Offshore wind's dream set for reality in the energy mainstream

OPINION | The stunning cost reductions achieved by the offshore wind industry are nothing short of revolutionary, says Darius Snieckus

In a year that has seen the world’s political power narrative jolted by the unprecedented plot twists of Brexit and the presidency of Donald Trump, another shock — and arguably one of longer-term impact to the global energy system — has gone largely unreported in the international mainstream media: the award of unsubsidised offshore wind acreage off Germany.

Low costs will pave the way for US offshore wind: Dong

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Offshore wind — still referred to by the fossil-fuel-committed ignorati as a “too-expensive” energy source — has dropped precipitously in price, from a levelised cost of energy (LCOE) over €150 ($166) per MWh less than a decade ago to €75/MWh and then €50/MWh last year. One financial quarter later, the LCOE has dropped to the zero-subsidy figure of €31/MWh, according to analyst calculations.

Far outstripping the UK government’s once “magic number” of £100/MWh by 2020, this record-low LCOE means the German auction’s winners, Dong and EnBW, are betting on making a profitable return from the wholesale market price alone when their projects come on line in 2024-25. This, it hardly bears stating, would be revolutionary.

The pace of this plummeting LCOE is not without its risks, of course, topmost of which is that they hinge on electricity bills being higher than at present — under €40/MWh in Germany. Some analysts crunching the numbers figure it could be close-run thing: if the zero-subsidy projects sold power at an average price below €31/MWh, the project would operate at a loss. But supply it at €51/MWh and that rate of return would rise to a healthy 6%, though it’s worth noting the projects would need to be built around 13-15MW turbines.

The chief executive of the world’s largest offshore wind operator, Dong Energy, has even warned that “race to the bottom” hammer prices could embolden “irresponsible players [to make] value-destroying [bids]” in future auctions.

"The hard graft is being rewarded. Offshore wind pulled in €30bn of capital last year, the one renewables sector that saw a rise in investment"

However it pans out, it is no less key to grasping the long-term promise of this paradigm-changing price fall that it has not been achieved on a wing and a prayer.

The offshore wind sector has been single-minded in its cost-reduction campaign, zeroing in on not just an ever-lower LCOE but on the industry-building labours behind it: doubling the size of its turbines to 8MW; pushing ahead with high-voltage — ie, lower-cost, higher capacity — transmission systems; devising mass-producible next-generation foundations for deeper water; and shaving margins the length of its supply chain.

The hard graft is being rewarded. Offshore wind pulled in €30bn of capital last year, the one renewables sector that saw a rise in investment.

Now the nascent sector must raise its sails to show its power-producing potential to an energy-transitioning world — and fashion its own industrial fortune in the process.

Weave in floating and high-altitude wind to the widely shared ambition of having 400GW of “conventional” fixed-bottom turbines turning in the world’s waters within 30 years, and offshore wind — not long ago a tantalising vision on the global energy market’s distant horizon — will be coursing forward on open seas as a mainstream power source. 

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