Viewpoint: Keeping the pressure on innovation to cut costs

Offshore wind costs continue to fall dramatically. At £74.75 (€84.90) for Triton Knoll and £57.50 (€65.31) for Hornsea 2 and Moray Firth, the winning contract prices in the latest UK contract for difference auction are equivalent to a levelised cost of energy (LCOE) of about €77/MWh and €62/MWh.

These latest winning bids were lower than even the most optimistic analysts expected. Several factors suggested that developers for these UK projects would struggle to match the very low bids seen in the Danish, Dutch and German auctions from earlier this year.

They did, however, manage to find ways to achieve comparable costs, and the winning bids were almost half those of the last UK auction, two and a half years earlier. Offshore wind farms that come online in 2022/23 will be cost competitive with new gas-power plants, whose LCOE is around €65/MWh.

By that time, offshore wind will be established as a mainstream supplier of electricity. Looking further ahead, technology — in particular, larger turbines, processes and learning improvements — will see cost reductions continue for some time. For a wind farm on a typical site reaching a final investment decision in 2030, we forecast LCOE will fall to about €51-54/MWh — or more than 20% below even the latest auction results.

Cost reductions could accelerate the trend in offshore-wind deployment. The lower costs increase the number of economically attractive sites for offshore wind, which allows a bigger pipeline of projects to be established. A bigger pipeline generates lower risk and greater economies of scale, which in turn reduces costs further. Lower costs and greater volumes mean the supply chain remains competitive and commercially viable, despite the falling revenue per megawatt hour.

To continue to push prices down, wind generation needs to continue to ensure competition. The cost reductions already achieved using horizontal axis wind turbines (HAWT) technology gives it a strong advantage, and larger HAWTs will be an important contributor to LCOE falling further by 2030.

But while rightly lauded as good news for consumers and governments, will these low bids stifle investment, and the inherent risk-taking required, in disruptive technologies, such as airborne wind?

Current winning projects are based on HAWT technology becoming bigger, better and cheaper. If the industry believes it can be among the lowest cost sources of new generation capacity, including non-renewables, there is the possibility that the perceived need for disruptive technologies diminishes. Such a view would be at best naive and at worst complacent. Any industry, or company, that feels it no longer needs to innovate will soon be surpassed by competitors.

Many of the major societal shifts expected in the coming decades, especially the electrification of transport, will mean that the cost of electricity will play a major role in national and household expenditure, so the pressure to drive down costs as far as possible will only increase.

Airborne technology

Airborne wind-energy generation has the potential to become a key disruptive technology, helping to achieve signification future cost reduction. Airborne technologies will benefit fully from many of the supply-chain cost savings in "conventional" HAWT technology, such as development, transmission, and operation and maintenance of the wind farm, transmission and electrical array. They will also have a number of specific cost reductions in their favour.

Our independent work with airborne innovators, especially those using kite-based technology, has revealed that once commercial, using airborne technology in offshore wind farms could produce an average LCOE that is a third lower than HAWT technology. This saving comes from the much lower Capex of the airborne systems, combined with a higher annual energy production, mainly as a result of achieving a higher load factor.

Testing of airborne wind-energy technologies has demonstrated many of the necessary technical ingredients needed. As new test sites are established, free from restrictions such as running at night, prototypes in the 500-600kW range will need to operate continuously, automatically and unattended for significant periods.

To then move from this intermediate stage to commercial deployment, airborne technologies will need robust and independent assessment to show that successful operation has not eroded its LCOE reduction potential. This will then turn the perceived gamble of trying something "new" into a sensible business decision for investors and developers.

Mike Blanch is an associate director at BVG Associates