Cost of offshore wind energy falls sharply

London Array

A report issued today reveals that the cost of energy from offshore wind farms has fallen by almost 11% over the past three years, ahead of schedule on its path to delivering the UK Government’s target of £100/MWh by 2020, and providing clear evidence that offshore wind can play a significant role in the UK’s sustainable energy mix in the coming decades.

The report charts progress between 2011 and 2014 on cost reduction and is measured in lifetime costs. The results closely mirror the competitive result achieved in the Contracts for Difference (CfD) auction results announced today by DECC, which set 15 year strike prices for offshore projects commissioning from 2017 onwards.

The Cost Reduction Monitoring Framework (CRMF) was commissioned in 2014 by the Offshore Wind Programme Board at the request of industry leaders and government. Today’s report has been delivered by the Offshore Renewable Energy (ORE) Catapult in collaboration with The Crown Estate, providing analysis of data gathered by Deloitte and DNV GL from offshore wind farms in UK waters.

It shows that:

  • The lifetime cost of energy from offshore wind has come down from £136/MWh in 2011 to £121/MWh for projects moving to construction between 2012 and 2014 (this is as measured across the longer whole life of a project, not just the 15 years covered by Government strike prices)
  • the biggest single contribution to cost reduction has been industry’s early adoption of larger turbines. 6MW machines are now being rolled out, compared to the 3MW turbines that were standard until recently

The report shows that continued innovation and cost reduction depends on the scale of growth planned for the sector. It states that “whilst progress has been made in the face of a reduced deployment outlook, it is not safe to assume that the supply chain will continue to invest in the required technology innovations if the size of the market is not sufficient.”

The report provides analysis of how and why savings have been realised, and identifies the on-going opportunities and challenges to further cost reduction.

Commenting on today’s report, Minister for Energy Matthew Hancock said, “The Cost Reduction Monitoring Framework and today’s auction results are welcome evidence of the progress on cost reduction being made by the offshore wind industry.  We’ve created the right conditions for significant levels of investment and are now seeing costs come down towards the target of £100/MWh – and with the potential to go further still.  This strengthens the UK’s position as the world leader in offshore wind, and creates an opportunity for new high quality jobs and growing local economies.”

Benj Sykes, Co-Chairman of the Offshore Wind Industry Council (OWIC), said: “Our Cost Monitoring work as well as today’s strike price announcements demonstrate that the industry is making rapid progress in bringing costs down, ensuring that offshore wind can play a central role in the UK’s future energy mix.  As an industry we remain committed to continuing our work to drive costs down further in the coming years”.

“The OWIC welcomes this report on the Cost Reduction Monitoring Framework, and the evidence that it provides of UK industry’s concerted efforts to drive down the cost of energy from offshore wind.

“Offshore wind is a UK success story. It is already providing enough power for 2 million UK households and thousands of UK jobs. But continued success requires ongoing cost reduction, and this report provides good news on the progress being made in delivering more affordable clean energy. It is crucial to understand that future progress will depend upon confidence in Government’s support into the next decade, as well as ongoing innovation and industry cooperation. Thanks go to the Offshore Wind Programme Board and ORE Catapult for this important piece of work”.

Andrew Jamieson, CEO of the ORE Catapult, said “Our CRMF report not only demonstrates excellent progress made in just a few years in making offshore wind a more cost-competitive, sustainable secure source of energy, but also illustrates the technology innovations and efficiencies required to deliver the targeted £100/MWh. Significant challenges lie ahead for the entire industry, and continued progress will require ever greater collaboration between industry, government and academia.”

Adam Bruce, Chairman of the Offshore Wind Programme Board, which has led industry effort on cost reduction, said “This new report demonstrates that industry is taking cost reduction seriously, and working hard to deliver on its commitments to become cost competitive.”

The report makes a number of recommendations on actions required to continue the reduction in costs for offshore wind, including:

  • Clarity is needed on the future programme and scale for offshore wind in the UK. Industry investors and supply chain innovators need the market opportunity to be clearly illustrated, such that sufficient investment can be attracted to reduce costs and support industrialisation.
  • New technologies for deeper water sites, e.g. foundations and electrical connections, are not being developed quickly enough. Opportunities to demonstrate these technologies should be facilitated by the offshore wind Industry.
  • Rapid technology innovation means that a significant amount of uncertainty continues to be priced into projects. This can be overcome by increased collaboration and better monitoring to increase data availability and improve analysis tools.
  • More focus is required to identify and address the gaps in skills and expertise required to deliver and operate offshore wind farms.
  • Industry needs to continue work on standardisation of key components, such as sub-stations, to minimise duplication.

