More than 20 years after the world's first commercial offshore wind farm opened in 1991 in the Baltic Sea off the coast of Vindeby, Denmark, the industry continues to be dominated by Europe.
Global installed offshore wind capacity stood at 4.62 GW at the end of June 2012, of which 90% was in northern Europe, according to the Global Wind Energy Council (GWEC). Furthermore, the North Sea – and a handful of nations led by the UK and Denmark – dominate the industry in Europe. More than half of global on-line offshore wind is in the North Sea.
Despite huge coastal populations around the world, most regions have shown little appetite for investing in the sector. Even the news that EU countries have surpassed 100 GW in total installed wind capacity served as a reminder of how far the offshore industry lags behind land-based wind.
At present, the offshore segment constitutes just 2% of total global wind capacity, which itself provides only 2.5% of global electricity. Yet offshore wind’s long-term potential is enormous.GWEC estimates that offshore wind could meet Europe’s energy demand seven times over and US energy demand four times over. China, the global leader in installed wind capacity with more than 62 GW onshore, has barely begun to exploit its offshore resources, estimated to total a potential 750 GW – three times its onshore potential. By 2020, offshore’s share of global wind capacity will reach 10%, according to GWEC.
Offshore wind farms offer advantages over onshore turbines that could help encourage greater investment. Higher and more consistent wind speeds and taller turbines with larger blades can help achieve capacity factors of up to 50%, compared with about 30% for a typical onshore farm. The proximity of many offshore turbines to heavily populated coastal areas often makes grid connection easier and cheaper than extending new transmission lines over remote areas of land. Strong daytime offshore winds can also offer greater potential for matching supply with peak electricity demand, and offshore farms generally avoid the risk of opposition on aesthetic grounds.
The 25 turbines at the UK’s Burbo Bank Offshore Wind Farm in Liverpool Bay
total 90 MW but a planned extension would add 250 MW (Siemens)
Set against these advantages are several drawbacks that have limited offshore development in many countries: a shortage of shallow waters, insufficient technological know-how and a lack of political backing, to name but three.
Then there is the issue of finance. While costs can vary greatly, the substantial additional investment required for offshore construction, operation and maintenance compared with onshore projects has acted as a severe and sometimes prohibitive brake on developments.
Average cost for offshore projects commissioned in the first quarter of 2012 climbed beyond US$230/MWh compared with about $176/MWh in the same period of 2011, according to Bloomberg New Energy Finance (BNEF). Offshore wind remains nearly twice as expensive to install as onshore wind, according to a June 2012 working paper published by the International Renewable Energy Agency (IRENA).
The North Sea Dominates
Eventually, these costs may fall so that higher electricity output is seen as justifying the extra initial investment. For now, though, the industry remains reliant on the unambiguous government backing and incentives for private business that spurred its early development in Europe.
The North Sea also dominates for its consistently strong winds, long, shallow stretches of water and small, densely populated countries. But political pressure to cut carbon emissions, a history of oil and gas exploration and economic arguments for building up the industry are also key issues. Danish Prime Minister Helle Thorning-Schmidt recently stated: ‘Even though we’re in an economic crisis, this is the time to invest in green jobs.’
Fraser Johnston, a wind analyst at BNEF, said: ‘For the UK and Denmark, offshore wind is critical to meeting their binding 2020 national renewable energy action plan targets. Since the Fukushima disaster Germany has looked to scale up too. There are also secondary benefits such as security of energy supply and job creation.’
The UK, by far the global leader in offshore installed capacity, prioritised the sector for ‘industrial reasons’, according to Anne-Benedicte Genachte, regulatory affairs advisor for offshore wind at the European Wind Energy Association (EWEA). ‘There is a policy of converting the shipbuilding yards in the north,’ she said. ‘They have excellent wind resources, they have the maritime heritage and it was a policy decision to reinvigorate industry and create jobs in coastal areas.’ It is also relatively easy for wind turbines manufactured in Denmark by Siemens and Vestas to be transported to UK waters.
