Mixed messages on offshore wind’s future

Mixed reports have been published recently about the current state and future potential of the UK offshore wind industry.

While one paper last week suggested offshore wind could provide all our electricity needs by 2050, another recently commissioned report is looking into the threat posed by escalating costs of the technology.

First, the bullish view. This comes from the Offshore Valuation Group, a coalition of government and industry organisations including The Department for Energy and Climate Change, the Welsh and Scottish governments and companies active in offshore wind such as E.on and DONG Energy. Its report says less than a third of the total wind energy that could be practically harnessed could enable Britain to be a net electricity exporter by 2050. It could generate energy equivalent of 1bn barrels of oil annually, matching current North Sea oil and gas production, creating 145,000 new jobs and contributing a 30 per cent carbon emission reduction towards the government’s target of reducing emissions 80 per cent by 2050.

The OVG report assessed the energy potential from five marine renewable technologies: wind with fixed and floating foundations; wave; tidal range; and tidal stream. This totalled 2,131 terawatt hours/year, six times the current UK electricity demand.

The report however goes on to warn; “the scenarios are neither predictive nor prescriptive. Their achievability will ultimately be determined by the level of the UK’s ambition; by the level of demand for the UK’s renewable electricity in the wider European market; and by evolving technology costs.” It also mentions strong support from both government and industry will be needed to sufficiently expand the offshore wind turbine supply chain.

Reducing the cost of offshore wind, it says, will be critical to converting this reported potential into built wind capacity.

And that could prove challenging, at least in the near-term. A separate study is being carried out by the UK Energy Research Centre (UKERC) into the escalating cost of offshore wind, which was highlighted by Ernst and Young last year.

While capital costs would usually fall as an industry grows, offshore wind is seeing the reverse. The UK wind energy trade association, RenewableUK, in a paper of its own, attributes this to supply chain issues. More specifically, they list:

  • Reduced competition within the wind energy supply chain combined with an increase in demand for supplies, particularly from onshore wind.
  • Contracts drawn up between suppliers and customers during the sector’s early years caused losses to suppliers, as high early competition amongst suppliers set low future price projections, before costs later rose once the true costs and technology challenges were realised.
  • With over 80% of UK offshore wind capital value being imported, the fall of the pound against the euro and fluctuating commodity prices have forced prices up.

The RenewableUK paper goes on to predict:

Supply chain confidence is seen as a key factor in future costs and one which can be influenced by policy-makers and developers. In an otherwise neutral environment, projections show that good progress on this front will see capital costs reduced by 15-20% in five years time and on a strongly-reducing trajectory.

The UKERC scoping note for its report says; ” the industry consensus regarding future trends is for a slight rise in the next two years followed by a slight fall out to 2014-2015.”

So until costs come down, the huge wind energy potential reported by the Offshore Valuation Group may remain just that — ‘potential’.

Related links:

Wind manufacturing in the UK – and beyond - FT Energy Source

You can’t put that wind turbine there - FT Energy Source

In Vestas in the future? Why offshore wind won’t work - FT Energy Source