Wind energy observers worldwide took notice when Bloomberg News reported the contract price (September 11) for a U.K. energy auction: £57.50 ($77.76) per MWh — a 50 percent decline in recent offshore energy costs. In contrast, Bloomberg noted the U.K. will pay £92.50 ($125.09) per MWh for electricity from the Hinkley Point atomic plant.
The Danish utility DONG Energy A/S was one of the low-bid companies in that recent auction which, for DONG, secured power from its “Hornsea Project Two (HP2),” 89 km (55 miles) off the Yorkshire coast, in the North Sea. HP1 is under construction, and HP3 is being developed.
At 1,386 MW, HP2 will become the world’s biggest wind farm when operational, likely in 2022.
A 50 percent drop in the cost of any commodity attracts attention, and questions. Does the Hornsea project represent a kind of tipping-point, an indicator that offshore wind projects elsewhere will similarly benefit from falling prices?
In an announcement, DONG lists the favorable “cost-drivers” for HP2.
- Scale: project size offers advantages
- Experience decreases risks
- Synergies: managing two projects from one site
- A mature industry — DONG knows what it’s doing
Project size is a key cost driver.
“The ideal size of an offshore wind farm is 800-1,500 MW,” DONG wrote in its Hornsea Project announcement. In contrast, in the U.S., the only off-shore wind farm in Rhode Island is 30 MW. Long Island’s planned South Fork Wind Farm is supposed to be 90 MW.
Of 28 U.S. offshore wind projects in development, none is in construction. Companies operating in the U.S. offshore wind sector can’t yet match the real-world experience of the European market. DONG can build in the North Sea and save money because DONG has learned how to build in the North Sea. In the U.S., companies still need to progress on that learning curve.
Kate Freeman, PhD, is a modelling and analysis expert with BVG Associates, a renewable energy company focusing on wind, wave and tidal energy systems, with offices in the U.K. and the U.S.
Freeman believes that recent favorable offshore wind trends will benefit the U.S.; for example, efficiencies in standardization and installation. She noted the small scale of U.S. projects, however, saying that “the U.S. is less likely to benefit as significantly.” Still, she said that “U.S. project costs are trending towards Europe’s low costs” and that Europe’s experience will benefit U.S. projects.
Policy is also important — in this case energy policy and maritime policy. Freeman said because the U.K. provided the “right level” of financial and regulatory support, U.K. ratepayers are now benefitting. Additionally, Europe’s guaranteed energy price and competitive auctions helped markets. Freeman said U.K. and Europe, in the 2020s, will have competitively priced offshore wind without price support.
Freeman referenced another important U.S. issue: the constraints of the Jones Act— the maritime requirement limiting U.S. trade to U.S. vessels — likely will affect shipping costs, a critical concern considering wind equipment requires specialized transport. Another issue with vessels: supply chains, maximizing project logistics. For DONG, this yields critical advantage. Without it, costs go up.
Lead image credit: cgpgrey.com | CC BY 2.0 | Wikimedia Commons