Making green energy affordable

Since 2018 
Going global

The cost of energy from new offshore wind energy farms is now lower than new-build coal, gas or nuclear power plants in Europe, and the lead time for offshore wind in mature markets is typically shorter. This makes offshore wind energy a competitive option to policymakers seeking to bolster their national efforts to decarbonise. A fact which can be seen directly in national build-out plans and future scenarios.

In Europe, for instance, national policy targets add up to more than 70GW by 2030. And in late 2018 the European Commission proposed a strategic roadmap for a European net-zero carbon economy by 2050, including up to 400GW of offshore wind power – more than 20 times today’s installed base. And in fact, the economically feasible potential for offshore wind power in north-western Europe exceeds 600GW – enough to cover more than 80% of the EU’s power demand^{Citation BVG Associates for Wind Europe, 2017. Offshore wind energy potential in NW Europe with a cost equal to or lower than EUR 65 per MWh by 2030.} .

 
Europe is no longer alone
But the most illustrative element of offshore wind energy’s amazing development is its rapid globalisation. Apart from China, which for some years now has invested in the technology, north-western Europe has long been the only home of offshore wind energy. This is changing rapidly, as governments in India, Japan, South Korea, Taiwan and the US are all deploying or looking to deploy offshore wind energy at large scale. And more countries are expected to join in the future.

Countries looking into offshore wind energy for the first time can benefit from the experience of both developers and governments from those first generations of offshore wind energy. They are ‘greenfielding’ a mature technology.

And with regional political demand for renewables boosting market volume, operational synergies and economies of scale can be achieved far faster than historic European developments. For instance, by designating larger areas for multiple neighbouring projects with a wellknown timeline, the utilisation of ports, vessels and other facilities may be optimised.

This can be seen, for example, on the east coast of USA and in Taiwan. Here, policymakers work on creating a political framework and a mass of projects to secure economies of scale and attract industry developers.

However, countries which develop their first offshore wind farms will generally see somewhat higher project costs than in north-western Europe, until a supply chain and a pipeline of projects are in place. When a market reaches ‘critical mass’, regional investment and localisation of the supply chain can reduce costs. This typically occurs when projects totalling a few GW are under way Citation BNEF (2018) .

With the global build-out rate of offshore wind energy accelerating further in the years to come, the decline in cost is expected to continue so that offshore wind energy will continue to outcompete fossil fuels across the globe.

Key questions when opting for offshore wind energy
Modern offshore wind farms are massive infrastructure projects, encompassing years of development, billions of EUR investments and a plethora of suppliers and subsuppliers.

This takes diligence from governments and industry. For policymakers and regulators considering expanding or including offshore wind energy in their country’s energy mix, the first task is to consider what the political goals are, and then to design a political framework to meet this end. In this deliberation, several key questions emerge.

Four of the most important ones are:

How to reach critical mass of the build-out?
A credible pipeline of opportunities makes it attractive for the industry and developers to invest locally at scale, as future return on investments is more certain. This can also lower the overall cost of the build-out if a critical mass of projects to localise parts of the supply chain is attained. Of course, this requires patience to set out and stick to the build-out plans.

Which role can developers and other actors play?
Developers are increasingly expanding the scope of their competences to gain a competitive advantage. This can be leveraged by exposing more elements of an offshore wind farm to competition. For instance, by letting developers target multiple potential sites, or by including the transmission system up to the onshore grid interface point in a tender to make developers compete for the lowest overall cost of the project.

How to design the right support scheme?
Long-term fixed price off-take contracts reduce risk significantly for the developers and thereby lower the cost of energy. Opting for Contracts for Difference (CfDs) or a power purchasing agreement is therefore a tool to reduce costs. The choice of contract defines the risk profile for developers, which again impacts cost of energy, as higher risk demands higher return.

How to capture a potential for regional coordination of build-out plans?
Depending on geography and existing infrastructure, offshore wind farms can be planned in cooperation between more utility service areas and even countries. This way, the utilisation of supply and infrastructure can be optimised on a regional basis, and offshore wind power can even be deployed in connection with other infrastructure projects, lowering total cost.