How DONG Energy Bid Offshore Wind at Just 8 Cents

Offshore wind prices have dropped much faster than they were forecast to do. A decade ago, prices as high as 21 cents per kWh were the norm in North Sea offshore wind.

State-owned Danish Oil and Natural Gas (DONG Energy) recently bid €72.7/MWh for the 700 MW Borssele offshore wind farm off the coast of Holland. In U.S. terms, that’s about 8 cents per kWh.

DONG bid the 400 MW Anholt offshore wind farm at €140/MWh in 2010. So at €72.7/MWh, Borssele is just half the price bid just six years ago.

It is common wisdom in renewables to say that it takes multiple generations of deployment in any new technology to lower prices, and very few generations of deployments have taken place since 2010. Just permitting and construction takes many years. So six years seems like a very short time in offshore wind deployment.

But DONG Energy wind spokesman Tom Lehn-Christiansen had another take on this concept: “You could also argue that six years is a very long time in a young industry, and that during these years — or even just in the past 3 to 4 years — the industry has matured significantly through scale and stable framework conditions.”

What Were the Specific Drivers Behind Their Astonishing Low Bid? 

“There are several drivers,” Lehn-Christiansen told Renewable Energy World. “One of them is scale. We consider Borssele 1 and 2 as one project, so rather than thinking of it as two times 350 MW we will be constructing it as one project of 700 MW, which enables synergies. “

Image: Siemens new 7 MW turbine. Credit: Siemens

He added that another driver behind the price is the size of the turbines.

“Only a few years back, wind turbines were 2-3.6 MW, while current turbines offer 7-8 MW, and potentially even more when you look ahead,” he said. “That means that each turbine generates significantly more power, and as an important side effect we can build fewer sites and thus have less turbines to service and carry out maintenance on, which significantly reduces costs.” 

Although DONG Energy would not yet indicate which manufacturer they will contract with for turbines; considering how few manufacturers are now making turbines at this outer limit in size; it will be either Vestas or Siemens. Experience counts in offshore wind.

Renewable Energy World covered DONG Energy’s 2013 test of Siemens 6 MW turbines at their Gunfleet Sands offshore wind farm.

The New Gigantic Offshore Turbines

In 2014, then-Siemens Wind Power CTO Henrik Stiesdal said that increasing the size of offshore wind turbines cuts the per-MWh cost of energy. 

“For offshore turbines; the infrastructure costs do not increase proportionally to the turbine size, so even if the specific cost per MW for the turbine itself were to be constant we would still see a lower overall cost of energy,” he said. “Some of the subsystems actually benefit from the size increase. Large generators are cheaper per torque than small, and many control and support systems are basically the same as in much smaller machines, thereby reducing in cost per MW.”

Lehn-Christiansen added that there are also cost reductions that have come from greater experience because of the rapid growth and high volume of offshore wind installations in the North Sea; fostering economies of scale and innovative ideas. These have been for everything from cable laying to supply vessels for delivering workers for maintenance to testing centers. 

At Denmark’s LORC testing center, buildings require float-in shipyard locations and gantry cranes and removable roofs in order to deliver the gigantic nacelles of these new giant turbines for testing.

Offshore wind is a much “younger” technology than onshore and so far has been much more expensive than onshore wind. Its birthplace is concentrated almost entirely in just one region of the world — the North Sea. The earliest offshore wind farms began in shallow water close to the Danish shore and with turbine capacities comparable to onshore wind deployed at the time, a mere 1.5 MW or so.

How Clever Dutch Government Policy Helped Cut Costs

Although DONG had the winning bid, others were not much above it. That was in part because the Dutch government pre-permitted the sites, as it also had its own interest in having accurate data on these sites. So all developers had data like the wind speeds and directions, the depth and the soil structure of the sea bottom, and such that reduced their costs and risks, which allowed them to reduce their margin. 

So because all the potential bidders got the same accurate info, that further decreased the costs and risks, not only making it possible to lower margins substantially, but also increasing competition; because that made it possible for more bidders to compete.

“The Dutch government made sure that building and environmental permits were in place when they published the tender,” Lehn-Christiansen explained. However not every detail was known in advance. “There is still some work to be done, for example; another round of geotechnical surveys before we can start designing the foundations in detail.”

Distance to Land, Transmission Cost and Electricity Markets

DONG Energy’s four-part Hornsea Project, which bid into the UK Contract for Difference (CfD) process, is far and away the largest offshore wind project in the world. Hornsea One was consented in 2014 at 1.2 GW, and Hornsea Two will be another 1.8 GW. Hornsea Three is to be 2 GW and Hornsea Four will add yet another gigawatt.

Beginning with Hornsea One, the Hornsea projects are located 100 kilometers off the coast of the UK. The Borssele sites are only 23 kilometers from the Dutch shore, so the costs of construction, cabling and maintenance are lower.

Unlike Hornsea One, transmission costs were not included in the Borssele tender and will instead be paid by consumers through other tariffs.

The other big difference between a Dutch tender price and a UK CfD like for Hornsea is local electricity prices.

“As a developer, when you foresee a higher expected electricity price, you will submit a lower CfD bid, and vice versa,” Lehn-Christiansen said. “And most importantly, the scope for a UK project includes all transmission and development costs, which will require a higher CfD.”

While the Hornsea Projects easily smash all global records for size, not just for offshore wind but for any renewables, Borssele has broken records for cost.

So part of getting to 8-cent offshore wind has come from the efficiencies of increased turbine size and rapid experience acquisition in a young industry. And just as for solar price records; part of getting bids down was the way the Dutch government set up the auction. And part of this record simply came from Borssele returning closer to shore than many of the recent major offshore wind projects that have been venturing further and further out to sea.

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Susan Kraemer reports on renewable energy for CSP Today, Wind Energy Update, PV Insider and Renewable Energy World, and has written about renewables for Cleantechnica, Green Prophet and other sites.

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