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

2012-2017

Driving down costs


On one hand, by 2012, the ambitious national buildout policies had created a dedicated offshore wind energy industry. Developers were learning and generally completing projects with fewer delays and on budget.

On the other hand, in the light of austerity policies following the financial crisis, it became clear that costs for offshore wind energy had to be reduced to ensure continued political support.

Governments and industry entered into a dialogue to outline the possibilities and prerequisites of cost reductions.

In the UK, Ørsted was first to propose an ambitious cost reduction target in 2012 of driving down the levelised costs of offshore wind energy to EUR 100 per MWh by 2020, in effect setting an ambition to cut the cost by roughly one third. The UK Government set a similar target of GBP 100 per MWh.

This GBP 100 per MWh target was later adopted as an industry-wide target in the UK.

Ørsteds initial GBP 100 per MWh target was adopted as an industry-wide target in the UK

Cost reduction programmes
As market volume increased, new suppliers of turbines and other components entered the market, and competition to offer the best and most cost-effective solutions increased. Both industrial suppliers and project developers worked hard to optimise energy production and reduce their costs.

Developers individually sought to develop their competitive edge, but in some areas also joined forces to reduce costs collectively through industry-wide innovation. For instance, through programmes such as the UK-based Carbon Trust Offshore Wind Accelerator, which was jointly funded by the main developers of offshore wind energy, the sector aimed to advance best practice, overcome market barriers and reduce costs.

Lighter foundations – lower cost

The monopile is the most common offshore wind turbine foundation today, supporting more than 80% of all installed turbines.


Initially, the industry leveraged design principles developed for the US oil and gas industry in the 1970s and 1980s.

In 2013, Ørsted – together with 10 major industry partners and three universities – initiated the so-called PISA study to develop new design principles for monopile foundations.

In 2016, the study resulted in new design models, enabling foundations using significantly less steel. This new design made foundations cheaper to produce, transport and install – yielding improved economics for offshore wind farm development.

As experience with machinery and materials generally grows, new opportunities for optimisation emerge and costs can be reduced even further. This is the case for foundations as for other components such as towers, electrical systems and turbines.

For turbine manufacturers, the drive to reduce costs was a strong incentive to develop larger turbines with longer blades and higher output – a particularly important development, as larger turbines mean fewer installations, fewer foundations and fewer units to service, all leading to reduced costs.

The increased competition transformed the industry. All along the offshore wind energy value chain, processes were streamlined, turbines and other components became standardised, and remote monitoring and simulation was being implemented. All of which helped reduce costs.

From 2012 and for the next couple of years, turbine manufactures launched new turbines, reaching 6, 7 and even 8MW – effectively quadrupling the 2.0MW-turbines installed in 2002 at Horns Rev 1 in Denmark. To put this scale into perspective, a single 8MW turbine can cover the electricity demand of more than 7,000 UK households.

8

Policy framework increases competition
In 2013, the UK government carried out an important reform of the electricity market. Until then, renewable energy had been promoted through the Renewables Obligation Certificates (ROCs), whereby renewable energy producers would receive certificates for their generation, to be sold to utilities to cover their mandated quota. Instead, the government wanted to strengthen competition through auction rounds, while increasing security for the projects with a guaranteed strike price. Ultimately, the governmental decision, in 2013, to shift to Contracts for Difference (CfD) was instrumental in reducing the cost of build-out.

This change to a new support regime risked inhibiting the industry’s momentum given the uncertainty the transition period which could have resulted in an investment hiatus.

To counter this, the FID enabling contracts scheme was put in place, offering advanced projects a CfD, conditional on the market reform being ratified. This enabled selected projects to proceed with development and proved of paramount importance in securing an uninterrupted buildout rate, thereby underpinning the industrial build-up.

In April 2017, the world’s first zero-subsidy offshore wind energy contract was awarded

The reform was an important milestone on the journey to today’s modern offshore wind energy industry. It led to developers taking a ‘leap of faith’ by committing to building projects of yet unprecedented scale and price levels, totalling almost 3,200 MW across five projects, and it spurred a new level of competition between the suppliers and developers to drive down costs.

Alongside the UK, other governments sought to increase competition. In the years 2015-2017, several new auctions in the Netherlands, Denmark and Germany clearly demonstrated the falling costs of electricity from offshore wind energy, as sharp focus on efficiency and economics of scale materialised.

In April 2017, the world’s first zero-subsidy offshore wind energy contract was awarded in Germany’s first offshore wind energy tender Citation The contracts do not include transmission assets, which are provided by German and Dutch transmission system operators, respectively. . Similar zero-bids followed for specific sites in the Netherlands. And in September 2017, the 1,386MW Hornsea Project 2 was awarded a CfD of GBP 57.5 per MWh, significantly undercutting the 2020 target of GBP 100 per MWh.

The evolution of offshore wind farms 1991-2021

approx. number of UK homes powered

The contracts do not include transmission assets, which are provided  by German and Dutch transmission system operators, respectively.
  

Research and standardisation

The historic advancements within the offshore wind sector is owed to the effort of both public and private research, forming of partnerships to address specific challenges, and to governments working with academia and industry to enhance/accelerate the technological development. This has led to both the technology of a modern offshore wind power plant and shared industry norms and standards, enabling economies of scale.

From its outset, offshore wind technology relied heavily on advances made in the much larger onshore market, which had emerged in north-western Europe following governments’ effort to diversify energy production after the two major oil crises of the 1970’s.

When market volume grew, so did offshore wind energy as a specialised research area. Initially, the focus was to develop technical norms and standards for offshore wind turbines and to ready the turbine models for harsh offshore conditions.

As offshore wind projects reached utility scale in the early 2000’s, the research scope expanded to the entire offshore wind power plant. Norms and standards were now developed at farm level. Research in seabed, waves and wind conditions enabled improved foundations and farm layout to increase yield. And by 2014, the first projects using dedicated offshore wind turbine platforms were commissioned, following years of research and development.

Today, research and development projects on grid integration and sector coupling have emerged, as energy markets are increasingly dominated by renewable generation.

Development through pragmatic collaboration
Industrial players have generally been pragmatic in partnering together and with research institutions on a project-by-project basis. And to optimise resource allocation, industry associations and governments established fora to identify strategic challenges in order to target public and private research spending towards overcoming these challenges. This coordination helped creating a pull demand for innovation and facilitating technologies as they moved towards commercialisation.

Long-term commitments by governments to underpin the research in offshore wind also allowed for common large-scale test facilities, where components and even entire turbines could be tested in full scale

  

In sum

2012-2017

   

Key political drivers

 Governments and industry shift focus  to bringing down costs

Renewed governmental support key  to developing the industry

In the UK, the FID enabling contracts scheme allows developers to place

large orders for upcoming projects

Key industry developments

Industrialisation of supply chain and  cost-cutting programmes

Flexible service operation vessels introduced, O&M increasingly done remotely,using drones, cameras and new digital technologies

Turbines growing from a typical 3.6 up  to 8MW

 

Markets

Denmark, United Kingdom, Sweden, the Netherlands, Finland,  China, Belgium, Germany, Taiwan, Japan, USA                                   

Market volume     

12.3GW

Annual industry investment

~ EUR 10 bn

Typical project size

~400MW

Global deployment rate

~ 1.5 turbines / day

Cost (LCOE)

EUR ~167-65 per MWh

 

  

     Continue to

Since 2018 Going global

  

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