Driving down the costs of offshore wind

Offshore wind projects are expensive to build and thus the price of electricity to consumers is higher than electricity generated by onshore wind farms and fossil fuel plants such as coal and natural gas. That's the bad news. The good news is that with government support for research and development, offshore wind costs can be driven down considerably. (GW)

Wind turbine price 'could fall 25% by 2025'

UK Energy Research Centre says competition and innovation will reduce costs – provided government backs industry

By Adam Vaughan
Guardian
27 September 2010

Offshore wind in the UK cost about £149 per megawatt hour in 2009. Photograph: Christopher Furlong/Getty Images

The UK's efforts to hit its renewable energy target are likely to be boosted by a near-25% fall in the cost of offshore wind turbines by 2025, engineers claimed today. But they warned that the prices may not fall – or could even rise – if the government cuts its financing of research and development, or if competition between wind turbine makers or improvements in technology do not materialise.

Last week the Carbon Trust, which has an offshore wind accelerator R&D fund, was named on a list of government quangoes under review, while US wind turbine maker Clipper entered crisis talks with its parent company over "significant liquidity strain".

Today's report by the UK Energy Research Centre follows the opening last Thursday of the world's largest offshore farm off the coast of Kent, and predicted that offshore wind was likely to fall from £149 per megawatt hour (MWh) in 2009 to around £115/MWh in 2025. The fall, it said, would come from competition between turbine-makers driving down prices, innovation, manufacturing scale and standardisation and a better UK supply chain.

Offshore wind is seen by government as crucial in the push to meet a target of generating 30% of electricity from renewable sources by 2020, but is currently almost twice as expensive as electricity from gas power stations. The UK currently has only 1GW of installed offshore wind, the equivalent of one coal-fired power station.

Like the opening of the Thanet offshore farm, where British firms reaped just 20% of the £900m invested in the project, UKERC's report highlights the UK's reliance on foreign technology. Around 80% of offshore wind components are imported, it says, meaning the UK is failing to grow jobs and cut costs by reducing exposure to fluctuating exchange rates.

Robert Gross, the report's chief author, said: "The UK is not yet fully benefitting from being a world-leader in the field [it has the world's highest installed capacity of offshore wind power]. In effect UK consumers are subsidising Danish and German wind energy companies."

Gross also said that while it is feasible in engineering terms for around 3,000 offshore turbines to be built by 2020, it will be "a big ask" on a financial level. Earlier today, Susan Rice, managing director of the Lloyds banking group in Scotland, warned that many companies are still wary about the risks and upfront costs of building multibillion-pound offshore windfarms.

Like other sources of energy, offshore wind's costs rose considerably in the past decade despite expectations it would fall, the report notes. Capital costs for projects coming online in 2008 were double those of 2003 levels. "Rising commodity prices [steel is a key component for turbines], supply chain shortages and currency movements created a perfect storm," said Gross.

However, Gross said the better outlook today meant his report's worst-case scenario – which sees the mid-2020s price of wind power rise to £185/MWh – was "very unlikely."

Guy Shrubsole of the Public Interest Research Centre, which in May published a report on the offshore energy resource around the UK, said: "Investing now in offshore renewables will reap big rewards later. Making the right investments now could unlock an enormous renewable energy resource – one big enough to make the UK a net electricity exporter in the future." PIRC's study suggested the cost of offshore wind could drop to as low as £70-£90/MWh by the middle of the next decade.