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Offshore Wind Turbine T7, I/S Difko Samso 1

PaludansT7.png
Fig. 1. The partnership I/S Difko Samso 1 owns wind
turbine T7 (framed, Bonus/Siemens 2.3 MW). Picture
by Sweco, who did the environmental assessment.



Shareholders own offshore wind turbine number 7, south of Samso. The shareholders do not necessarily live on Samso. They are organised in the socalled I/S Difko Samsø 1 partnership, which is nationwide. One share corresponds to 1/7800 of the whole wind turbine, but a partner can own several shares. The price of one share was 3 400 DKK (453 EUR) in 2002. The expected lifetime of the turbine is 25 years. A small investor could earn up to 7.1% interest after tax according to the sales material.

Contents

Introduction


The partnership I/S Difko Samsø 1 owns the seventh wind turbine counted from land south of Samso. The company Difko is a professional investment foundation that specialises in raising funds for projects (solar, wind, real estate, ships).

A Difko subsidiary bought the wind turbine from Samsø Havvind A/S (Samso Sea Wind Ltd), designed the project, and sold it to I/S Difko Samsø 1. The latter is a partnership of shareholders, some of which may live on Samso, but most shareholders probably live somewhere else. This is an exceptional case of external ownership.

The initial idea was to offer all ten offshore wind turbines to the citizens of Samso, but it was impossible to raise enough funds. The outside investor Difko then bought turbine 7. To finance the project, Difko published sales material offering shares at 3 400 DKK (453 EUR) per share (Difko 2002). The sales material included a form with a contract, on which the investor could write the number of shares he wished to buy.

A subsidiary of Difko manages the project. Naturally the management effort is an expense on the project account, but on the other hand professional management may reduce some of the risk.

Ownership


There are 7 800 shares in total, owned by the members of a wind turbine guild. The guild is legally a general partnership. The partnership owns the wind turbine, while Samso Havvind is the daily operations manager. The general partnership is exempt from tax, instead each partner pays tax on the income.

The project has a 25-year concession granted by the government. An investor ends his ownership either automatically when the concession period ends or by selling his shares in the meantime. Investors may sell and buy shares through a Difko trade company. At the end of the concession, the wind turbine must be decommissioned. Every year during the period of operation funds are saved to pay for the decommissioning.

Operation and Maintenance


The budget assumes that the company Samso Havvind A/S operates and maintains all the wind turbines in the wind park. The cost is split equally, so the Difko budget is 1/10 of the expenses for the whole wind park. Samso Havvind pays all expenses before they distribute the income from the electricity sales to the turbine owners.

The budget also assumes a service contract with the contractor, the cost of which is shared equally between all ten wind turbines. The service contract, at a fixed price, guarantees a minimum production of electricity during its duration.

The partnership has an agreement with a Difko subsidiary (Difko Administration) to take care of all administration. That includes, for example: accounting, monitoring of the financial operations, making payments, and organizing the annual general assembly. The price for these services was fixed at the beginning but adjusted automatically every year according to the net price index.

Pre-Calculation Based on Sales Material

FigDifko_a.png
Fig. 2. Simple project balance for a single share. It is
based on the sales material (Difko 2002). The internal
rate of return is 7.1%.



Figure 2 shows the balance when buying a single share. The diagram assumes the electricity selling price is 0.36 DKK/kWh (0.048 EUR/kWh) after year 10. Buying a single share is below the tax allowance, thus there is no tax on the electricity income. The figure shows that the investment is paid back after 11 years. A calculation shows that the internal rate of return (IRR) is 7.1%.

The tax is determined by the so-called schematic rule (da: skematisk regel) according to which deductible expenses are assumed to be a fixed amount of 40% of the income. The tax is then paid on the remainder.


Risk Assessment


Although the government guarantees a fixed feed-in tariff for the first ten years, and the partnership has taken out an insurance, there is still some uncertainty present. For example, the selling price of electricity after year ten is unknown, and it depends on an unpredictable electricity market (Nordpool). The assessment of the risk factors below is largely based on the sales material (Difko 2002).

Energy Production


Consultants estimated the wind energy, and actual wind data from a nearby wind park (Tunø Knob) supported the calculations. They arrived at a nominal production of 7 765 megawatt-hours per year, but naturally it can change from year to year due to changing weather. The available energy depends not only on wind speed, but also on humidity. This source of uncertainty should be taken into account when assessing the risk.

It has turned out, in fact, that the average yearly production over the first eight years is 98% of the calculated, nominal production (see Specifications). It is not quite 100%, but the first year of operation was not a full calendar year, and it took one month to commission the turbine causing more stoppage time than normal. It is thus likely that the final end-of-lifetime production will be as estimated.

