Presenting an update on its long-term targets on 28 October 2019, wind industry leader Ørsted has admitted it has probably been over-estimating energy produced by its windfarms
The company has been running a project to upgrade the models and processes it uses to forecast energy production from offshore windfarms. The project involved advanced analysis of variables affecting production. New models to forecast production have been developed, and those models suggest that production forecasts it has been using underestimate the adverse effect of the blockage effect and wake effect.
The blockage effect arises from wind slowing down as it approaches wind turbines. There is an individual blockage effect for every turbine and a global effect for the whole windfarm, which is larger than the sum of the individual effects. The company’s new simulation models show it has historically underestimated these blockage effects, a finding also supported by DNV GL’s recent report on blockage, which indicates that this effect may also be underestimated by other developers.
The second effect that has led the company to downgrade production is the wake effect within windfarms and between neighbouring windfarms.
There is a wake after each wind turbine where the wind slows down. As the wind flow continues, the wake spreads and the wind speed recover. This effect, with wind turbines shielding and impacting each other, has been subject to extensive modelling by the industry for many years, and it is still a highly complex one to model.” Our results point to a higher negative effect on production than earlier models have predicted,” Ørsted said.
With respect to wake effects between neighbouring windfarms, it is developing a new model capable of more accurately predicting wake effects over longer distances and has leveraged a first-of-its-kind advanced radar system collecting three-dimensional data on wind flow. The new model, which is still being refined, suggests a slower recovery of wind speed and higher wake effects.
Ørsted said it had also factored in a more extensive offshore wind build-out, which will increase the wake effect from neighbouring windfarms. It said that, as global offshore wind build-out accelerates, the whole industry will see higher wake effects from neighbouring windfarms.
“Over the years, we have benchmarked our internal production estimates against third-party views from industry experts. In comparison, most third-party production estimates have been trending towards a more positive view than ours. Therefore, we believe that underestimation of blockage and wake effects is likely to be an industrywide issue,” the company said.
“While there is still uncertainty involved, it is clear that the production forecast adjustment arising out of our analysis has a negative effect on our financial estimates. The higher-than-forecasted blockage and wake effects have also been embedded in our historical production numbers.
“We have until now not had the data and the advanced analytic models to do a more granular breakdown of the production deviation. The new tools leveraging all our production data, including large new assets built over the past couple of years, have given us more detailed insight into the blockage and wake effects and other underlying production impacts. It is this analysis that has led us to conclude that the blockage and wake effects have been underestimated.”
The company said that although the production adjustment is negative, it is convinced that its access to data and advanced analytics will be a driver of long-term competitive advantage. It plans to explore how the recent findings might translate into improvements to the design and layout of future windfarms.
A second key negative development that the company highlighted is the lower feed-in tariff in Taiwan, where it had to accept a 6% reduction and a cap on full-load hours for its Changhua 1 & 2a projects. It has also raised the capex estimate for the deepwater development portfolio in the US, mostly related to the transmission assets.
The company has also reported some positive developments, including slightly lower capital expenses on some of construction projects and lower interest rates that have led to lower return requirements on offshore transmissions assets in the UK, which leads to lower transmission charges. It has also benefited from higher than budgeted availability on one of its newer wind turbine platforms, which positively impacts some of its assets.
In response to the above-mentioned issues, the company is taking measures to reduce its annual overhead cost base by Dkr500-600M (US$74M-$89M) between 2020 and 2022. It said that roughly half of the cost reductions will be fall-away costs relating to the simplification of its structure following the divestment of Danish downstream assets, and half will come from reductions across staff functions, both internal and external.
The good news for the company is that earnings from offshore windfarms in operation increased by 23% in the first nine months of 2019, driven by a ramp-up of generation from new windfarms.
Ørsted chief executive and president Henrik Poulsen said, “We had a very strong third quarter with high wind speeds and ramp-up generation. Operating profit for the first nine months of the year amounted to Dkr12.9Bn (US$1.9Bn), which was in line with our expectations and keeps us well on track to deliver on the full-year guidance of Dkr16-17Bn (US$2.3Bn-$2.5Bn). We are very pleased with the strong results and strategic progress during the third quarter.”