Three of the biggest players on the European offshore wind stage — Danish developer-utility Dong and turbine makers MHI-Vestas and Siemens — have taken the extraordinary step of putting their names to a document intended to unify the sector at a critical point in its history. Top of their Joint Declaration for a United Industry: cost-reduction.
After years of stop-start progress, the industrialisation of offshore wind is gaining momentum, but has many hurdles lying ahead. Screwing down the cost of technology, construction and operation of wind farms to a levelised cost of energy (LCoE) under €100 ($116) per MWh — at deeper-water, far-from-shore projects — would put fresh winds in the sails of a sector that is closing in on grid parity with conventional fuels.
In fact, if one applies wind-power godfather Henrik Stiesdal’s societal cost of energy (SCoE) equation, which factors in social, environmental, economic and geopolitical factors, there is every reason to belief that the 30GW of offshore wind forecast to be humming off Europe by the end of the decade will be flowing to market at a price near that of onshore wind, beating hydrocarbons, nuclear and other renewables.
Cost-reduction comes in many guises. Dong’s executive vice-president for wind, Samuel Leupold, acknowledges the important contributions coming from technology development, project financing and O&M, but thinks the industry should first be taking aim at a far more fundamental target — location.
“We keep preaching internally that site selection is key — finding more suitable development sites to drive costs down,” says Leupold. “There is no doubt that many sites being built out in the past were not ideal in terms of wind speeds and seabed conditions, and too small in terms of economies of scale.
“In this regard, our industry has to become normal: like all other power-generation technologies, if you build a gas-fired power plant or a hydropower dam in the wrong place, it will not be cost-competitive.”
Leupold points to the 4.2GW Celtic Array project, which Dong handed back to the UK government last summer after coming to the conclusion that seafloor geology would have made much of the giant Irish Sea wind zone uneconomic by forcing the developer to opt for a high-cost one-off foundation design.
He adds that developers must move beyond thinking about “200-250MW” projects and scale up their ambitions to “minimum 600MW” projects in order to capitalise on economies of “building big”.
“Wind farms must be power plants in the true sense of the word. That is absolutely needed,” says Leupold. “It is still the governments that are determining where and what size the development zones are. We need to turn that around so the industry, which has the specialists, has a greater influence to say which are the most suitable sites.”
Larger-scope development zones, he stresses, will call for bigger “integrator” developers such as Dong, which has a risk-absorbing offshore asset base of some 6.5GW planned by the end of the decade, having sold off its last onshore wind projects in December to dedicate itself to “the fastest-growing renewable-energy technology in Europe”.
“At Dong we have the advantage of doing it [developing offshore wind farms] as the integrator controlling a multi-contract approach with the overview over all the interfaces — and this is how we believe we can really minimise the risk.
“Ultimately, the industry will need to see this from more players to do this risk-absorption. You would expect to see more of this from contractors as well as larger developers and consortia. The Gemini project [the €3bn, 600MW wind farm being developed off the Netherlands] has a consortium of developers, contractors and suppliers that have gotten together and presumably have created a transparency among themselves so the risk and contingency are sufficiently reduced and with them the cost of financing and cost of capital.”
The turbine is the heart of every offshore wind farm — but not in the way that it is onshore. And this resonates in the cost-reduction formula. The larger-rotor machines designed for the maritime wilds off Europe are something of a double-edged sword: higher nameplate capacity helps “tremendously” in bringing down the CoE by boosting output with fewer units and less interarray cabling, but introduces new risk for being not-yet-field-proven technology — “so on balance,” queries Leupold, “is this bringing down LCoE, yes or no?”
Moreover, as MHI-Vestas chief executive Jens Tommerup underlines, “unlike onshore wind, the cost of the wind turbine is a proportionally smaller cost of the total CoE of an offshore wind-power plant”.
For this reason, he says, it is “extremely important” that the turbine’s CoE reduction is seen as part and parcel of the wind farm, not solely as a stand-alone technology.
“One concrete area where MHI-Vestas is focusing on to reduce the CoE is building a bigger turbine. Massively increasing the amount of energy captured from the wind and hence increasing power output while maintaining a high level of reliability and serviceability,” says Tommerup.
“But it is extremely important that CoE reduction is considered from a holistic approach. We are committed to building powerful partnerships across the industry in order to drive down the cost of offshore wind — through partnerships with our customers, suppliers, financiers and policymakers.”
As a company “born out of collaboration and partnership”, MHI-Vestas has been formed with expectation of “consolidation of the industry moving towards fewer but stronger players [which] will significantly increase competition and continue to drive down CoE”, says Tommerup.
The “advanced partnership” deal struck in 2012 by Dong and MHI-Vestas has been central to speeding the 8MW V164 machine to market — the utility was looking over the OEM’s shoulder through testing of the proto-turbine at the Danish national test centre at Østerild, and late last year placed a lead-off order for 32 units for its 258MW Burbo Bank Extension project off western England.
“That discussion [with the OEM], getting it started early and achieving a holistic approach in trading off executive risk with developing innovative technology that can drive cost down to find the optimal balance between the two, was central to moving this project forward,” says Leupold.
Dong also has a similar relationship with Siemens and its 6MW SWT-6.0-154 machine.
“MHI-Vestas and Siemens know that just as we cannot live with one turbine supplier, nor can they live with only one customer,” adds Leupold. “It is important in the industry that you trust your partner but you need competition because this leads to innovation and further cost-reduction.”
For the European offshore sector to flourish to full industrialisation, Siemens Wind Power chief executive Michael Hannibal concurs that partnerships “could not be more important — because we need a sustainable market, and that means partnering with customers and our suppliers to jointly get it there”.
The German conglomerate’s tack on cost-reduction is constructed around its turbine “platform” philosophy, where “innovation and industrialisation” are the engines behind the “small evolutions and significant steps” in developing and optimising larger turbines.
“We have to strain with this approach for the turbine alone, but we need to see it in a holistic way,” says Hannibal. “Among the learnings we made on the SWT-6.0-154 was that you need to engage with your suppliers as early as possible so that they know exactly what to supply and when to ramp up production. As turbines get larger, it is no longer enough just to build the components larger. You need an even closer and more aligned view together with your suppliers.”
“We will also use ‘Big Siemens’ — so not just the resources of the wind-power division but also the transmission division, financing and R&D — to determine best practice and when is the best time to bring new technologies to the market through a multi-partnering strategy. We have always found we learn the most from having many partners.”
The 6MW turbine, in operation off the UK at Dong’s Gunfleet Sands 3 and Westermost Rough, is cited as a fruit of this partner-driven cost-reduction tactic, with the machine being upscaled as a 7MW-plus model, as a “lever” to trim costs by boosting CoE.
“This way, you take a fully bankable product and with some minor tweaking get more AEP [annual energy production] for the future,” says Hannibal.
Winning the argument with Europe’s governments as to the long-term potential economics of offshore wind is important and by no means guaranteed. But if one considers the SCoE, reducing the cost of offshore wind power below €100/MWh could be the breakthrough that makes it an obvious choice for any country with “a decent amount of accessible seafloor”, as Stiesdal wrote in last month’s Recharge.
“Nations bordering the North Sea would have access to a constant and reliable energy source that will enable them to meet their respective carbon targets,” says Tommerup.
“And they have an industry that is committed to and has in fact historically been very successful in cost-reduction.
“All we need in return are stable, long-term policies that enable the sector to grow at the scale necessary in the offshore industry to drive down the cost of energy to under €100/MWh.”
Leupold, Tommerup and Hannibal are event ambassadors for EWEA Offshore 2015, which will take place at the Bella Centre, Copenhagen, from 10-12 March.