Repair Costs


The contractor gave a two year warranty on the foundations and a five year warranty on the wind turbines — as well as a fixed price on servicing. There is also a guaranteed minimum production, which is set lower than the nominal production, however.

The budget for repair costs is conservative, but actual repair costs might still deviate in a positive or negative direction. Gear boxes are vulnerable since they have moving parts, and it is expensive to change the gear box at sea. Actually, the gear box had to be changed in 2009.

The cement used in the foundation may crack or crumble, particularly the grouting in the transition piece from foundation to tower, and that is also expensive to repair.

Electricity Selling Price


The government guaranteed a fixed feed-in tariff for the first ten years (0.43 DKK/kWh or 0.057 EUR/kWh). Furthermore, wind turbine electricity is prioritised which obliges the electricity company to buy it. The base feed-in tariff is 0.33 DKK/kWh, but then the government gives an add-on (0.10 DKK/kWh) as a compensation for an absent market for renewable energy certificates.

Scrap certificates contribute further to the selling price (+ 0.17 DKK/kWh) for the first 3.5 years. When a wind turbine owner scraps a wind turbine he will receive scrap certificates from the national electricity system operator. A certificate has a value, and it can be sold. The buyer of the certificate is then granted the extra premium (0.17 DKK/kWh) on a new wind turbine. The duration of the scrap certificates corresponds to 12 000 hours at full load (2.3 MW), equivalent to the first 27 600 megawatt-hours of production.

After the first ten years, the selling price is the market price as it is dictated by the Nordpool electricity exchange. The government will give a fixed subsidy, however, as long as the total price is below a certain limit (0.36 DKK/kWh). The market price may rise above the limit, and in that case the wind turbine guild is allowed to sell at the market price (without receiving subsidies).

Difko chose 0.36 DKK/kWh as the likely selling price after year ten in the budget. But since the price is based on the market price, the estimate is uncertain.

Technical Lifetime


Difko assumes the wind turbine lasts 25 years (others assume 20 years), but there is still little experience with offshore wind turbines, and it is uncertain how long turbines can resist tear and wear at sea. In case the wind turbine must be scrapped earlier, it will have a considerable impact on the surplus of the investment. If on the other hand, the wind turbine is in a good condition after 25 years, the concession with the government could perhaps be extended.

Insurance


It is possible to take out an insurance against loss of production and breakage of equipment. The insurance will cover unforeseen loss, but it will not cover events that can be planned and foreseen within some reasonable time horizon.

The sea cable — it connects the wind park with a land cable and farther on a transformer — is at risk, because it could be damaged physically by for instance a ship anchor. The cables are buried, however, 1.5 metres below the sea bed, and trawling is forbidden within 200 metres. The risk of damage is small, but the consequences are serious, and it is therefore necessary to consider the price of insurance against the potential loss as well as its probability.

Liability


The I/S Difko Samsø 1 is a general partnership in which each partner is personally and directly liable for the whole. That means 1) any partner is liable with all his personal savings, and 2) a creditor can decide himself which partner(s) to pursue.

The written regulations of I/S Difko Samsø 1 state that the partnership cannot have debt, except for the initial cash credit that paid for the scrap certificates. That loan is against security in the wind turbine.

The risk is thus minimised. But, although risk is minimised, bankruptcy could have dire consequences for a partner.

Sensitivity Analysis

FigDifko_sens.png
Fig. 3. Sensitivity of IRR to changes. Wind refers to
annual energy production, Price to the selling price
after year 10, and O&M to operation, maintenance
and administration cost after year 5.


In order to get a better idea of the consequences of some of this uncertainty, we change the value of some of the variables in the financial model and observe the effect. Thus, we observe what happens to the internal rate of interest (IRR) as we change the production (Wind), the selling price (Price), and the cost of operation plus maintenance plus administration (O&M).

Figure 3 shows how IRR changes by changing each of the three variables one-by-one by an amount up to +/- 20%. First of all we see that if Wind (electric production) increases, then we get a better IRR. The same with Price. Oppositely, if operation and maintenance costs increase, we get a worse IRR.

From the curvature of the Wind and Price curves we see that they tend to become horizontal as we move toward the right. It is thus more difficult to gain a better IRR than to loose it; there is a certain amount of 'friction' against earning a higher interest, one could say.

We also see a higher sensitivity to changes in Wind than to Price. Notice also that if Wind is multiplied by 0.8 (80% of the base value), the IRR drops to about 0.7 times its base value (70%), which is a larger drop. It accelerates as we decrease Wind. We can conclude it is most important not to loose any of the production.


