Windeconomics: Putting German bids into perspective

GERMANY:There was considerable surprise when Germany's federal energy regulator Bundesnetzagentur announced the results of an auction for offshore wind projects in April, authorising 1,490MW of capacity at bid prices (over and above the wholesale electricity price) ranging from zero to €60/MWh.

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The weighted average bid price was €4.4/MWh. The zero bids came from Danish developer Dong Energy for two 240MW projects and German electricity utility EnBW for the 900MW He Dreiht wind farm in the North Sea, around 100km from the coast.

EnBW already operates two offshore wind farms totalling around 336MW and plans to commission another 610MW across two projects by 2019.

The He Dreiht wind farm is scheduled for commissioning in 2025 and is close to other EnBW projects, so will be able to share operation and maintenance facilities. The utility notes that "it was possible to take into account the expected technological developments over the next few years in the bid submitted for He Dreiht".

The steady growth of offshore wind means the cost of capital is likely to fall as lenders become more comfortable with the technology. The combined effect of technological developments, lower interest rates and very good wind speeds at the site has no doubt led EnBW to conclude that financial viability could be achieved.

The company will also have taken into account the likely trend in German wholesale electricity prices between now and 2025, when the project is due to be commissioned, and during its lifetime. Wholesale prices are currently around €30/MWh and on an upward trend, driven partly by Germany's renewable-energy policies.

Another factor that may influence the price is the carbon price under the EU emissions trading system. The European Parliament has proposed modifications to the current system, which, if enacted, could see the carbon price rise to €25/tonne by 2020.

As Germany is likely to have a significant quantity of coal, lignite and natural gas remaining on its system by 2020, the carbon premium could be around €10/MWh by that time.

The Norway-based Thema Consulting Group suggests that the power price in 2025 may be around €37/MWh, but with some uncertainty: the range is €25-50/MWh. Thema suggests that the "best-guess forecast" for 2040 is around €45/MWh.

The trend in offshore wind energy auction prices is shown in the chart below. The strong downward trend may be weakening, but a price around €40-45/MWh by 2024 appears quite reasonable.

The dates attached to the auction prices are those on which construction is scheduled to start, as far as can be ascertained. This date has been used as it represents the point at which all the component costs need to be known and contracted.

Why offshore is cheaper in Europe

One month before the German announcement, the American National Renewable Energy Laboratory (NREL) published its 2015 Cost of Wind Energy Review.

Whereas its annual reports that have been discussed here summarise the latest trends in development and costs, this review is a much more detailed analysis of the underlying contributions to the cost of energy from all the relevant components - hence the longer timescale before it is published.

NREL suggests a reference cost of energy for onshore wind of $61/MWh and $181/MWh for fixed-bottom offshore wind; the cost for floating offshore wind is put at $229/MWh. The onshore estimate was changed to $56/MWh, allowing for a 25-year life, in a revision issued in May.

This is a 2015 cost and the report includes a discussion of why the European offshore costs are so much cheaper.

The latest German cost is a 2025 figure, and NREL identifies a number of reasons why offshore costs are likely to decline sharply.

These include the use of much larger turbines - up to 8MW in Europe - a more mature financial climate in Europe, and the fact that all the European prices shown in the graph do not include grid connection costs, nor in many instances do they include a number of development costs that are borne by governments.

The exceptionally good winds in the North Sea also contribute to lower offshore wind costs in Europe.


2015 Cost of Wind Energy Review, National Renewable Energy Laboratory, March 2017, revised May 2017

Detailed analysis of onshore and offshore wind-energy generation costs. Revision concludes that using a 25-year lifespan for calculations brings the cost of onshore wind down to $56/MWh.

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