Offshore wind is under fire. The apparent cost gap relative to more conventional power (including onshore wind) remains substantial, and we are at least a decade away from wholesale grid parity.
There is a risk that some countries might say: we like the
concept, we want clean, stable energy, but we cannot afford
From society’s perspective, the selection of electricity sources
should be based on their true costs. Unfortunately, the standard
measures of electricity costs reveal only part of the picture.
Today, we use the levelised cost of energy (LCOE) as our
yardstick. It is calculated as the ratio of the lifetime sum of
discounted capital and operating costs, including fuel, divided by
the lifetime sum of discounted energy output.
However, to arrive at a better estimate, more factors need to be
considered. The total direct cost of electricity is the sum of the
CO2 costs. Current carbon prices are very low, but long-term
predictions are typically €40-50 ($55-68) per tonne.
Subsidies. Everybody knows that renewables are openly
subsidised. But fossil fuel-powered energy and nuclear receive “
hidden” support in many countries through tax breaks or
government support for coal mining.
Grid costs. With higher shares of renewables, grids need to
be reinforced on the transmission and the distribution levels, as
renewable sources are either not located centrally (solar,
biomass, onshore wind) or are remote (offshore).
Intermittency costs. These are payments to keep gas power
plants on stand-by as a backup; this is mainly a cost factor for
These direct costs of electricity are still not a complete
measure of the cost to society. To arrive at what might be called
Society’s Cost of Energy, or SCOE, additional aspects have to be
considered, such as:
Social costs, including health or environmental expenses
caused by pollution from fossil power plants. The decline in
property prices near power plants — including wind farms — also
falls into this category.
Economic advantages, mainly job creation and the resulting
extra growth and consumption.
Geopolitical impact — principally hedging against future fuel
Assuming that we can take a significant stride in the
infrastructure part of the offshore wind value chain, and if
turbines continue the classical trend of a 40% cost reduction
each decade, by 2020 offshore wind will have an LCOE of less than
€100 per MWh. A big improvement, but still leaving a gap with
conventional power or onshore wind.
If, however, we consider the SCOE, it becomes a
completely different matter. We have done the calculations at
Siemens, and we were surprised by the results. Taking into account
the above factors, offshore wind will come very close to onshore
wind in Europe in 2025, beating nuclear, coal and solar hands down,
and only marginally beaten by gas.
The big differentiator is that offshore wind creates higher
social benefits and lower social costs than other power sectors. It
has more potential to create local employment and positive GDP
impacts than almost any other energy source — and in structurally
weak areas where jobs and investments are urgently needed. External
costs for offshore, such as pollution or falling property values,
are negligible. If such calculations can be substantiated, the
result is a paradigm shift.
So, what now? Well, we could ask external institutes to verify
our calculations and publish reports detailing the methodology and
results. However, experience shows that this will typically lead to
the publishing of counter-reports from parties with opposing
interests, then a period of debate... and then the issue is
forgotten. Meanwhile, the myth of cheap conventional electricity
and expensive renewable energy will prevail in the public
The problem is that the argument for an SCOE view is quite
complex. At the same time, increases in household electricity
prices send a clear signal to consumers and are mainly blamed on
the growth of renewables and their direct and visible
But we have good arguments that the SCOE is the best estimate of
the true costs of electricity. We need to convey this simple
message to decision makers and the public: societies should make
their choices of electricity sources based on the true social
costs. Perhaps this could be a question to all Recharge readers: how do we get the message across?
Henrik Stiesdal is chief technology officer of Siemens
This piece was published as part of the Thought Leaders
series. Recharge’s Thought Leaders’ Club brings together leading
thinkers and participants from the renewable-energy sector to
examine the key challenges facing our industry