The below summary is based on information from the FT on 26th January 2017. The full article by Pilita Clark can be seen here.
Offshore wind companies reveal their costs have tumbled much faster than expected and should soon be level with gas or coal-fired power stations, hitting another key milestone.
The cost of electricity from projects in the UK plunged by nearly a third in four years to an average of £97 per megawatt hour during 2015-16, according to a report on schemes built by Dong Energy and other developers.
That means the sector has beaten by four years a target it set with the British government in 2 to drive costs down to £100/MWh by 2020, according to a report commissioned by the Offshore Wind Programme Board, a UK body involving industry and government representatives.
“It’s very significant,” said Benj Sykes, British country manager for wind power at Dong and co-chair of a UK industry and government group overseeing efforts to cut the sector’s costs.
“Our efforts have brought the cost down way faster than we set in our own target . . . We’ve seen other renewable technologies do this in other parts of the world but this is the first time we can really say we expect offshore wind to be in the next decade on the same sort of cost structure as other power generators.”
The speed at which costs have fallen is encouraging for an industry that has started to spread outside its original home in Europe to the US, China and other Asian countries. Offshore wind farms have boomed in the past 12 months, with capital spending commitments reaching a record $30bn in 2016, up 40 per cent on the previous year, according to the Bloomberg New Energy Finance research group.
The growth has come as the economics of building the gigantic marine power stations have improved as a result of better construction know-how and bigger turbines — advances that have driven down costs in the UK, the industry’s largest market.
However, the fall in costs is also likely to raise questions about the size of subsidies awarded to consortiums including Dong, the world’s biggest offshore wind developer, and UK power utilities such as SSE.
These subsidies have most recently guaranteed offshore wind farms prices of £114/MWh and £119/MWh for their electricity, more than double current wholesale power prices.
One earlier type of contract provided prices as high UK wind farm costs fall almost a third in 4 years as £150/MWh.
These figures are not directly comparable to the £97/MWh revealed in the new report for the Offshore Wind Programme Board, because they relate to subsidies lasting 15 years.
The £97/MWh figure is based on the cost of producing electricity over the total lifetime of wind farms expected to last for 20 to 25 years. But some analysts question the industry’s progress in cutting costs.
“They appear to be making great strides but it’s very expensive electricity compared to the current wholesale electricity price,” said Peter Atherton of Cornwall consultancy.
“You can argue you needed to pay that as a stepping stone to lower costs,” he said — a view taken by the offshore wind industry that says the early subsidies helped boost a local supply chain and other advances that lowered costs.
