An independent analysis from BVG Associates, commissioned by Statkraft UK has produced an upbeat forecast of the industry’s future with the prospect of being subsidy-free and competitive with CCGT.
The offshore wind industry is often overwhelmed by louder voices from those decrying the feasibility of the technology, questioning the economics from the consumer’s standpoint while the industry itself is quietly reducing costs. This reporting of good news reveals the industry’s potential, summed up in the first paragraph: “Successive governments have established the UK as the world leader in offshore wind. Levels of deployment in the last few years have set the industry on a path of steep cost reduction and provided a platform for an industry that will be sustainable without special consumer support.”
The report provides evidence of technology, supply chain and policy advances which have driven down the cost of energy for projects about to go into construction in 2015 with those going into construction in five years being competitive with CCGT plant.
When MJ attended the opening of Thanet Offshore Windfarm in 2010 they appeared unprepared for the question about ‘replanting’ the windfarm at the end of its lifetime. This is now addressed, the report detailing how repowering older projects with modern turbines could from the late 2020s see offshore wind actually cheaper than CCGT, even under the government’s lowest gas price forecast and a “radical step” towards being subsidy-free. Re-powering brings other benefits including inward investment and jobs and growth.
Of particular interest is the modelling of the cost of energy from offshore wind compared with CCGT. A graph relating cost (£/MWh) against time (2005 to 2030) plots the trend in the form of a band for each technology, the wind band including six snapshots calculated on possible variables. In 2005 the CCGT band is between approximately £60/MWh and £70/MWh, offshore wind between £160/MWh and £190/MWh. After five years of gradual reduction, the cost of wind energy starts a steep decline ending at a similar figure to CCGT in 2020. The cost of CCGT meanwhile steadily increases to between around £70/MWh and £110/MWh at the end of the period. In 2025 the point is reached where the average cost of energy from offshore wind is competitive with CCGT, even with the lowest gas price forecast.
The report finds the faster than predicted reduction in offshore wind costs is a trend set to continue through the 2020s and beyond. Increasing data and experience has led to improvements with operation of the last generation of smaller turbines. The earlier than anticipated introduction of larger turbines has resulted in a more radical impact on the cost of energy: fewer turbines requiring fewer foundations, less cabling and lower O&M costs. And of course larger rotors on taller towers provide access to better resources.
Advances in developing traditional monopile foundations have allowed them to remain cost-effective for larger turbines in deeper waters, progress also being made with industrialisation of jacket and gravity foundations. For larger turbines, cost and efficiency savings are possible from 66kV cables and industry collaboration supporting this development.
A development in recent years has been the emergence of purpose-built installation vessels for both turbines and cable-laying, the latter in particular seeing vessels better suited for inter-array elements. Industry is now reaping benefits from this not insignificant investment with faster installation operations and fewer delays from weather restrictions. The report suggests that in the longer term, installation of complete assemblies (float-out-and-sink) could “significantly reduce costly offshore work.” It also notes development of more cost effective and flexible HVDC systems over traditional AC grid connections which are reaching their limits as windfarms move further offshore.
One only has to visit the annual Seawork exhibition to see how the crew transfer vessel market has steadily grown and matured to meet increased demands of working further offshore and the continuous drive to reduce costs. Projects in German waters are now seeing introduction of Service Operation Vessels, remaining on site for longer periods with resultant reductions in downtime.
The supply chain is benefitting from increased competition and collaboration including: vertical sharing of experience in project teams, more effective contracting methods, information sharing across projects and more joint industry projects on standards and standardisation. The UK approach of balance-sheet financing is now considered in short supply with a move to a more continental style project-financed approach. Lower merchant risk from the new CfD process and a history of delivery is expected to enable a lowering of financing costs for UK projects.
The late 2020s is expected to see repowering of projects as they approach the end of their economic life. Turbines, foundations and infield cabling will need replacing but existing transmission systems (export cables and substations) are seen as being able to be re-used with some refurbishment. With this being a significant element of the original investment, energy costs from repowered sites will be significantly reduced. With replacement turbines having greater output and later technology, along with original planning and infrastructure elements already in place, as the report words it … “Put simply this leads to at least a doubling of the total market size and duration and acts as a strong draw for further inward investment to the UK.”
Establishment of the CfD regime is seen to help reduce capital costs by decreasing revenue risk and increasing competition and supply chain productivity through its auction process. Streamlining of the planning process and creation of the Green Investment Bank have also helped reduce barriers to sustainable growth. The report outlines benefits from government policies on productivity but adds that in future greater clarity about government’s short, and long term ambitions will help developers and the supply chain plan investment more efficiently and focus on implementing innovations.
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