Offshore Wind Journal
9. januar 2017 - 11:45
Offshore wind’s virtuous circle
2016 was in many ways an amazing year for the offshore wind industry as the cost of projects sanctioned in The Netherlands and Denmark fell more steeply even that industry optimists expected.
Even in the US, where the President-Elect is a climate change denier and has talked about tearing up the Paris Agreement several states are pressing ahead with plans for large-scale projects.
Levels of vessel activity in 2017 may not reflect the upturn, but from 2018 onwards demand is expected to grow on the back of large scale projects in the UK and elsewhere. Outside Europe, other countries such as Taiwan, Japan and India are also showing keen interest in offshore wind and will be encouraged by what they see happening to costs in Europe.
As BVG Associates noted recently, the winning bid of €54.5 /MWh for Borssele 3 and 4 by a consortium of Shell, Van Oord, Eneco and Mitsubishi/DGE demonstrated that offshore wind costs appear to have achieved a significant and sustained reduction. A combination of advances in technology, effective supply chain collaboration and favourable finance costs have driven the steep fall in prices. As the company noted, it is now vital that the industry continues along this costs reduction path to unlock additional volume, encourage innovation and reduce the need for subsidy.
BVG Associates’ Giles Hundleby’s analysis of the Borssele 3 and 4 tenders is instructive. As he notes, the winning bid for Borssele III and IV was 25 per cent lower than that achieved by Dong Energy in July 2016 for Borssele I and II. Firstly, he notes, with Mitsubishi Vestas Offshore Wind as nominated turbine supplier, the project can be assured of the latest and most cost-effective turbine technology.
Secondly, he notes, whilst Mitsubishi Vestas Offshore Wind and Mitsubishi Corp do not share a strict legal connection, there is enough ‘skin in the game’ from ‘team Japan’ to make it worth everyone’s while keeping the turbines running efficiently throughout their life, not just hitting availability targets to the end of the warranty period. “In the long-run, finding the root cause of any problems and fixing them is the most effective approach for overall windfarm LCOE, and this should flow through to lower OPEX and higher energy production,” he notes.
Finally, he says, we have to note that the only major lever available to the winning bidders with enough heft to enable this kind of reduction in cost to be achieved is the weighted average cost of capital (WACC). With interest rates remaining stubbornly low (and even negative in some countries), it seems like the consortium has found a way to structure their project with WACC of 5 per cent or below, which also probably forms part of the explanation for the even lower bid from Vattenfall at Kriegers Flak.
As he concluded, the good news for offshore wind is that low-cost capital can potentially be accessed by bidders on other projects, and is technology neutral (within reason). This means that it should not have an impact the ongoing drive to deliver technology-based LCOE improvements. Indeed, if lower prices unlock additional volume, and/or accelerate deployment, low-cost capital may drive faster technology development, a kind of virtuous circle that will help drive the future of the offshore wind energy industry as a whole.
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