Come 2020, a new landmark will stand proudly off the coast of the English county of Yorkshire: Hornsea Project One will have become the world’s largest offshore windfarm. While it’s unlikely to feature on many postcards, its patchwork of towering white pillars and colossal fins are testament to a growing appetite throughout Europe for low-carbon alternatives, and its completion could herald the birth of a new energy landscape post-COP21.
Brent Cheshire, MD of Dong Energy – the firm commissioned to build Hornsea Project One – called the windfarm “hugely significant”, and remarked on the “vital role” the sector will play in Europe’s transition. Once completed, he said, the windfarm will boast a total capacity of 1.2GW, and will be the first to provide capacity greater than 1GW by a considerable margin. “It is groundbreaking and innovative”, he continued, “powering more homes than any offshore windfarm currently in operation.”
Depending on your persuasion, the project is either a sign of the sector’s near limitless potential, or an indication that wind will only ever amount to a footnote in Europe’s energy story. A closer look, however, shows neither to be the case.
Blow me down
Last year, the European offshore wind industry logged its most impressive 12 months to date. In all, a mammoth 3,018.5MW of new capacity came online – an increase of over 108 percent on the year before – and 419 new turbines were erected. Wind Europe data also shows the continent ended with a total of 11GW in offshore capacity, not including six outstanding projects. In a statement, a spokesperson for the European Wind Energy Association called it “a very promising sign”, before adding that “stronger years are expected towards 2020”.
The European offshore wind industry logged its most impressive 12 months to date. In all, a mammoth 3,018.5MW of new capacity came online
As much as investment is expected to take off towards the latter part of the decade, the continent is already a hive of activity. Northern Europe on its own accounts for more than 91 percent of the world’s offshore capacity, specifically in the North, Baltic and Irish Seas, and the English Channel. Critics rightly claim the offshore segment of the wind industry accounts for a meagre three percent of the whole, yet its practicality is undeniable.
Martin Neubert, CSO at Dong Energy, said there have been several major drivers. First, he said, projects have grown in size from an average of 100-200MW 10 years ago to 400-600MW today. There have also been tremendous developments in terms of component technology, i.e. turbines, foundations and electrical systems. The result is that whereas in 2002 Dong installed 2MW turbines with a rotor diameter of 80 metres, the company today installs 8MW turbines with a rotor diameter of 164 metres. This is an unrecognisable industry when compared to that of a decade ago, and the entire supply chain, including offshore logistics, has transformed from handcrafted, single-unit, made-to-order production to high-tech automated mass production with a much higher level of standardisation.
Based on these and other advantages, proponents insist offshore wind is well placed to make up an essential part of the continent’s energy mix, and will be essential if Europe is to realise its commitments to climate change, energy security and the low-carbon economy. The International Energy Agency suggested wind power could make up an 18 percent share of the global energy mix by 2050, and with many of the most notable farms already being in Europe, the rise of wind power could play nicely into the continent’s hands.
Climate change continent
As important as a dynamic renewables sector is to the powers of western Europe in terms of competitiveness, the issue of energy security is as much a factor in the development of wind power. While demand for electricity is expected to remain nearly constant through to 2050, fossil fuel production is forecast to slip 50 percent. And this issue of reduced output, together with the spectre of price volatility, makes the case for the commercial deployment of renewables all the more convincing.
“In a context of strong commitment on greenhouse gas (GHG) emissions reduction, and uncertainty on fossil fuel prices and energy security, the large-scale deployment of renewable energy capacity appears indispensable to Europe moving forward”, according to a recent EY report. “Offshore wind energy represents a crucial component of the future European energy system.”
The EU has already achieved a 19 percent reduction in GHG emissions and a 45 percent growth in GDP from 1990 to 2012
Having already achieved a 19 percent reduction in GHG emissions and a 45 percent growth in GDP from 1990 to 2012, the challenge for the EU and the rest of Europe is to decouple economic growth from emissions. A 40 percent reduction below 1990 levels is a good start, as is a pledge to ensure renewables make up a 27 percent share of the energy mix. And, assuming policymakers are serious about these commitments, offshore wind promises to play a decisive part in the low carbon transition.
