Everything changes as soon as renewable electricity sources cover or exceed the costs of fossil fuel production. Because the immediate financial benefits are as clear as the long-term environmental benefits, energy providers focus on how it works, rather than discussing whether the investment is worthwhile. Solar and onshore wind technologies have reached this point in recent years, but the unique challenges that offshore wind technologies pose have required different solutions that took some time to mature. Governments have provided some subsidies to promote this progress, and global capacity has increased to 28 gigawatts last year. However, these subsidies make it more difficult to calculate how close the low-cost offshore wind has come.
A team led by Malte Jansen from Imperial College London worked to compare 41 offshore wind projects in Europe in 2005. The researchers' analysis suggests that offshore wind, at least in Europe, is on the verge of falling below the price of more traditional power plants.
Subsidies and auctions
Bids for the construction of these offshore wind farms were received through national auctions, which included subsidies with different structures. They all offered guaranteed prices for the electricity generated. Some promise to pay the difference if the market price falls under the guarantee, while the wind farm operator can increase the profit if the market price rises above the guarantee. Others require the supplier to return excess profits at high market prices. And each country has a different limit on the term of the guarantees, whether that is a fixed number of years or a fixed amount of electricity sold.
Because of these differences, calculating the costs of offshore wind is not as easy as comparing new project offers with offers for, for example, natural gas power plants. In addition, detailed cost and revenue data is often not available because only the offer is published.
To break this down, the researchers took each project's public offering along with the rules of that country's auction and calculated revenue for a 25-year period based on monthly market prices. This requires the use of forecast future electricity prices, but this applies to traditional calculations for each power plant. In the end, they receive average electricity costs and the estimated total subsidy from each offshore wind farm. Subsidies are calculated in two ways: one in the event that utilities are responsible for building the network infrastructure, and one in the event that countries largely finance the network.
The offers for the provision of electricity in these auctions were between 0 and 150 euros per megawatt hour, whereby this value set the guaranteed minimum price. The € 0 bids were recently auctioned in Germany and the Netherlands and represent utilities who were confident that their non-subsidized earnings would be sold at wholesale prices.
The researchers' estimates for the actual income in these wind farms were between 50 and 150 euros per megawatt hour. However, the interesting thing is the downward trend over time: it will decrease by about 6 percent per year over the entire period and by 12 percent per year if you start in 2015. For wind farms that only start operating after this year, the range drops to € 50-70 per megawatt hour. And 50 euros, according to the researchers, are at the "lower end of the (cost) estimates for fossil fuel generators".
Revenue estimates for offshore wind farms are falling.
This means that subsidies have also decreased over time. In fact, the average is on the way to zero by 2025. And if electricity prices rise at all in the coming years, some wind farms already tendered will turn out to be subsidy-free in the final accounts. The researchers paint this as a success story.
“Policy makers can see the rapid price cuts shown here as evidence that offshore wind will be a low-cost, low-carbon technology in the future. Therefore, the initial spending on support programs has successfully contributed to the creation of a new industry, ”they write. “Building on the success story, policymakers may want to focus their attention on less mature technologies such as floating offshore wind that allow access to deeper waters at higher wind speeds. These technologies are currently in a less mature stage, but can prove critical to harnessing the world's best wind resources. "
Nature Energy, 2020. DOI: 10.1038 / s41560-020-0661-2 (About DOIs).