The CRMF summary report and the analysis of data gathered by Deloitte and DNV GL can be viewed and downloaded at https://ore.catapult.org.uk/crmf.

 

Editors notes:

Levelised Cost of Energy (LCoE) compared to Strike Price

Levelised Cost of Energy (LCoE) is the cost to produce electricity over the total lifetime (20-25yrs) of the asset based on the expected MWh generated. It includes all costs to construct and to operate the asset, but does not take into account:

• The cost of selling the electricity (including fees/risk margins deducted by the power purchase agreement (PPA) offtaker.

• Working capital costs to reflect the timing delay of revenues

 

Strike Prices are the amount paid to a generator for each MWh of electricity produced over a 15 year Contract for Difference (CfD) term. Strike Prices are intended to produce a certain level of revenue and a reduced level of market risk, in order to incentivise investment in offshore wind. After the 15 year term, the generator is reliant on the market electricity price only.

Strike prices (over the 15 year term) are therefore expected to be higher than LCoE (over the 20-25 year term) for the following reasons:

• To allow the developer to recover an appropriate level of return over the life of the asset

• To cover the costs of selling the electricity into the market either through PPA or managing electricity price risk themselves

• To cover working capital costs incurred between generating electricity and receiving revenues.

 

About the Offshore Wind Industry Council (OWIC)

OWIC is a senior Government and industry forum established in May 2013 to drive the development of the world-leading offshore wind sector in the UK.

The OWIC is responsible for overseeing implementation of the Offshore Wind Industrial Strategy, and is the sponsoring body of the Offshore Wind Programme Board (OWPB) – a joint government / industry body responsible for driving cost reduction in offshore wind.

The OWIC is co-chaired by Benj Sykes, UK Country Manager of DONG Energy and Business and Energy Minister Matthew Hancock – reflecting government and industry commitment to the continued success and growth of the offshore wind sector. Membership comprises of government and public body representatives alongside senior executives from the development and supply chain community.

See: www.thecrownestate.co.uk/energy-and-infrastructure/offshore-wind-energy/working-with-us/offshore-wind-industry-council/

 

About the Offshore Wind Programme Board (OWPB)

The OWPB was established following the recommendations in the Offshore Wind Cost Reduction Task Force report (2012). Alongside this press release, today the OWPB also releases its 2nd Annual Report on its work.

The Board brings together senior representatives from industry (including developers and supply chain), UK and Scottish Government, The Crown Estate and Statutory Nature Conservation Bodies. It is based on successful models used in other sectors such as PILOT (the oil and gas taskforce).

The Board’s objective is to implement the Task Force’s recommendations to drive cost reduction, to treat the UK’s offshore wind sector as one business by assessing risks and barriers and tackle these by helping to find and implement solutions in partnership with the wider industry.

In October 2012, Adam Bruce, Global Head of Corporate Affairs for Mainstream Renewable Power, was appointed Chairman of the OWPB by the Rt Hon Edward Davey MP, Secretary of State for Energy and Climate Change. Adam co-Chairs the OWPB alongside Hannah Brown, Head of Industry and Investment in DECC’s Office for Renewable Energy Deployment.

See www.thecrownestate.co.uk/energy-and-infrastructure/offshore-wind-energy/working-with-us/offshore-wind-programme-board/

 

About The Crown Estate

As managers of the seabed out to the 12 nautical mile limit, The Crown Estate plays a major role in the development of the offshore wind energy industry in the UK.

To help make sure offshore renewables realises its full potential, it takes a proactive approach. This can range from engaging with statutory and non-statutory bodies, regulators, trade associations, local and national governments and representatives of the shipping, aviation and fisheries industries, to holding supply chain events for both offshore wind and wave and tidal projects.

Since 2000, The Crown Estate has run six rounds of offshore wind which have increased in scale and technical complexity as the industry has developed. Leases for projects and programmes are associated with waters around England, Wales, Scotland and Northern Ireland.

 

NB: All cost figures in this release and the CRMF report are stated in 2011 real terms.

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