Testament to the sector’s newfound attractiveness is Dong Energy’s IPO earlier this year, which ranks as the year’s most valuable listing. On its market debut in Copenhagen, shares jumped an impressive 10 percent, establishing the company’s value at around $16.5bn. More impressive than that is the fact Dong previously focused the near entirety of its resources on power generation and oil exploration, yet the development and operation of offshore windfarms today makes up three quarters of the company’s business. Speaking to the Financial Times, Dong’s CEO, Henrik Poulson, suggested there was “significant global investor interest in green energy”, and referenced exactly that as the reason for the company’s switch from “black to green energy”.
Fighting fit
Certainly support for new builds like Dong’s is on the rise, and as much could be seen in June when a band of European energy firms called on Brussels to set the continent’s wind-powered revolution in motion. In a joint letter, executives at General Electric, Siemens, RWE, Iberdrola, Statoil and six other major energy firms wrote: “Offshore wind will be fully competitive with new conventional power generation within a decade. The industry is on track to achieve its cost reduction ambitions and will be an essential technology in Europe’s energy security and decarbonisation objectives.”
Electricity derived from onshore farms is already cheaper than conventional power in some places, and proponents claim the same could soon be true of its more costly offshore counterpart. Should EU policymakers decide to take the necessary steps to facilitate the sector’s expansion, Europe could make a name for itself as a stable, long-term market, not just for wind power, but for renewables as a whole.
Electricity derived from onshore farms is already cheaper than conventional power in some places
EY is clearly in agreement, writing: “European seas hold the key to producing clean, secure and reliable energy. The energy potential of offshore wind resources is immense. Even factoring in other economic activities at sea, the technical potential of offshore wind resources is estimated to be sufficient to fulfil Europe’s electricity demand by 2030.”
Since the early 90s, the wind industry has been subject to a number of technological innovations, not least in terms of productivity. The power generated by the world’s first offshore windfarm in Denmark is equivalent to a single 5MW turbine today, and the rate at which the technology has improved means prices have come down considerably.
According to the aforementioned signatories, by the year 2025 offshore wind power should cost no more than €80/MWh, which compares favourably to both coal and natural gas – assuming the former is subject to carbon pricing and the latter is mostly imported. This would mean the price will have approximately halved in the space of a decade. Again, these assumptions rest on the proviso that governments either dole out subsidies for renewables or impose penalties on fossil fuels, and it’s on this point that companies with a stake in wind have been most vocal.
Footing the bill
Bloomberg New Energy Finance findings show offshore wind farms on average cost around €141/MWh. The cheapest site to date is Vattenfall’s Horns Rev 3 project in Denmark, which should cost €103/MWh once completed. Having already established a sizeable presence in the market, Vattenfall intends to double its installed wind power capacity to 4,000MW by 2020, and the €5.5bn set aside for just this purpose is indicative of a growing confidence among energy firms that the demand is there.
Gunnar Groebler, head of the company’s wind division, said: “The construction of offshore wind farms has undergone rapid technological development during the few years since this young industrial sector got started. That development is now steadily continuing in areas such as operation and maintenance of wind power plants at sea. I am confident that this will have a positive impact on costs and competitiveness, especially for future offshore projects. We need real competition to achieve further cost reductions and secure long-term acceptance of this technology.”
Whether the sector can realise its potential rests on government policy and rising efficiencies. And, while Vattenfall is happy to plough billions of euros into the sector, others are less than convinced by the proposition. Some €13.3bn went wind’s way last year, yet the initial costs are enough to unsettle uncertain investors, for whom the sector’s expansion rests on the assumption that policymakers will continue to foot a large part of the bill.
