Offshore Wind Energy Already Cheaper Than Gas-Fired & Nuclear Power Plants

April 11th, 2015 by James Ayre

Despite the public perception of offshore wind energy being highly expensive, electricity generated via this technology is already cheaper than that generated by gas-fired power plants or proposed nuclear projects such as the Hinkley Point C project in the UK, according to a new analysis examining publicly available data on offshore wind energy in Denmark done by energy consultant Mike Parr.

The main takeaway of the new analysis, according to Parr, is that the currently quite large subsidies for offshore wind energy in the UK can (and should) be rapidly reduced — the technology is already viable, the subsidies are simply (more or less) going into the pockets of the developers.

The new analysis was done using the extensive publicly available data on wind turbine performance currently offered by the Danish government — as it stands, the country currently publishes data on the monthly output of all wind turbines (onshore + offshore) in the country, as well as hourly data on the aggregate output of offshore wind projects. All of that publicly available data makes performing analyses, such as the new one from Parr, relatively simple.

The data allowed Parr to do an in-depth financial analysis of existing + future wind projects in Denmark — and by extension, for projects in the German portion of the North Sea. (Worth noting is that the UK does not provide any data on the production of specific wind farms, despite possessing the biggest fleet of offshore wind projects in the world.)

EnergyPost provides more:

When we analyse the available data, we can draw some interesting conclusions about the evolution of costs in offshore wind. Offshore wind turbines already appear to be cheaper than combined-cycle gas turbines (CCGT’s), although this is not yet reflected in the subsidies that the operators get.

The table below shows the main results of my analysis. Note that Anholt has been built, Horns Rev 2 is in planning and Saeby will soon be out for tender. The estimate for the capacity factor (CF) for Anholt in a normal year is around 77%, as I have explained in my previous article, but to be conservative I have assumed a CF of 65%. Horns Rev 3 will be built near Horns Rev 2 which has a known CF of 50%. Saeby will “enjoy” a CF similar to Anholt because of its location in the Kattegat.

Note that the bid price is what the operators get from the government for 10 years. These are guaranteed payments. After that, they can sell the electricity on the wholesale market. I have assumed a wholesale price of €25/MWh for a period of 15 years after the 10-year period is over. This is obviously an estimate, since nobody knows what the market price will be 10 years from now.

I have also assumed a discount rate of 5% (cost of capital/debt) for all projects. This is based on the cost for Dong to raise bonds. Investment costs of the projects are based on statements from the companies. I have made some other assumptions with respect to operation and maintenance costs. The net present value (NPV) represents the total revenues over the 25-year period minus the costs, with a discount factor of 5%. In other words, this is the profit the project makes recalculated as net present value.

Interesting stuff. The IRR on the Anholt project, in particular, is really pretty high.





Of course, without subsidies, perhaps these projects wouldn’t have gotten started to begin with. Investment costs are, as you can see in the table above, quite high. Considering the subsidies to be less about supporting a not quite viable technology and more about getting the ball rolling, might be a more accurate way to think about it.

It does seem that the subsidies could be rolled back now, though, which would probably go some ways towards reducing public backlash against the technology in some regions.

A final note, concerning the proposed nuclear project at Hinkley — the Anholt wind project delivers electricity that is about 40% cheaper than the nuclear project (which will be given £92.50 per MWh for 35 years); the Horns Rev3 will supply electricity that’s as much as 58% cheaper; and the Saeby project electricity that is as much as 60% cheaper.

What’s the argument for nuclear again? Helping along the background rate of mutation and chromosome damage?

While I’m still far more partial towards solar photovoltaic than I am towards wind energy, this analysis is very interesting…. Perhaps wind energy (and more specifically in this case, offshore wind energy) can get its act together over the coming years and emerge as a major player without subsidies?

Image Credit: EnergyPost/Mike Parr; Offshore wind farm via Shutterstock









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