Offshore Renewable Assets Mitigating Risk While Driving Costs Down

PPA energy Overview

PPA energy
International advisors on technical regulation
Undertaking technical & economic studies
Developing & implementing technical innovations
International consultancy advice on network business management (asset management, pricing, technical performance) Electricity industry worldwide Established 1997 London – Guildford - Johannesburg 2

BPP-TECH Overview

BPP-TECH
Design analysis & review of subsea equipment
Subsea power cables & umbilicals
Riser management systems for drilling vessels
Project management & QA/QC
Insured risk & failure analysis
Product development Hydrocarbon, renewable, marine, insurance industries Established in 1981 London - Houston - Aberdeen 3

Petrofac - TNEI

TNEI Overview


Leading many of the offshore initiatives
Supporting several R2 & R3 projects
Leading Asset Delivery for OTCG
HVDC experience – onshore and offshore
Extensive engagement on the issues of developing and delivering offshore transmission Transmission, Distribution, Generation, Offshore wind, Oil & Gas Established in 1997, part of Petrofac since 2010 Manchester - Newcastle 4

OFTO –Ownership

Transmission Cable

Source: RBC capital markets

Assessing overall project and operational risk and mitigation strategies Will they last the 20-year design life?

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Technical Design Issues


Offshore power cable network redundancy
Down time reduction and repair planning
Cable performance and sea bed scour monitoring
Rapid deployment of repair capability
Long term cable life assessment
Planning for replacement costs

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Design & Risk Mitigation













Cable & configuration design Installation, dynamic & fatigue analysis Cable array & power conditioning system engineering Cable protection, J-tube, I-tube & bend restrictor engineering Mechanical & thermal service life assessment Reviews of sea bed scour potential & monitoring philosophy Cable & material qualification testing Environmental impact assessment Subsea cable supply & quality assurance/quality control Failure scenario & repair planning

Sources of Failure Risks

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Design flaws Manufacturing defects Damage during installation Mechanical fatigue and thermal degradation Sea bed scour effects (spanning, fatigue, impact damage)
Damage from marine life

Many of the risks are interrelated

Asset Management


Asset lives not well understood
Asset ageing and failure modes in UK/deep water situations
Costs of maintenance intervention much higher than on land
Access issues - seasonal challenges
Regulatory mechanisms not fully defined

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How do OFGEM’s availability payments drive design options, level of redundancy, interconnection, specifications of plant & cable assets?

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Cash flows

Energy revenue + ROCs + Carbon credits

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Financial Overview


230 MW of generation = £653.2 million of capital investment (at approx £2840 per kW
Cable link to shore cost approx. £120 million
The generator earns £ 93.2 million in total per year Generator exposure to outages is £255k per day on an average day

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This OFTO earning £18.2m per annum.

The OFTO


Average penalty per day of outage is £82.7k (82.7k x 22 = 1820k)
OFTO’s worst case risk is losing 50% of revenue equivalent to £9.1 million or 110 days, but this risk spread over 5 years.
This would equate to a loss of earnings of approx £28 million for generator
Both Planned and unplanned outages are taken into account as Outage. 14

OFTO Risk


If OFTO can increase availability by 2% over the 25 year life of the project this is worth: NPV of £1.87 million OFTO (at 9% discount rate)
Cost of maintenance intervention to OFTO +/- NPV £1.5 million.
Total NPV of increase in OFTO availability, assuming it leads to maintenance reduction is: £ 3.36 million
For the Generator, NPV of reduction in loss of earnings is £18 million (at 10% discount rate) 15

Scaling up to Round 3


Is an NPV the right way to look at these types of risk?
A £9.2 million loss of revenue in year 10 is still a serious threat to business continuity
Do you mitigate risks by building network functionality/redundancy, or by making financial provisions?
Who is rewarded to building extra functionality? And How?

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Cash flows

£ 93m per year 230 MW

Energy revenue + ROCs + Carbon credits

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£ 23m per year

£ 18m per year

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How can you drive down costs at the same time as you drive up availability as well as managing risk?

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Key Network Design Issues


How should operational experience and financial model influence network design?
NPV analysis on designs changes the weighting between near-term and far-term events
This is significant for low probability high consequence events such as 3rd party damage


Good design and planning upfront can create robust networks that are safe investments

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What does good design mean?


Single circuit security
Loss of circuit is total loss of power export capability from offshore site
Loss of power to offshore so emergency power conditions, i.e. diesel bunkering
1GW @35% for 3 month repair time
£75.6M in lost production plus repair bill

1GW

1GW


Multiple circuit security
Loss of circuit results in reduction of export capability to 50%
Power retained offshore so no emergency power requirements
Offshore site constrained to 50% but with 35% capacity factor, constraint is lower
Lost production ~1/4 of single circuit loss

100%

50%

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Future Offshore Networks

Location C 500 MW

Argyll Array 500 MW

Argyll HUB

Hunterston Islay 500 MW Coolkeeragh HUB Location J 300 MW

Coleraine HUB Location K 300 MW Tidal 200 MW Coleraine

Coolkeeragh

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Actual Network Configuration


Multiple HVDC links


Flexible sizing to match project build-out


Phased construction



No DC circuit breakers 3-end multi-terminal


Multiple paths for power export



not “redundancy” in the conventional sense Offline reconfiguration allows for outages but maintain majority export 22

Future Networks

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What if:

Future Networks


The output and performance of every asset in an array cluster was known and understood?
Where and when the next cable , transformer or switchgear failure was known BEFORE if occurred?
Generators with dynamic voltage control rode though faults, with zero fault current and recovered instantly?
Circuit were longer, lower voltage, lower loss and higher capacity?
Secure meshed networks had no offshore circuit breakers?
Offshore platforms and hubs were smaller and lighter?

Working Together

Asset Management Policy

Asset Management Strategy

Information, risk management and planning

Implementation and operation

Design analysis & review of subsea equipment Riser Management Systems Project Management & QA/QC Insured risk & failure analysis, Product development

Direct experience dealing with lenders, due diligence etc. Operational and financial experience with network businesses Excellent networks with universities and innovators in supply chain Extensive regulatory experience, including with Ofgem. Leading edge thinking around offshore regulation

Provision of high quality specialist professional engineering Concept engineering and feasibility investigations Power system planning and analysis Technical due diligence & failure investigation 25