Offshore wind energy is still around 50% more expensive than onshore wind. However, due to the expected benefits of more wind and the lower visual impact of the larger turbines, several countries now have very ambitious goals concerning offshore wind.
The total capacity is still limited, but growth rates are high. Offshore wind farms are installed in large units – often 100-200 MW – and two new installed wind farms per year will result in future growth rates of between 20-40%. Presently, higher costs and temporary capacity problems in the manufacturing stages, as well as in the availability of installation vessels cause some delays, but even so, several projects in the UK and Denmark will be finished within the next three years.
Offshore costs depend largely on weather and wave conditions, water depth and distance from the coast. The most detailed cost information on recent offshore installations comes from the UK, where 90 MW were added in 2006 and 100 MW in 2007; and from Sweden with the installation of Lillgrunden in 2007.
The chosen wind turbine size for offshore wind farms ranges from 2 to 3.6 MW, with the newer wind farms being equipped with the larger wind turbines. The size of the wind farms also vary substantially, from the fairly small Samsø wind farm of 23 MW, to Robin Rigg with a rated capacity of 180 MW, the world’s largest offshore wind farm. Investment costs per MW range from a low of 1.2 million €/MW (Middelgrunden) to 2.7 million €/MW (Robin Rigg).
The higher offshore capital costs are due to the larger structures and complex logistics of installing the towers. The costs of offshore foundations, construction, installations and grid connection are significantly higher than for onshore. For example, offshore turbines are generally 20% more expensive and towers and foundations cost more than 2.5 times the price of a similar onshore project.
In general, the costs of offshore capacity have increased in recent years, as is the case for land-based turbines. As a result, the average costs of future offshore farms are expected to be higher. On average, investment costs for a new offshore wind farm are expected be in the range of 2.0 to 2.2 million €/MW for a near-shore, shallow water facility.
To illustrate the economics of offshore wind turbines in more detail, the two largest Danish offshore wind farms can be taken as examples. The Horns Rev project, located approximately 15 km off the west coast of Jutland (west of Esbjerg), was finished in 2002. It is equipped with 80 machines of 2 MW, with a total capacity of 160 MW. The Nysted offshore wind farm is located south of the isle of Lolland. It consists of 72 turbines of 2.3 MW and has a total capacity of 165 MW. Both wind farms have their own on-site transformer stations, which are connected to the high voltage grid at the coast, through transmission cables. The farms are operated from onshore control stations, so staff are not required at the sites.
In Denmark, all of the cost components above are covered by the investors, except for the costs of the transformer station and the main transmission cable to the coast, which are covered by TSOs in the respective areas. The total costs of each of the two offshore farms are around €260 million.
In comparison to land-based turbines, the main differences in the cost structure are related to two issues:
* Foundations are considerably more expensive for offshore turbines. The costs depend on both the sea depth and the type of foundation being built (at Horns Rev monopiles were used, while the turbines at Nysted are erected on concrete gravity foundations). For a conventional turbine situated on land, the foundations’ share of the total cost is normally around 5-9%. As an average of the two projects mentioned above, this percentage is 21% (see Table 2.8), and thus considerably more expensive than for onshore sites. However, since considerable experience will be gained through these two wind farms, a further optimisation of foundations can be expected in future projects.
* Transformer stations and sea transmission cables increase costs. Connections between turbines and the centrally located transformer station, and from there to the coast, generate additional costs. For Horns Rev and Nysted wind farms, the average cost share for the transformer station and sea transmission cables is 21%, of which a small proportion (5%) goes on the internal grid between turbines.
Finally, a number of environmental analyses, including an environmental impact investigation (EIA) and graphic visualising of the wind farms, as well as additional research and development were carried out. The average cost share for these analyses accounts for approximately 6% of total costs, but part of these costs are related to the pilot character of these projects and are not expected to be repeated for future offshore wind farm installations.
The cost of energy generated by offshore wind power
Although the costs are considerable higher for offshore wind farms, they are somewhat offset by a higher total electricity production from the turbines, due to higher offshore wind speeds. For an on-land installation utilisation, the time is normally around 2000-2,300 full load hours per year, while for a typical offshore installation this figure reaches more than 3,000 full load hours per year.
