, and phase three with a concession for two more times 700 MW, connected with a single HVDC connection to the mainland, including the possibility of connecting to the UK.

It is important to point out that Elia has already started construction of the energy island, and part of the electrical infrastructure.

What has been decided?

In recent months, the energy island has been in the news several times, especially regarding the cost increase from just over two billion to three and a half billion and eventually seven to eight billion euros. These rising costs were attributed to a confluence of circumstances: inflation, supply chain issues, scope creep (adaptation of plans), underestimation of costs by Elia,… Different actors gave different interpretations to the relative size of these deviations.

Following this, the suitability of this investment was questioned. Febeliec and CREG, among others, questioned the investments, and the project was widely discussed in the press and the federal parliament. Although Elia initially continued to support the full rollout of the energy island, it was decided this spring to reassess the situation and put the decision back in the hands of the federal government. The government, and in particular Federal Energy Minister Mathieu Bihet, took several months to study the file, and now comes up with the following decisions:

• The investment in the HVDC connection to the energy island will be postponed
  • Timing unknown
• The HVDC connection to Britain will be postponed
  • Timing unknown, new permits and negotiations required
• Total offshore wind capacity is reduced:
  • Total ambition drops from 3150-3500 MW to 2100 MW

What are the consequences?

When circumstances (expenses) change significantly in a major project, it is only logical to re-evaluate the situation. Investments have already been made to build the island, the question now is to what extent the island will be developed and how long the delay will last.

Specific consequences:

• The larger area for the wind farms (lower density) would create a slightly more efficient wind farm, and possibly lead to better bids
• The current wind sector is under pressure, and delays in the process create further uncertainty. As a result, the cost of future investments is unknown (and not necessarily lower). This does not send a strong signal for investment stability in the Belgian energy sector.
• This delay results in slower achievement of our climate goals, while Belgium is already behind schedule. Each MW of wind saves about 950 to 1800 tons of CO2 per year depending on the energy mix (average CO2 emissions vs. situation where wind replaces gas power plants)[1].
• In order to achieve the climate goals, other investments will have to be used. What technologies and their cost is not yet clear. Moreover, this could also lead to penalties for not meeting the targets.
• Delaying network investments, such as in HVDC infrastructure, indirectly delays the transition to renewable energy. Due to a shortage of generating capacity, it is uncertain when the connection can be built, while costs are likely to be higher compared to today. This creates additional uncertainty about the timing of additional wind power, since it cannot be connected until after the HVDC connection is extended.

[1] The average CO2 emissions for Belgium for electricity generation is 240 g/kWh, and for gas power plants average around 450 g/kWh. A capacity factor (CF) of 45% was used for the calculation. Annual emissions = x g/kWh * 1000 kW * 8760 h * CF %.

What are our recommendations?

• The current decision of postponement does not come out of the blue, but is also not without consequences. It creates additional uncertainty in the industry, the long-term cost of the energy island will not necessarily be lower, and the social cost of the postponement may be much higher.
• Energy transition is accompanied by significant growth in electricity consumption through electrification, and offshore energy development is accompanied by additional transmission needs. The infrastructure needs for electricity transmission by 2050 are therefore enormous. Studies have shown that a doubling of electricity consumption and a tripling of the transmission network are needed. The scale of the investments needed in the medium term means that delay will only compound the long-term challenges.
• Significant investments in new infrastructure are needed, while in the current situation, high operating costs of fossil plants are the main factor. It is crucial that this transition does not drive up electricity prices to the point where the competitiveness of our industry is compromised. We are currently in a transition phase where we are both investing heavily in new networks and still paying heavily for the use of existing fossil capacity.
• Greater transparency in the decision-making process is essential. To do this, neutral institutions must have access to the necessary data and infrastructure to support decision makers in making these big decisions.
• Although it may seem like a short-term savings, this will result in an increased cost in the long run. Our recommendation is to critically evaluate the current approach in the short term.