Making green energy affordable

       How the offshore wind energy industry matured
        – and what we can learn from it

Table of Contents
  1. Foreword
  2. Executive Summary
  3. 1991-2001 The first offshore wind farms
  4. 2002-2011 Scaling up
  5. 2012-2017 Driving down costs
  6. Since 2018 Going global
  7. What we can learn from the offshore wind energy cost out journey
  8. Get in touch with the authors
  9. About Ørsted

2002-2011 Scaling up


By the turn of the millennium, a sizable pipeline of upcoming projects in north-western Europe started to emerge.


The technology was moving forward. In 2002, Horns Rev 1 was commissioned in the North Sea west of Denmark. At 160MW, Horns Rev was a significant technological milestone, marking the transition from the demonstration phase to utility scale offshore wind power plants. It was the first offshore wind farm to use steel monopile foundations 18km from the coastline, and the first to have its own designated offshore substation.

Pipeline emerges in the UK
The UK’s first seabed leasing round, launched by The Crown Estate in 2000, made the UK the leading offshore wind energy market overnight. The result was a total of 1,100MW to be installed across 11 projects in the following years. The UK model let developers propose sites for new projects, which allowed for competition in scoping and pre-development of projects.

160

In 2003, The Crown Estate in the UK completed its second leasing round for offshore wind, this time awarding capacity consent to 15 projects, with a previously unseen capacity of 7,200MW. And in 2008, The Crown Estate surpassed the capacity of the first two leasing rounds. In this third round, nine development zones were awarded a cumulative capacity of up to 32,000MW. Offshore wind energy developers were now looking at building multiple farms in the hundreds of MW scale, typically situated 20km from the coast or further. While the projects had yet to secure subsidies and take final investment decisions, the second and third rounds indicated future build-out at an unprecedented scale. The growing pipeline also motivated several turbine manufacturers to enter the market for dedicated offshore wind turbines.

In the late 2000s, European politicians responded to an increasing demand for action on climate change

National renewable energy targets
Towards the late 2000s, European politicians responded to an increasing demand for action on climate change. In 2007, the European Commission proposed the ‘2020-20 targets’, calling for 20% reduction in greenhouse gas emissions, 20% renewable share of gross final energy consumption and the EU using 20% less energy compared to business as usual – all by 2020.

The targets were adopted by the European Parliament and EU member states in 2008 and implemented in the Renewable Energy Directive of 2009, mandating national binding targets for renewable energy build-out. This led more countries to formulate or increase their own targets for offshore wind power, increasing market volume further.

Offshore Wind Farms have grown big

Securing finance through partnerships
Along with the increasing size of offshore wind farms, utilities began partnering with each other on a projectbyproject basis, to gather know-how in offshore wind energy projects and share risk.

Utilities also began to enter partnerships with institutional investors to secure capital. This helped developers finance new projects and to diversify their risk, while offering investors a stable and predictable return.

For instance, London Array, which was awarded in 2003 as part of the second leasing round and was the world’s largest offshore wind farm at its commissioning in 2013, was financed by a group of utilities and institutional investors, including Ørsted, and the Canadian pension fund CDPQ.

Utilities began partnering with each other on a project-by-project basis to gather know-how

 

Gradually, institutional investors such as Danish PKA and Pension Danmark entered into project partnerships at earlier stages of the development, where risks of delays and budget overruns are at their largest. This demonstrated a growing understanding of offshore wind farms as a new asset class and greater confidence in the projects being delivered on time and on budget.

The combined national build-out plans in northwestern Europe laid the foundation for needed investment in upgrading the supply chain.

With this newfound visibility, turbine manufacturers announced larger turbine platforms, and throughout the industry, production facilities were put in place for a new generation of blades, towers, nacelles, substations and the foundations needed to support them.

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However, the market was still new. Some suppliers were reluctant when investing in production facilities and sought to secure their returns quickly. This meant a premium was generally required for the first farm in an area, or for the first farms using a new and larger turbine model to help finance procurement of installation vessels, dockside facilities and factories for large components.

Highlight

Bulk purchasing


In 2009, Ørsted entered into a framework agreement with Siemens to supply up to 500 of its newly developed 3.6MW turbines. It was the largest single order for offshore wind turbines to date and provided a base for investment in production facilities for Siemens, while delivering procurement cost synergies for Ørsted’s future offshore wind energy projects.

Increasing complexity and cost
Increased project scale demanded new production lines and installation methods and called for turbines, foundations and electrical systems all to be specifically designed for large scale offshore generation. Concurrent with their growing size, offshore wind farms moved further from shore to benefit from stronger winds and in response to public preferences for reduced visual impact.

This added complexity of the new and larger projects, wind farms moving further offshore and the need to build up a new and larger supply chain all meant higher costs. While some of the increase could be offset by mass production and economies of scale, the second phase of offshore wind power saw costs of energy (LCOE) increasing from around EUR 90 per MWh to EUR 167 per MWh, with some projects going even higher.


  

In sum

2002-2011

   

Key political drivers

Emerging political demand for climate action and new EU targets

More countries implement policies to promote and accelerate offshore wind energy build-out

Key industry developments

Increased scale and complexity without a firm supply chain in place increases costs

Operations and maintenance by specialised vessels. Helicopters used routinely

Turbines growing from 2.3 up to a typical 3.6MW

 

Markets

Denmark, United Kingdom, Sweden, the Netherlands, Finland, China,    Belgium, Germany             

Market volume     

6.4GW

Annual industry investment

~ EUR 2 bn

Typical project size

~100MW

Global deployment rate

~ 1 turbine / 2 days

Cost (LCOE)

EUR ~90-167 per MWh

 

  

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2012-2017 Driving down costs

  

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