The latest costs for new offshore wind farms are mighty impressive. How come offshore wind costs just keeps going down?
Records were meant to be broken
The UK just held its latest auction for power from future projects based on a range of low-carbon technologies beyond the usual suspects like solar and land-based wind.*
The UK auction results were quite something: The winning bids included not one but two offshore wind projects whose developers agreed to a contract price of £57.50 per megawatt-hour (2012 prices)—around 7.7 US cents per kilowatt-hour. That’s half the cost for offshore wind projects in a round of bidding in the UK just two years ago, and within striking distance of—or lower than—the cost of almost any source of new “conventional” power.
So how does this happen? Why does the cost of offshore wind keep getting lower, and so quickly?
Bigger, stronger, faster
- Larger turbines. The two new projects might use 8-megawatt wind turbines, as did one project that just came online. That’s a big step up from the standard of just a few years ago. And larger turbines are likely on the way (and maybe even much larger ones). Larger turbines mean more power from each installation—each footing, each tower, each trip to install pieces of it, and then to maintain it.
- Larger projects. Moray will be a really impressive 950 megawatts. Hornsea Two will be a stunning 1386 megawatts—likely the largest offshore wind project in the world when it goes online (and enough to power more than 1.4 million UK homes). Larger projects mean likely economies of scale on lots of pieces, making better use of the installation crews and equipment, covering more ground (or water) with given maintenance personnel, and spreading all the project/transaction costs over more megawatts.
- Faster project timelines. Both of these new projects are supposed to come online by 2022/23, which is amazingly quick (and not just by US standards). Faster timelines mean less zero-revenue time before the blades start turning and the electrons start flowing (and the dollars/pounds start coming in).
- Lots of offshore wind projects in place already. The latest projects will join a national mix that includes 5100 megawatts of offshore wind providing 5% of the UK’s electricity. Plenty of experience offshore means there’s a developed and growing industry in the UK and much of the necessary infrastructure for manufacturing components, moving them into place, and getting the electricity to shore.
- Comfortable investors. With all the UK experience to date, investors know what they’re getting into. The UK government, offering these contracts, is about as solid a guarantor for the revenue stream as investors could ever hope to see. Comfortable investors = lower financing costs = lower prices for consumers.
Lots of tailwinds for offshore wind. So what might be pushing things in the other direction—counterbalancing (partly) all those cost gains?
Two have to do with project sites. As near-shore sites get taken, projects end up farther from land, meaning more shipping time to get personnel and materials to the project site, and longer power lines to get the electrons back to land, and higher associated costs. New sites might also be in deeper water, which means more tower costs (or even floating turbines!).
On the plus side, better wind speeds are also a factor in cutting offshore wind costs, and being further out can mean even better winds.
The UK doesn’t seem to be in danger of running out of suitable sites, in any case, and technologies seem to be evolving to keep up with changing site characteristics.
Meanwhile, back in the U.S. of A.
What’s this latest offshore wind news mean for those of us on this side of the pond? The biggest takeaway, maybe, is that we can do more when we do more.
As UCS and plenty of others have argued, we really benefit by offering the US offshore wind industry a clear path not just to one or two projects, but to the robust levels of installation and clean energy that we know we need. That long-term outlook can allow them to make the kind of investments (and attract the investors) to build not just projects, but an industry.
And with each project, it becomes easier to envision the next one. Massachusetts has structured its 1600-megawatt offshore wind requirement with multiple tranches to take advantage of this effect. The first round, maybe 400 megawatts (for which bids are currently being prepared), is likely to pave the way for a cheaper second round, and a third round that’s cheaper still.
New York is offering a path to even larger scale, with its recent commitment to 2400 megawatts of offshore wind.
As the experience in the UK and elsewhere is showing, more and bigger projects, larger overall targets, and greater clarity for the industry can lead to economies of scale, more local manufacturing and stronger local infrastructure, and more comfortable investors for US markets.
And that can all add up to more cost-effective offshore wind for us all.
*Can I just say how great it is to be in a place where solar and wind are “usual suspects”? We are definitely making progress.