Improvements in technology and project management have helped drive down the costs of offshore wind projects. But how sustainable is this trend? Catherine Early reports.

In 1991, turbines installed at the world’s first offshore wind project off the coast of Denmark had a capacity of 0.45MW. Fast-forward to 2017, and turbines at Triton Knoll, one of the winners of record-breaking low-cost contracts for UK offshore wind energy in the 11 September contracts for difference (CfD) auction, have a capacity of 9.5MW.

Improved turbine technology is just one of many innovations that have led to the industry breaking all expectations on cost reduction, arriving close to the price of new gas plant. The sector has been heavily focused on cost for several years. In 2011, the government challenged it to cut the levelised cost of energy (LCOE) at the final investment decision stage for offshore wind projects by a third, to £100/MWh by 2020.

At the time, this seemed ambitious, since projects in the pipeline were further out to sea than those that had been built previously, and the cost implications of this were not fully understood. Furthermore, up until around 2012, offshore wind costs had been rising. But last year it was revealed that not only had the target been met early, it had been exceeded. Projects reaching final investment decision in 2015/16 achieved an LCOE of £97/MWh.

Technology drives falling costs

These factors came into play with a vengeance in the projects that won contracts in the latest CfD auction. Project developers all cited improvements in technology as a significant factor in their ability to bid in with lower prices. Turbines, installation equipment and foundations are all vastly more efficient than they were. Higher voltage cables (66kV rather than standard 33kV) can accommodate more power and reduce transmission losses, while lightweight transformers provide lower cost alternatives to larger substations.

In addition, the cost of operations and maintenance has been forced down by the downturn in the oil and gas sector. This led to an increased supply of non-specialised installation vessels, which resulted in lower rates for hiring ships, according to trade body Renewable UK.

The organisation also points to the growth of the UK supply chain, enabling developers to source competitively priced content locally rather than having to import it. Manufacturer Siemens opened a blade factory in Hull last year, while rival MHI Vestas has a manufacturing plant on the Isle of Wight.

Renewable UK’s chief executive, Hugh McNeal, said the fall in costs in the offshore wind industry was “the kind you’d normally associate with consumer electronics goods rather than multi-billion pound infrastructure projects”.

The larger size of projects and turbines, together with developments in cabling and foundation technology, have all helped developers make savings, he says. And new sources of capital are giving developers a better rate of return on investments, he adds.

How low can costs go?

The industry is bullish that it can continue to drive down costs further. “The price levels at the latest auction would have been branded impossible just two or three years ago when there were projects that had prices of £150/MWh,” says James Cotter, project director at Triton Knoll.

But the nature of cost reduction will shift from physical equipment towards project management, he believes. “We can always become more efficient with foundations, which might cut costs by another 5-10 per cent. But it’ll be more about how we work together, and how we apportion risk,” he says.

Risk typically used to be transferred to the operations and maintenance contractor, but it makes more sense cost-wise to instead work in partnership with them, as the oil industry did in the late 1990s, he says.

Matthew Wright, managing director for Dong Energy UK, believes that although the dramatic cost reductions in recent years will be tough to replicate, there is no reason to believe the industry has achieved its full potential on costs. “Even mature technology continues to improve. So the pace of reduction may slow but the supply chain and ourselves are constantly innovating,” he says.

However, lack of government policy on offshore wind could hamper further reductions, some believe. In its 2015 manifesto, the Conservative party promised that there would be three CfD auction rounds before 2020, with £730 million support available. But the current government has not confirmed when the second and third rounds will take place, if at all. Neither has it mentioned how much financial support will be available. The publication of its clean growth strategy has been repeatedly delayed and nothing has been said about policy for after 2021.

There are still projects outstanding from the second and third offshore wind licensing rounds that have yet to receive support via auctions, without which they might not be built, says Robert Gross, director of the Centre for Energy Policy and Technology at Imperial College.

