Capital costs have reduced recently, predominantly due to the larger sizes of turbines installed, resulting in less infrastructure (such as support structures) being required. However, offshore wind remains reliant on government intervention or incentives to be commercially viable.
Further standardization and collaboration needs to occur, in order to reduce costs across the supply chain, says Celia Hayes a Researcher at Douglas-Westwood (DW) and co-author of the recently released World Offshore Wind Market Forecast which provides a ten year view of the sector through to 2024.
“As far as individual operators are concerned, standardization of equipment across a range of windfarms is key to lowering their costs, as it makes maintenance and operation costs much lower,” says Hayes. “In addition, the standardization across the market in these aspects will make training of specialized personnel and, again, maintenance and operation easier and cheaper.”
Hayes says that standardization in health and safety reporting and in consenting processes is also important to bringing the Levelized Cost of Energy (LCoE) for offshore wind down, but at the moment this is a focus for individual countries that are already established in the industry. Health and safety reporting standardization will become more important as the regional E.U. and global market develops, she says.
Industry collaboration is important in two aspects, says Hayes:
• For major offshore wind projects like those seen in Round 3 U.K., the size of the risk is huge as is the amount of investment needed to make the projects go ahead. Collaboration between developers (i.e. consortiums to manage the projects) lowers the risk as well as allowing expertise form different partners to come into play, ultimately (sometimes) increasing efficiency and lowering costs.
• Collaboration between developers and the supply chain, and within the supply chain allow for knowledge-sharing. As the technology and methods of the offshore wind market is pinpointed as a key cost-cutting area, the sharing of knowledge is seen by some to be key to the market’s survival. The more efficient turbines will lower the LCoE and make offshore wind more investor friendly and more competitive with other power sources e.g. nuclear. So if turbine manufacturers shared info, they could benefit from a larger potential market sooner. This would effectively reduce competitiveness but potentially open up a larger market.
Hayes doesn’t yet foresee a time when government subsidies won’t be required to keep the industry viable. “In the E.U. they are targeting a LCoE of about 80 euros ($90) per MW/h for offshore wind. This makes it competitive, but this value could not be achieved without subsidies or tax incentives. When targets are met in 2020, we are likely to see a loss in the amount given to developers for renewables unless new legislation renews the need to ensure an offshore wind pipeline.
“It all pins around this LCoE, if offshore wind can become more competitive on price with other sources of energy it could be viable without government aid. This could however, take years.”
The rise in capacity will be driven by the continued development of established markets such as the U.K., Germany and China and bolstered by emerging markets including the U.S. and France. Some projects include Block Island in the U.S., project VertiWind in France and the Changhua project offshore Taiwan.
Over 5.3GW of capacity is expected to be installed in 2015, with additions anticipated to remain on an upward trend, peaking at 7.5GW in 2020. Capital Expenditure will total €240 billion ($270 billion) between 2015 and 2024. However, these figures only include projects which have passed the conceptual phase of development, resulting in a large potential for upside post-2020, totalling some €60 billion ($67 billion).
Report co-author, Rachel Stonehouse, says, “The U.K. will install more than 11GW over the next ten years, with most of this expected to occur by 2022, as Round 3 developments take place. Germany will also install over 11GW, with a longer term outlook predicting its activity levels will recover in 2018 following a slowdown in 2016-17. China is expected to install over 8GW of capacity – this is lower than previously targeted, but still represents a strong growth market.”
Emerging markets include countries such as the U.S. and France which are expected to have their first operational wind farms in 2015 and 2017 respectively. The U.S. is expected to install 1.8GW of offshore capacity over the next decade, and France 3.2GW. Other emerging markets include some with historically low levels of offshore wind activity such as Sweden, Denmark and Belgium.