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United Kingdom

Industry body upbeat on offshore costs

UNITED KINGDOM: The cost of energy generated by UK offshore wind farms will fall by at least 15% over the coming ten years -- and possibly by as much as a third -- concludes a report published by Renewable UK.

The main contention of the renewable-energy association's report is that "whole-life cost of energy" is the most important measure for assessing the price tag of offshore wind because it comprises capital expenditure (Capex), operating expenditure (Opex) and the energy yield from wind farms.

When whole-life costs are assessed, a fall of at least 15% in real terms is forecast for the period 2011-22, says Renewable UK.

Capex stays high

The report authors, Bruce Valpy and Christopher Willow, acknowledge that offshore Capex will continue to rise for the foreseeable future. "Capex per megawatt of installed capacity will continue to increase over the next decade as projects are located further offshore and in deeper water," they say. Valpy is a director and Willow an associate of BVG Associates, a consultancy with expertise in wind and marine energy.

However, the escalation in Capex will be moderate, they suggest. "Technology development and industry learning will have a significant impact in offsetting ... costs."

It is in the area of Opex per megawatt installed where significant cost decreases over the lifetime of wind farms built in the next decade are predicted, primarily due to the use of larger and more reliable turbines.

Another factor in cost reduction will be greater wind yields, as developers move further offshore thereby gaining access to improved wind resources. "Combined with increases in turbine size, this will increase the energy yield per megawatt installed by more than a fifth," assert Willow and Valpy. In addition, other factors beyond those relating to site conditions and the choice of technology will also affect prices. These include innovation gains stimulated by competition, exchange rates and steel prices.

"Opportunities exist for cost improvements of more than 15% between 2011 and 2022, with strong competition and innovation able to reduce the cost of energy by a further £20/MWh (EUR22.20/MWh)," conclude Willow and Valpy. "Favourable conditions ... could see costs fall to around £100 per MWh - a 33% reduction."

Renewable UK's report sits against a background of rising offshore costs in recent years, which has prompted debate among policymakers, manufacturers and suppliers about how to prevent costs from spiralling further.

There remains scepticism in some quarters that offshore wind will ever be financially competitive, with Dieter Helm, a University of Oxford economist, arguing in June that consumers may not be willing to bear the cost of offshore wind development. "Will customers vote for politicians who make them pay?" asked Helm, speaking at the Economist Energy Summit. "Can we absorb the cost of offshore wind? Probably not." According to Helm, the UK should resume its previous policy of phasing out coal-fired power generation in favour of gas, instead of prioritising offshore wind.

Another voice cautioning against offshore wind is Steve Riley, executive director for Europe at GDF Suez-owned power-generation firm International Power: "Offshore wind makes nuclear look economic," said Riley at the same event.

Not everyone agrees that offshore costs will rise inexorably. Last September, a report from the UK Energy Research Centre concluded that offshore costs may have peaked. It argued that cost reductions of up to 20% should be possible by the mid-2020s.

The wider financial and environmental benefits of the UK offshore wind sector are also summarised in the Renewable UK report, with the sector forecast to inject £60 billion into the UK economy by 2020 through development, manufacturing and installation activities.

Offshore wind is also estimated to generate a further £20 billion in gross value added through operation and maintenance activities and £14 billion in government tax revenue. The sector's expansion is also expected to trigger £3 billion of investment in the UK supply chain, supporting more than 45,000 long-term jobs. Offshore supply-chain exports from the UK to continental Europe are forecast at £25 billion.

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