Denmark led the race to design turbines following the 1970s oil crisis and established a market lead in the following decades, benefiting from early Danish offshore tenders to test their turbines. A dedicated supply chain and high level of expertise in offshore construction and operation in northern Europe has helped Sweden, Belgium, Germany and the Netherlands also emerge as early pace-setters.
Rising Opportunities in the East
But some nations outside Europe have recently awoken to the opportunities offshore wind offers, with Asia set to lead the way. Whether it is China’s escalating energy demands and economic ambition, Japan’s search for solutions to replacing nuclear or South Korea’s unrivalled shipbuilding capacity, the signs that offshore wind in the region will soon take off are clear.
China is aiming to reach 5 GW of offshore wind by 2015 and 30 GW by 2020. It was only in 2010 that Shanghai Donghai Wind Power opened China’s first large-scale offshore wind farm, the 102 MW East China Sea Bridge project. A 100 MW expansion costing $300 million is due in 2013. But the country’s second round of bidding for 2 GW of offshore wind projects has been delayed.
Steve Sawyer, secretary general of GWEC, believes China’s 2015 target is at risk but expects the 2020 target to be met. ‘The Chinese government identified wind power as one of their strategic priorities in 2006 and they want to be global leaders because they think it will be a big part of the global energy mix,’ he said.
Sawyer points to the fact that China’s biggest cities are in the south and east, far from its strongest onshore wind resources in the north, as the principal reason for looking offshore. Another driver is the creation of a domestic industry with a track record that will help Chinese companies thrive in the export market. ‘It’s about making sure their technology is as competitive as that of their European counterparts,’ said Johnston, of BNEF. China’s Sinovel is already the world’s second-largest wind turbine maker by production capacity and aims to become number one by 2015. The Beijing-based state-owned company can count on billions of dollars in credit from government-owned banks and eventually wants to make half its sales overseas.
But one of the reasons for the slow take-off of offshore wind in China is the lack of a technical supply chain anywhere near competing with that in Europe. Goldwind, China’s second biggest turbine manufacturer, plans to source 50% of its components from abroad as a result. As most Chinese original equipment manufacturers (OEMs) are outsourcing manufacturing and design processes, China’s offshore industry currently offers Europe more of a business opportunity than a threat.
In Japan the post-Fukushima scramble to ramp up renewables has mainly benefited solar so far. But the idea of pursuing offshore wind in an island nation surrounded by deep waters and often hit by typhoons is no longer readily dismissed. According to the Japanese Wind Power Association, potential floating offshore wind capacity in the country is a massive 519 GW. The nation’s current nuclear capacity stands at 46.15 GW.
Japan’s government wants to phase out nuclear energy over three decades and wants renewable energy to meet around 40% of demand by the early 2030s, up from 8% at present. Feed-in tariffs (FiTs) introduced on July 1, 2012 require utilities to buy power from renewables providers at premium prices set for up to 20 years, and investment in clean energy is expected to double to more than $17 billion in 2012.
Japan’s first floating wind farm off the coast of the western prefecture of Nagasaki is expected to be fitted with a 2 MW turbine and grid connected next summer. Meanwhile, Hitachi Zosen is leading a consortium planning to build 7.5 MW of pilot offshore wind plants in Japan by 2016 to be followed by 300 MW over 10 years at an estimated cost of $1.5 billion.
The increasing scale and ambition of global offshore wind
projects is clear in the UK’s London Array, set to total 1 GW on
completion (London Array Ltd)
In South Korea the benefits of tapping into the country’s considerable offshore wind potential could not be more obvious. The country imports 97% of its energy needs in the shape of oil, coal and liquefied natural gas. But in November 2011 the country’s government announced it will invest $9 billion in constructing a 2.5 GW offshore wind farm, which would be the world’s largest, in three phases by 2019. Collaboration with the UK is expected to assist the project’s progress, and Sawyer expects South Korea will emerge as a third serious player in the region. ‘For the first time the industrial sector in Japan is looking at offshore wind as something other than just a small niche market,’ he said. ‘In Korea you have some of the largest and best capitalised high-tech companies in the world. Governments and big companies [in Asia] have thrown their weight behind offshore and if it works they will continue to move in that direction.’
