The offshore wind industry faces a disquieting reality: that the cost of building projects has risen dramatically over the past five years - and is likely to continue rising for the foreseeable future, rather than fall as has been predicted.
"Let's face it, if you didn't have government support through the EIB pouring in, very few of these projects would be going ahead" In the past, when confronted with offshore wind's eyebrow-raising price tag, supporters have consistently fallen back on the line that costs will shrink as the industry gains experience and economies of scale.
That may yet prove true. But with 1GW now installed in UK waters, and the industry supposedly shifting into a rapid-growth phase in anticipation of Round 3, the notion that offshore wind will naturally become cheaper seems more slippery now than ever.
"Sadly, it would seem we have not derived benefits from learning, scale and technological improvement over the last five years," says Rob Hastings, director of the marine estate at the UK's Crown Estate. "We have, indeed, gone backwards."
Consider the 60MW North Hoyle project, owned by Germany's RWE, which in 2003 became the first major offshore wind farm commissioned in UK waters. North Hoyle was built at a cost of £1.2m ($1.8m) per megawatt, according to Hastings.
Allowing for price inflation and the current weakness of the pound, it would cost at least £2.6m/MW if built today.
Yet even that figure is significantly less than the £3.25m/MW average quoted for most projects currently moving into the water. Moreover, a new report, written by consultant Douglas-Westwood and published by the trade body RenewableUK, concludes that things will get worse before they get better.
"It is likely that costs will increase - or at least remain high - during the initial stages of Round 3 projects due to a combination of factors, such as increased project size, distance from shore and water depth," the report says.
With Round 3 projects not set to enter construction until 2014 at the earliest, many industry sources worry that investors will simply lose patience. A financial chill - exacerbated by the recession - has already clouded the prospects for many projects.
Making matters worse, the UK has not decided whether to extend the increased Renewables Obligation Certificates (ROCs) banding for offshore wind, set to regress from two to 1.5 ROCs in 2014.
There have been some success stories in recent months. RWE recently announced a financial green light for its 576MW Gwynt y Môr project in Liverpool Bay, off the Welsh coast, having managed to secure Siemens and utility Stadtwerke München as equity investors.
But many other projects in the EU remain in limbo, as developers attempt to woo investors, or hope for a lifeline from the European Investment Bank (EIB).
"Let's face it, if you didn't have government support through the EIB pouring in, very few of these projects would be going ahead," says Subocean managing director John Sinclair.
Within the past month, the EIB has put up loans of £250m and €300m ($376.4m) for the London Array and Belwind projects, respectively.
"Everybody wants to brush it under the table, but the reality is there's very little private funding coming in," Sinclair tells Recharge. "That has to change immediately, or there will be major consequences."
Optimists claim the three principal causes for the rising costs - the lack of adequate competition in the supply chain; higher steel prices; and the fall of the British pound against the euro - are all reversible phenomena, and moving in the right direction.
However, others believe it is unwise to assume the price of oil will forever head upward and the price of offshore wind will inexorably come down.
Hastings pinpoints five variables with the ability to make or break the economics of offshore wind: the cost of capital; operating performance; the electricity wholesale price; the value of ROCs; and the cost of operations and maintenance.
"Based on the current values for those variables, what is clear is the industry is on the edge of viability," he says.
The industry must find a way to lower costs to £2.5m/MW by 2013 and £2m/MW by 2017, Hastings warns. "Failure to achieve that gives me great concern that the future viability of the industry as a whole is threatened."