While the capital costs of onshore wind have come down by over half in the past five years, costs for offshore have, up until very recently, actually increased
In the past, the commercial deployment of offshore wind has been stifled by concerns regarding capital expenditure. Prohibitively expensive installation costs, a dearth of OEM competition, and a lack of dedicated infrastructure have all featured, and while the capital costs of onshore wind have come down by over half in the past five years, costs for offshore have – up until very recently – actually increased. According to an Oxford Institute for Energy Studies report: “There are legitimate concerns about the high costs of supporting offshore wind through direct support mechanisms such as feed-in tariffs, and reasonable doubts exist about the potential of the industry to significantly reduce deployment costs.”
It’s no secret that a boom in wind power in the UK and Germany rests on the expansion of government subsidy programmes. Handouts in the tens of millions have obscured the true costs and significantly lowered the barriers to entry for cash-strapped energy firms. Critics claim these same handouts have not only distorted the competitive landscape, but raised electricity prices. And, even with the added incentive of public money, many a project has been slow to reach the construction phase.
As the undisputed leader in offshore wind, the UK holds a 45.9 percent share of the market. When, in the 1990s and 2000s, landowners opposed land-based farms, these ‘eyesores’ were forced offshore, where much of the opportunity lies. As the country is by no means blessed with high wind speeds or accommodating geography, onshore wind has no future in the UK – or on the European mainland for that matter – and offshore has benefitted greatly from this.
As much as the UK has a firm hold on the market leadership, Germany is catching up fast. Where the former connected 556MW of offshore power last year, the latter connected a whopping 2,282MW, making up almost half of the total. Unsurprisingly, Germany’s rise is again heavily indebted to generous government support, without which its status as a world power would not be so assured. Should other countries decide to follow suit with as bold a regulatory vision, it’s not altogether unrealistic to suggest offshore wind could play a critically important role in leading the shift to a low-carbon economy.
Knowing this to be true, any advantage over rival energy sources must be tempered with a word on policy support – or lack thereof. Scalability, predictability and proximity to major demand sectors are but a few of the qualities that set it apart from the competition, though it’s fair to say reasonable doubts exist about offshore’s viability beyond 2020, when existing EU targets make way for less stringent 2030 requirements.
Breezy future
The reading of the situation offered by GE, Statoil, Vattenfall and others speaks of a sector that could be fully competitive within a decade. “Policymakers at European and national level must set out clear visions for the industry after 2020 with robust laws that give investors peace of mind and visibility well into the future”, said the joint statement. “As costs come down rapidly, the wind industry continues to meet its commitments. We now urge Europe’s governments to work together to ensure offshore wind can be central to the continent’s energy mix in the years to come.”
Policymakers in Europe, at national and European level, must set out clear visions for the windfarm industry post-2020
The rise of Germany in the last year or so is a positive sign, as is a Memorandum of Understanding that was recently signed by energy ministers from Germany, the Netherlands, Luxembourg, Norway, Sweden, France, Denmark, Ireland and Belgium, in which they agreed to reduce costs.
However, as numerous as the sector’s advantages are, an element of uncertainty continues to cloud its prospects, and will do so for as long as policymakers are slow to stake a claim. Visionary leadership and an accommodating regulatory environment together have the power to cement offshore wind’s place as a mainstay of the global energy mix, though for now there are too many nations as yet unconvinced by its benefits.
“Given the significant lead times for offshore wind development, the industry (developers and the supply chain) needs stable, long-term policy frameworks”, said Neubert. “Policymakers in Europe, at national and European level, must set out clear visions for the industry post-2020, with robust policy frameworks that allow significant investments in project development, supply chain and technology development, which will enable the industry to achieve its ambitious cost targets.”
Doing so could drive further investment and restore confidence that offshore will one day compete with conventional power. For now, the sector stands at a crossroads, and its path depends all too heavily on those presiding over policy.
As much as supporters are flaunting the promise of a sub-€80/MWh price in the hope that businesses and governments will commit, the economies of scale and policy framework on which this price rests will arrive only if both sides of the equation agree to recognise the need to weigh in on renewables. Any suggestions that offshore will be the life or the death of Europe’s energy stability, therefore, are either misinformed or misguided. For now at least, Europe’s offshore wind sector can only wait for a policy framework that could either make or break its credentials as the continent’s energy saviour.