Making green energy affordable

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

Executive summary

Over three decades, offshore wind energy has emerged as a mature, proven and competitive green energy technology.

In just three decades, offshore wind energy has gone from a demonstration concept powering 2,200 households in Southern Denmark to a large-scale energy technology that is now powering millions of people across three continents.

Offshore wind power holds the potential to power hundreds of millions of people in a sustainable way.

It has become cheaper to produce energy from newly constructed offshore wind farms than from newly built coal or gas-fired power plants, and vast areas are readily available at sea.

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The global offshore wind energy industry matured in four phases. In each phase, steps were taken that pushed offshore wind energy towards increasing competitiveness:

1991 – 2001: The first offshore wind farms were built, mainly as demonstration projects in a few European countries.

2002 – 2011: Scaling up. The second phase saw the first modern offshore wind farm, Horns Rev 1, in 2002. After that, projects’ size and complexity grew, but the supply chain had yet to be developed. Short-term, this combination led costs to increase.

2012 – 2017: Driving down costs. In the third phase, industry committed to a hard push for cost reductions, which led to a 60% cost reduction, making offshore wind energy cheaper than new coal, gas and nuclear-based power generation.

Since 2018: In the fourth, current phase, we see offshore wind energy maturing and going global, moving beyond Europe into North America and Asia-Pacific.

In just six years, newly built offshore wind has become cheaper than fossil fuels

Levelised cost of electricity for different energy technologies (LCOE).EUR/MWh, 2018 prices, North Western Europe

2018

Nuclear

2018

Coal

2018

Natural gas

2012

167

Offshore

-63%

2018

Offshore

Source: Bloomberg New Energy Finance / Ørsted

The development of offshore wind power over the past three decades was made possible by the constructive interplay between visionary policymakers and industry. Governments ensured demand and volume through ambitious green energy targets, political support, funding of public research and dedicated offshore wind policies.

This created a long-term market outlook, enabling industrial developers to take the leap and commit to developing offshore wind parks at an unprecedented scale, which unlocked the financial resources needed to drive innovation and supply chain build-out, to mature the technology and ultimately to make it competitive.

The increasing volumes of offshore wind energy deployment has been instrumental in driving costs down. Historically, each time installed capacity of offshore wind power has doubled, the levelised cost of electricity has declined by approximately 18%.

The Ambition Loop for offshore wind energy

The drivers have been larger market volume, which has allowed for economies of scale, growing competition, investment into new technologies and technological improvements and a continuous maturation of the supply chain. The positive feedback loop – by some labelled an ambition loop – between government policy and business dynamics is a clear example of how new technologies can be matured.

The story of the maturation of offshore wind energy as a large-scale, costcompetitive green energy technology holds important lessons. That can be applied as we work to develop offshore wind energy in new markets and strengthen other new technologies, such as hydrogen or battery storage, that can complement solar and wind energy in a fully decarbonised energy system. It shows the importance of scale in facilitating innovation and bringing down costs, enabling still higher ambitions and even larger scale.

As more offshore wind capacity is installed, costs are decreasing

Corelation between the global installed offshore wind capacity (GW) and the global LCOE benchmark (EUR per MWh)

EUR per MWh

Source: Bloomberg New Energy Finance

Each time the installed capacity of offshore wind power is doubles, the levellised cost of electricity declines by approximately 18%

The drivers and indicators of the offshore wind energy cost-out journey

Key political drivers
Political wish to develop the national wind energy industry and fiscal concerns over energy imports leads to the first offshore wind farms

Key industry developments
No specialised supply chain

Few, scattered and relatively small demonstration projects

Turbines growing from 0.5 up to 2.3MW

Markets
Denmark, United Kingdom, Sweden, the Netherlands

Market volume
0.25GW

Annual industry investment
< EUR 0.1 bn

Typical project size
~20MW

Global deployment rate
~ 1 turbine / 28 days

Cost (LCOE)
No reliable data available

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

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

Cost reduction programmes

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

Offshore wind farm clusters effectively reduce O&M costs

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

Key political drivers
Costs have come down

Offshore wind energy is going global as more countries turn to offshore wind energy as means to transform their power system

Key industry developments
Floating foundations being piloted

Turbines growing from 8 up to 12MW, with expectations for even larger turbines

Markets
Denmark, United Kingdom, Sweden, the Netherlands, Finland, China, Belgium, Germany, Taiwan, Japan, USA, South Korea, Ireland, France, Poland, India +

Market volume
100+ GW

Annual industry investment
~ EUR 10 bn

Typical project size
800+ MW

Global deployment rate
2+ turbines / day

Cost (LCOE)
EUR <61 per MWh

In north-western Europe. The cost might differ in geographies where a local supply chain has yet to materialise

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1991-2001 The first offshore wind farms

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Making green energy affordable

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