Offshore wind costs have further to fall, says Dong

"No suggestion at all" that costs are close to bottoming out

Offshore wind costs have further to fall below the headline-grabbing strike prices achieved in the latest Contracts for Difference (CfD) auction, a senior figure at Dong Energy has claimed.

The sector will continue to bring down costs substantially through learning and economies of scale, said UK managing director for Dong Energy, Mathew Wright.

Speaking at the annual conference of the industry trade association Energy UK, Wright told the audience that although many people had been surprised by the low strike prices, they probably shouldn’t have as “what we’ve seen is the application of economic theory – experience curve effects and economies of scale.”

“Every part of the lifecycle, every part of the development cycle of offshore has been looked at and we’ve seen efficiencies coming in every part,” said Wright.

He said anyone who questioned whether the sector can carry on making significant progress on costs should look to the automotive industry, where internal combustion engines continue to become more efficient, despite the technology being extremely mature.

“Even mature technologies can and do become more efficient over time and there’s no suggestion at all that we’ve reached the bottom in terms of the effectiveness and efficiency of offshore wind,” he added. “There’s every reason to suggest that costs will continue to come down.”

Dong Energy’s Hornsea Project Two was one of two offshore wind developments to secure a strike price of just £57.50/MWh in the most recent CfD auction.

Former energy secretary and current Liberal Democrat MP Ed Davey said there is lots more room for cost-saving innovation in the offshore wind sector, for example from floating winds farms, such as the one which opened this week in Scotland, or co-location with other forms of offshore generation such as tidal.

He said, despite the progress on costs, the government “can’t just sit back” and leave the sector to move forward on its own as some innovations will require its support.

Davey welcomed the announcement in the government’s Clean Growth Strategy that offshore wind projects will be able to bid for a further £557 million of annual subsidies in the in the next CfD round, adding: “It looks to me like the Conservative government, or the Conservative party, has changed its position on this.

“Some of them were supportive during the coalition. It looks like the prices achieved in the recent auction have convinced ministers this is the right way to go. We’ve really turned a political corner and there is now consensus that this is the big power opportunity for the UK.”