CfD Awards: impact of scale, competition & finance on offshore wind energy

LOC Renewables has been in the forefront of the development of offshore wind technology but nothing has been more dramatic than the recent reductions in the price of electricity generation from offshore wind. This has received much attention in the l...
Published 13th September 2017 by
Published in Sector:

LOC Renewables has been in the forefront of the development of offshore wind technology but nothing has been more dramatic than the recent reductions in the price of electricity generation from offshore wind. This has received much attention in the last few days with the announcement of the Contract for Difference (CfD) awards in the UK (for the following offshore wind projects):

The figure below shows the drama – halving the price in 4 years!

Three aspects of offshore wind can take credit for this – scale, competition and finance.

The scale of turbines on average has quadrupled in the period since the inception of the industry, which has reduced both capex and opex cost/MWh. This, coupled with improved efficiency of the turbines and their capability to attract higher and cleaner winds has led to capacity factor improvements. Scale has had an important part to play not only on turbines but also on farm size which have accelerated this cost reduction trend.

Unlike the nuclear industry where local technology has been in decline and thus competition has been scarce, offshore wind has spawned many developers with professional management capabilities who are able to extract lessons learned. These developers are not only hungry to demonstrate their risk reduction capability but are willing to compete, bringing their own differentiated approaches. For example, some see their competitive advantage at certain sizes of wind farms while others see them in their contracting strategies but all are willing to compete with their own views of the cost at which they could deliver electricity and minimise government support.

Finally, we are indeed in unprecedented times, of capital seeking scarce investment opportunities. That supply has depressed the cost of capital and thus finance costs have come down. The predictability and consistency of generation that comes from offshore wind which is not exposed to fuel cost volatility has contributed decisively to further cost reduction.

The future is even brighter as storage technologies make similarly radical cost reductions. The availability of storage will reduce the complexity of offshore wind energy integration into the grid thus paving the way for the virtuous cycle of further reductions in cost to the consumer.

LOC Renewables with global presence and having provided critical inputs to almost all nations that have produced offshore wind, stand ready to contribute to both the technological advancement and cost reduction to these clients.

Dr RV Ahilan, Group Director, Renewables Advisory & Energy Technology