Example (sensitivity). The procedure is to multiply, say, the base value of the electric production by a factor K1, which will result in a new IRR, which is K2 times the original IRR.

Multiply for example the production every year by K1 = 1.05, which means we increase the values by 5%. The new IRR is K2=1.03 times the base value of IRR, that is, it increased by 3%.



Regarding Price we have only changed the selling price after year ten, because it is fixed until then thanks to the government. Likewise we have only changed O&M after year five, because the costs are fixed for the first five years due to contracts.

Specifications

Energy
Power rating 2.3 MW
Nominal energy production 7 765 MWh/year (= index 100)
Nominal capacity factor 39% of full capacity
Average production (until 31 Dec 2015) 7 776 MWh/year (index 100)
Production 2003 6 007 MWh (index 77)
Production 2004 8 237 MWh (index 106)
Production 2005 8 159 MWh (index 105)
Production 2006 6 657 MWh (index 86)
Production 2007 8 230 MWh (index 106)
Production 2008 7 927 MWh (index 102)
Production 2009 8 211 MWh (index 106)
Production 2010 7 639 MWh (index 98)
Production 2011 8 742 MWh (index 113)
Production 2012 8 645 MWh (index 111)
Production 2013 7 922 MWh (index 102)
Production 2014 7 149 MWh (index 92)
Production 2015 7 570 MWh (index 97)
Environment
Producer Bonus Energy (now Siemens)
Dimensions Hub height 61.2 m, rotor diameter 84.6 m, height from sea level to wing tip 103.5 m.
Foundation Monopile, steel, diameter 4.5 m, length 45 m, 300 tonnes, hammered into the sea bed.
Savings SO2 22.6 tons, NOx 22.3 tons, CO2 6 630 tons, particles 429 tons.
Turn-key Contractor Deme
Foundation Bladt Industries
Economy (2002 prices)
Owner Shareholders through the I/S Difko Samsø 1 general partnership
Start-up date 8 Feb 2003
Nominal lifetime 25 years
Number of shares 7 800 shares
Feed-in tariff first ten years 0.43 DKK/kWh (0.05733 EUR/kWh)
Capital expenditures (budget)
Buying price from Samso Havvind 24 500 000 DKK (3 266 667 EUR)
Acquisition and implementation of scrap certificates 2 246 000 DKK (299 467 EUR)
Bank guarantee and interest expenses 500 000 DKK (66 667 EUR)
Legal services, creation of partnership, etc. 130 000 DKK (17 333 EUR)
Project fee to Difko 790 000 DKK (105 333 EUR)
Acquisition of rights in Difko Investeringsfond 300 000 DKK (40 000 EUR)
Total project cost 28 766 000 DKK (3 835 467 EUR)
Financed by cash credit -2 246 000 DKK (-299 467 EUR)
Total investment -26 520 000 DKK (3 536 000 EUR)
Price per share 3 400 DKK (453 EUR)
Operating expenses (budget)
1/10 of Samso Havvind expenses 187 500 DKK (25 000 EUR)
Difko Administration 150 000 DKK (20 000 EUR) + 2% every year
Service contract year 1 251 000 DKK (33 467 EUR)
Service contract year 2 251 000 DKK (33 467 EUR)
Service contract year 3 432 000 DKK (57 600 EUR)
Service contract year 4 432 000 DKK (57 600 EUR)
Service contract year 5 432 000 DKK (57 600 EUR)
Service contract year 6 600 000 DKK (80 000 EUR)
Service contract onward same + 2% per year

Budget operating expenses for Samso Havvind (2002 prices)
  DKK EUR
Insurance 1 000 000 133 333
Administration of the wind park 400 000 53 333
Manager of technical operations 150 000 20 000
Board meetings and management 75 000 10 000
Audit 50 000 6 667
External consulting 100 000 13 333
Miscellany including IT 100 000 13 333
Total 1 875 000 250 000


  1. %Bladt%
  2. %DanishWindTurbine%
  3. %Deme%
  4. %DifkoInternational%
  5. %DifkoSamso%
  6. %DifkoTurbineProd%
  7. %EnerginetDKTheDanishWindcase%
  8. %EnergistyrelsenStamdata% T7 has turbine ID 570715000000062988
  9. %LORCKnowledge%
  10. %PaludansFlakOnAMap%
  11. %PaludansFlakProduction%
  12. %SamsoHavvind%
  13. %SiemensWind%
  14. %Vindinfo%
  15. %WindEnergyTheFacts%


Created by system. Last Modification: Friday 07 August 2020 16:47:57 CEST by jj.