* Over the lifetime of the wind farm, annual operation and maintenance costs are assumed to be 16 €/MWh, except for Middelgrunden where these costs based on existing accounts are assumed to be 12 €/MWh for the entire lifetime. However, these assumptions are indefinite.
* The number of full load hours is given for a normal wind year and corrected for shadow effects in the farm, as well as unavailability and losses in transmission to the coast.
* The balancing of the power production from the turbines is normally the responsibility of the farm owner. According to previous Danish experiences, balancing requires an equivalent cost of around 3 €/MWh . However, balancing costs are also uncertain and may differ substantially between countries.
* The economic analyses are carried out on a simple national economic basis, using a discount rate of 7.5% per annum, over the assumed lifetime of 20 years. Taxes, depreciation, profit and risk premiums are not taken into account.
It can be seen that total production costs differ significantly between the illustrated wind farms, with Horns Rev, Samsø and Nysted being among the cheapest, and Robin Rigg in the UK being the most expensive. Differences can be related partly to the depth of the sea and distance to the shore, and partly to increased investment costs in recent years. O&M costs are assumed to be at the same level for all wind farms (except Middelgrunden) and are subject to considerable uncertainty.
Costs are calculated on a simple national economic basis, and are not those of a private investor. Private investors have higher financial costs and require a risk premium and profit. So the amount a private investor would add on top of the simple costs would depend, to a large extent, on the perceived technological and political risks of establishing the offshore farm and on the competition between manufacturers and developers.
Development of the cost of offshore wind power up to 2015
Until 2004, the cost of wind turbines generally followed the development of a medium-term cost reduction curve (learning curve), showing a learning rate of approximately 10% – namely, that each time wind power capacity doubled, the cost went down by approximately 10% per MW installed. This decreasing cost trend changed in 2004-2006, when the price of wind power in general increased by approximately 20-25%. This was caused mainly by the increasing costs of materials and a strong demand for wind capacity, which implied the scarcity of wind power manufacturing capacity and sub-supplier capacity for manufacturing turbine components.
A similar price increase can be observed for offshore wind power, although a fairly small number of finished projects, as well as a large spread in investment costs, make it difficult to identify the price level for offshore turbines accurately. On average, the expected investment costs for a new offshore wind farm are currently in the range of 2.0 to 2.2 million €/MW.
In the following section, the medium-term cost development of offshore wind power is estimated using the learning curve methodology. However, it should be noted that considerable uncertainty is related to the use of learning curves, even for the medium term, and results should be used with caution.
The medium-term cost predictions for offshore wind power are shown in Table 2.10 under the following conditions:
* The existing manufacturing capacity constraints for wind turbines will continue until 2010. Although there will be a gradual expansion of industrial capacity for wind power, a prolonged increase in demand will continue to strain the manufacturing capacity. Increasing competition among wind turbine manufacturers and sub-suppliers, resulting in unit reduction costs in the industry, will not occur before 2011.
* The total capacity development of wind power is assumed to be the main driving factor for the cost development of offshore turbines, since most of the turbine costs are related to the general wind power industry development. Thus, the growth rate of installed capacity is assumed to double cumulative installations every three years.
* For the period between 1985 and 2004, a learning rate of approximately 10% was estimated (Neij, 2003). In 2011, this learning rate is again expected to be achieved by the industry up until 2015.
The average cost of offshore wind capacity is expected to decrease from 2.1 million €/MW in 2006 to 1.81 million €/MW in 2015, or by approximately 15%. There will still be a considerable spread of costs, from 1.55 million €/MW to 2.06 million €/MW. A capacity factor of constant 37.5% (corresponding to a number of full load hours of approximately 3,300) is expected for the whole period. This covers increased production from newer and larger turbines, moderated by sites with lower wind regimes, and a greater distance to shore, which increases losses in transmission of power.
A study carried out in the UK has estimated the future costs of offshore wind generation and the potential for cost reductions. The cost of raw materials, especially steel, which accounts for about 90% of the turbine, was identified as the primary cost driver. The report emphasised that major savings can be achieved if turbines are made of lighter, more reliable materials, and if major components are developed to be more fatigue-resistant. A model based on 2006 costs predicted that costs would rise from approximately 1.6 million £/MW to approximately 1.75 million £/MW (2.37 to 2.6 million €/MW) in 2011 before falling by around 20% of the total cost by 2020.