“If you’re looking at making an investment in wind, you’ll be looking for long-term contracts, otherwise it’s too risky. International investors have no shortage of opportunities for offshore projects all over the world, so the government needs to be clear that there will be a contractual offer if it wants to attract investment to the UK,” he says.

Jonathan Marshall, energy analyst at the Energy and Climate Intelligence Unit, warns: “It will be a lot more expensive to get access to finance if future revenues aren’t certain. So unless the next two auctions are announced, the policy gaps will lead to higher finance costs, which will offset cost reductions from the industry becoming more mature.”

Project: Hornsea Project 2

CfD strike price:     £57.50/MWh

Developers:     Dong Energy

Location:     89km off the Yorkshire coast

Capacity:     1,386MW

Delivery year:     2022/2023

Matthew Wright, managing director of Dong Energy UK, says the company’s large number of offshore wind projects is a significant factor in keeping down the costs of Hornsea 2. Dong Energy’s pipeline includes the 659MW extension to the existing Walney project; the 580MW Race Bank; and the 1.2GW Hornsea Project 1, which will be the largest offshore windfarm in the world. This has created economies of scale both in construction, and operations and maintenance, Wright says.

“In the case of Hornsea 2, we have Hornsea 1 in close proximity. It will be the fifth project run out of our operations and maintenance centre in Grimsby. You really get economies of scale that way,” he says.  

In addition, the company has gained significant experience from its other projects. “Hornsea 2 will be our 12th or 13th project in the UK . We’ve learnt an enormous amount in terms of seabed conditions and how best to build projects.”

Experience has enabled the company to increase the speed at which it installs turbines, and connect them to cables and substations. “Cost savings have come from every area of the business, and from the experience of doing more and more projects. Like anything else, the more times you do something, the better you get,” he adds.

Project: Triton Knoll

CfD strike price:     £74.75/MWh

Developers:     Innogy (50 per cent) and Statkraft (50 per cent)

Location:     32km off the Lincolnshire coast and 50km off the coast of north Norfolk

Capacity:     860MW

Delivery year:     2021/2022

There are several influences driving the low strike price achieved by the project, according to James Cotter, project director at Triton Knoll.

The offshore wind industry is now maturing, which has driven better understanding of costs at all points in the project’s lifecycle from design to construction and operations and maintenance, he says.

The Triton Knoll project will be using some of the latest offshore turbines on the market, the V164-9.5 MW turbine, launched two months ago. Manufacturer MHI Vestas claims that the turbines are the most powerful and efficient on the market.

Cotter explains that the project will be located in a patch of relatively shallow sea, which means that the project can use monopile foundations – effectively giant steel pipes hammered into the seabed – which are the cheapest type of foundation to install.

Collaborating with companies in the supply chain has also been key to finding new ways to keep the costs down, Cotter explains. For examples, offshore wind turbines have traditionally needed a lot of maintenance due to conditions at sea. This is expensive because maintenance engineers have to be transported to remote locations, sometimes using helicopters and staying overnight in specially-designed ships.

To reduce the cost of maintenance, the team working on Triton Knoll have carefully considered exactly how much maintenance each piece of plant and equipment needs. “We’ve worked very closely with the supply chain to make sure that we can carry out the maintenance as efficiently as possible,” Cotter says.

Project: Moray East

CfD strike price:     £57.50/MWh

Developers:     EDPR and Engie

Location:     Moray Firth, off the northeast coast of Scotland

Capacity:     950MW

Delivery year:     2022/23

Moray East achieved its low cost in large part because of improvements in turbine technology, in particular turbine capacity, according to a spokesperson for EDPR. A smaller number of turbines will be needed to produce the electricity than would previously have been the case, which has knock-on effects on the costs of installation, associated infrastructure and maintenance, he explained.

He would not say what turbines will be used in the project, but this will be announced soon. Innovation and co-operation by the project’s supply chain have also played a part in bringing costs down, he said.