North America Takes Its First Steps
North America, and particularly the eastern seaboard of the US, is another region with vast untapped offshore potential. Onshore wind has boomed in recent years, aided by a 2009 economic stimulus package which meant developers could opt for either a 30% tax credit for investments in energy projects or a $2.1 cent/kWh production tax credit for electricity from renewables. The levelised cost of electricity (LCOE) for many Midwest onshore projects now comes in at $50/MWh or less while the offshore industry focuses on cutting costs to $160/MWh.
The first proposed offshore farm in US waters, the 420 MW Cape Wind in Nantucket Sound off the coast of Cape Cod, to be built by developers Energy Management Inc, generated a decade-long political and legal controversy amid opposition on environmental and aesthetic grounds. The Department of the Interior hopes to overcome some of the issues that have prevented a single US offshore plant being constructed so far by auctioning 2434 square miles (9700 Ha) of the Atlantic continental shelf, allowing wind farms to be built off six states running from Massachusetts to Virginia. It follows the ‘Smart from the Start’ scheme, which aims to speed up siting, leasing and construction of Atlantic wind projects. But, according to Sawyer, it is the federal system itself which largely explains the lack of offshore development.
‘The cheapest and easiest way to get 20%-25% of US electricity from wind power is onshore in the Midwest with new transmission lines, but that’s difficult due to NIMBYism and competing jurisdictions,’ he said. ‘The other way would be to put a lot of offshore wind on the east coast at water depths under 50 metres and relatively short distances to transmission lines. But that would require planning on a scale the US is not used to doing, as it’s all done state by state and mostly by the private sector.’ Potential clashes with fishing grounds and vulnerability to hurricanes are further factors on the east coast.
In Canada, deep waters and severe weather on the east coast and huge onshore potential close to the west coast may hold back significant development. But a few projects are moving ahead in the Great Lakes, such as the 420 MW Trillium Power Wind 1, off northeastern Lake Ontario. Windstream Energy holds the only offshore wind power feed-in-tariff contract in Ontario for the 300 MW Wolfe Island Shoals. ‘Economically I think it can work in the Great Lakes,’ said Sawyer of Canada’s offshore prospects. ‘Maybe in southern British Columbia there may be places where it also makes sense.’
In Australia Enhar, a Melbourne-based renewable energy consultancy, has estimated that offshore wind power costs in the few areas with shallow waters could be competitive with solar and geothermal, but there is nothing to suggest the industry will take off in the short term.
UK, Germany and China Set To Dominate
According to Douglas-Westwood, 15 GW of new offshore wind capacity will be added from 2012 to 2016 with the UK, Germany and China accounting for 83%. The average 3 GW to be added per year is five times the annual level seen from 2007 to 2011, with China set to become the biggest market early in the next decade.
BNEF agrees that three countries are set to dominate. ‘We forecast the UK, Germany and China will account for 76% of offshore wind in 2020, with a scattering in other European countries, North America and other parts of Asia,’ said Johnston.
If floating concepts take off then Japan could quickly scale up, and the Atlantic and Mediterranean could also be fruitfully exploited. Sawyer believes Germany is a ‘wild card that could go either way’ as sustained investment in renewables threatens to hit consumer prices hard, prompting renewed debate on policy.
Geography, greenhouse gas emissions, job creation and politics will all remain influential in shaping the offshore wind sector. If the industry is to expand rapidly in new areas much will also depend upon hard economics. According to IRENA’s wind cost analysis, the LCOE for offshore wind ranges from 26%-75% more expensive than onshore, assuming a 15% higher capacity factor. But the document also states that offshore wind should benefit from increasing difficulties in gaining approval for onshore farms close to demand – meaning ‘its longer-term prospects are good’.
Add to this a growing urgency to tackle climate change, constant technological improvements and volatile oil prices and it becomes easy to imagine a world in which offshore wind turbines are widespread rather than clustered in the North Sea.
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