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WindEconomics: Bullish projections for offshore wind

WORLDWIDE: The generation cost of electricity from offshore wind in the UK could undercut that of electricity from gas by 2030. This is the finding of a report from the UK's Climate Change Committee, undertaken by BVG Associates.

The report comes hard on the heels of a report by the New York State Energy Research and Development Authority, reviewed last month.

The New York report suggested a cost of energy of EUR123/MWh is achievable by 2022, while the BVG report suggests EUR114/MWh is achievable by 2030. In both reports the projections come with caveats, some requiring actions by government and others that depend on progress in the worldwide offshore wind market.

BVG Associates argues that "market scale, visibility and confidence" is the most important policy driver and suggests that a European market of 3-4GW per year would support three or four strong developers and enable the industry to develop cost-saving techniques in construction, installation and maintenance. The report assigns the relative influence of market scale as 55%, well ahead of the next most important policy driver - a cost-efficient support mechanism, which is assigned a relative influence of 12%.

The BVG Associates report includes a breakdown of the cost of energy for a typical offshore wind farm for 2020. The cost of capital remains the largest component and so lower financing costs would make a significant impact on the cost of energy (see chart).

The report suggests this can be realised by government giving the industry clear information about future plans and a robust support framework. Turbine, operating and transmission costs each account for about 15% of the cost of energy, and the report examines the prospects for savings in each of these areas.

The BVG report uses gas price projections from the UK Department of Energy and Climate Change (Decc) to estimate the future generation cost from gas. When the cost of carbon is factored in, this suggests generation costs will reach €126/MWh by 2030 and so there is a possibility that offshore wind — at €114/MWh— could compete with gas by that date. BVG uses the "central" gas price projections from Decc. Using its "high" gas projections - about 40% higher, Windpower Monthly estimates this would put the price of gas-fired generation at about €136/MWh in 2030 — before the cost of carbon is factored in. The offshore wind estimate of €114/MWh is comfortably below this figure.


The BVG report assumes that the weighted average cost of capital for projects starting in 2015 is 11%, and that this comes down to 8.3% for projects that start in 2030. These figures are higher than those used in Germany and Denmark.

The New York State offshore wind report included a discussion of ways in which this might be reduced. As with BVG, it concludes that "creating a visible market of scale and duration through a long-term commitment to a pipeline of projects" is a priority. If the future climate in the UK similarly facilitates a lower cost of capital, then this would bring down the cost of offshore wind in the UK in 2030 even further.


The cost of capital depends on the level of confidence the financial sector has in the technology and in the stability of the regulatory regime. The latter is outside the control of wind developers, but reliability of the technology appears now to be well established.

Evidence comes in the 2014 JRC wind status report from the European Commission's Joint Research Centre. The credibility of offshore wind in the eyes of financial institutions is exemplified by the fact that finance for five wind farms, with a total investment of €4.5 billion was oversubscribed - by a factor of two for a 126MW Indian project, and by undisclosed amounts for two German and one Dutch offshore wind farms. The transmission link for the UK's Greater Gabbard wind farm was three times oversubscribed.

This report suggests offshore-wind costs for projects due for financial close in 2016-7 are in the range €90-150/MWh. The corresponding range for onshore wind is €45-97/MWh.

At a glance — This month's report conclusions

Approaches to cost-reduction in offshore wind, by BVG Associates for Committee on Climate Change, UK Offshore wind energy at EUR114/MWh is achievable by 2030. European market of 3-4GW per year would support three or four strong offshore developers.

Wind Status Report: Technology, market and economic aspects of wind energy in Europe, 2014, by EC Research Centre Cost of energy for offshore projects completing finance 2016-7 are EUR90-150/MWh, and onshore EUR45-97/MWh. Finance investors oversubscribed for five offshore projects and one transmission link.

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