OPINION: Why we at Dong broke the €100/MWh offshore barrier

Many nations face a dual challenge: They want to reduce their carbon footprint to fight climate change and at the same time have to retire their ageing and inefficient conventional power plants and replace them with new and clean sources of energy.

In addition, several countries are looking to minimise their reliance on energy imports. As a clean and proven utility-scale energy source, offshore wind can contribute to solving all these challenges, and even create thousands of local jobs in the process.

This is why offshore wind is the fastest growing renewable energy source in the OECD, and why there is large untapped growth potential in the industry for many years to come, also outside Europe.

However, continued growth depends on the sector’s ability to keep bringing down the cost of electricity. The industry has been on a steep learning curve in recent years.

Through cooperation across the entire value chain, costs have been significantly reduced via automated production and standardised processes, economies of scale from large volumes and larger turbines, and innovation of key components such as turbines, blades, cables, etc. But we cannot rest on our laurels — we need to keep pushing for further cost reductions to maintain political support and societal acceptance.

It is for this very reason that Borssele 1&2 is a strong and important signal to policymakers. The Dutch tender was the first time ever that the industry crossed the mark of €100 ($112) per MWh levelised cost of electricity (LCoE).

When Dong Energy set the €100 target back in 2013, it was considered very ambitious and was met with some scepticism. Could the offshore industry really cut costs by 30-40% or more?

But together we did it — and even three years ahead of time.

Independent analysts assess that the Borssele 1&2 tender actually corresponds to a levelised cost of energy of around €80 per MWh, which breaks the €100 target by a considerable margin.

In other words, Borssele 1&2 is becoming an industry milestone, and perhaps even marks a paradigm shift. With this project, we have shown that we can deliver on the promise of creating a new source of energy that is not only clean and reliable, but also cost-competitive.

As an industry, we will keep doing our part to bring down the costs, and at Dong Energy we fully support WindEurope’s target of €80 per MWh by 2025 including grid connection costs.

Borssele 1&2 shows that this is clearly feasible for European projects for an average plant at an average site. The most critical part of the equation is scale. What we have seen in recent years is a solid commitment to scale from governments in the UK, Denmark, Germany and now the Netherlands.

Scale and having predictable framework conditions have been absolutely key to building an industrialised and competitive supply chain that has been able to achieve such remarkable cost reductions.

Looking beyond Europe, it is very promising that the state of Massachusetts recently passed an energy bill which for the first time in American history commits utilities to including offshore wind in their energy mix. Some 1.6GW of offshore wind will be tendered in Massachusetts, which will trigger the necessary scale for developers and suppliers to engage competitively.

Hopefully, this is just the starting point in the US, with New Jersey and New York already discussing offshore wind as a reliable and clean potential contribution to their future energy mix.

The US is not the only region that is looking to Northern Europe for inspiration on how to solve their energy supply and climate change challenges. Southeast Asia offers attractive seabed and wind conditions, and in Taiwan the government has released 36 sites for offshore development with a total capacity of at least 15.4GW — more than Europe’s current total offshore wind capacity.

Although it is still early days for offshore wind in Taiwan, this kind of scale and ambition convey a significant level of faith in offshore wind. As an industry, continued cost reductions are our license to operate.

But let us not forget the higher purpose — that of fighting climate change. Last year was the warmest on record, and greenhouse gas emissions, ocean temperatures and ocean water levels were at an all-time high.

It is my sincere hope that policymakers will stand united in implementing the commitments made in Paris at the COP21 summit and start pricing CO emissions to reflect the climate change costs of fossil-fuel technologies.

Offshore wind has a lot to offer in a clean energy future, and expanding the sector in Europe as well as overseas is more important and necessary than ever before.

Martin Neubert is chief strategy officer at Dong Energy Wind Power