In recent years, the world has taken major steps towards a lower-carbon energy system. As a result, bodies such as the International Energy Agency forecast that by 2050 global energy generation will be dominated by renewable sources, particularly solar photovoltaic and onshore wind power. DNV GL’s own research confirms this view, with our Energy Transition Outlook 2018 predicting that these two resources will account for 40% and 23% world electricity generation in 2050, respectively. However, we still have some way to go to meet internationally agreed emissions targets for combatting climate change. The good news is that, after years of impressive progress, offshore wind is now ready to become a major contributor to global energy production as well.
Spectacular cost savings
Key to offshore wind’s potential to grow is cost. The levelized cost of electricity (LCOE) for offshore wind has fallen dramatically in recent years, particularly in Northern Europe which has been the focus of offshore wind development so far. For example, in 2017 the winning bid to build the Hornsea Project One wind farm off England’s northeast coast agreed to sell the electricity at £57.50 (around USD80) per MW – less than half the price of offshore wind just two years earlier. Set to be the world’s largest offshore wind farm when completed, Hornsea One started supplying electricity to the UK grid in February 2019.
2017 and 2018 also saw the first project auctions won by so-called “zero subsidy”. The proposals for farms in the German and Dutch North Sea bid to sell their electricity at the wholesale price with no power purchase agreement (PPA).
There are two principal drivers in this unprecedented cost reduction. One has been the rapid technological development. The second, the political desire from governments to switch support schemes for offshore wind away from feed-in tariffs to project auctions that feature more competition among bidders.
One of the key (ongoing) technological developments has been the increase in turbine size, enabling wind farms to generate more power more of the time. 8 MW turbines are already in commercial operation and manufacturers have released 9.5-10 MW turbines for sale. The growth in turbine size shows no sign of slowing down. A 12 MW turbine from GE is due to be installed for testing in the summer of 2019, and a 2011 EU-funded study found that turbines up to 20 MW are possible with current materials. If the industry can develop and exploit new materials, then the sky is the limit.
At the same time, as more offshore wind projects are built, the shared experience in the industry has enabled cost-saving optimization of offshore construction, supply chains and how to connect offshore generation to onshore networks. This kind of economy of scale is likely to continue as the industry grows. Furthermore, the introduction of standardized module designs will reduce the cost of technology even further. We’ve seen how this works for many years in the automotive industry, where brand manufactures have achieved major cost gains by building different vehicle models on the same platforms but with variations in output, efficiency, etc. Now the offshore wind industry must learn from the automotive world. This will allow for scaling the numbers of main components and thus enable more efficient manufacturing and procurement processes.
Until recently, offshore wind development was very much a European affair. But that is finally changing. Offshore wind is now moving into emerging markets like Taiwan and the US East Coast on a commercial scale.
The US opened its first offshore wind farm in 2016 – the 30 MW Block Island Wind Farm. Since then, states including Massachusetts, Rhode Island, New York and New Jersey have completed or announced auctions for offshore wind projects. Construction of the first of these projects is due to start this year. The US offshore wind industry is starting to unite on a common approach and plans to realize the huge potential of offshore wind in the US at the lowest possible cost. As we’ve seen in Europe, potential does not automatically guarantee the execution of bankable projects: stability, transparent framework conditions and open competition around projects are vital for success. Building on these developments, the US Department of Energy predicts the country will have around 22 GW of offshore wind capacity by 2030.
Elsewhere, China was responsible for almost half of the world's USD25 billion investment in offshore wind in 2018, and has over 13.55 GW offshore projects with signed contracts or approval from local development and reform commissions. It has just approved a further 24 offshore wind projects in the seas near Jiangsu province. With a reported capacity of 6.7 GW, they are expected to be operational by the end of 2020.
India is also exploring the possibilities, and government has announced its intent to present a public tender for 1 GW of offshore wind in Gujarat in 2019, with further ambitions of more than 5 GW off the coasts of Gujarat and Tamil Nadu before 2025. Meanwhile, industry watchers are also monitoring developments in Japan, Korea and Vietnam with great interest.
Stimulating further growth
The offshore wind industry is certainly becoming more international. However, Europe is expected to maintain its lead position for at least the next ten years, due mainly to the rapid electrification of transportation, buildings and industry in the continent. Our Energy Transition Outlook predicts that Europe’s electrification transition for these sectors will be faster than in other regions. More cost-competitive offshore wind will play a huge role in this journey, with almost 50 GW expected to be approved and installed in Europe over the next ten years on top of the existing 16 GW capacity.
Looking further ahead, offshore wind will receive another boost from the emergence of floating turbines which will soon move beyond the demonstration stage. Floating turbines can be deployed in deeper water, allowing the exploitation of a much wider range of sites with good wind conditions. As such, we can expect the US West Coast and Asian nations such as Japan to be among the earliest commercial markets.
Local content requirements – regulatory provisions on how much of a wind project must be manufactured locally – are expected to play a role in the growth of offshore wind in new markets. However, overly rigid regulation could seriously slow down the adoption of offshore wind, while a correctly balanced approach could enable a swift and cost-efficient experience with rapid transfer of the latest technologies to those markets. It is important to note that offshore wind projects naturally offer a very high degree of localization due to project logistics and the need for local suppliers for cost reasons. Thus, the growth of offshore wind can be viewed as a chance to stimulate wider economic growth in a country or region.
As such, there is good reason to be very optimistic about the huge opportunities for offshore wind and the many players – both international and local newcomers, possibly in partnership – involved in delivering it. Over the coming years, the collective effort to optimize this climate-friendly technology will allow it to deliver its full potential for a cleaner energy future.