To retain the global lead European companies have in offshore wind, the EU should develop an industrial policy that will guarantee a steady pipeline of projects, writes independent energy expert Mike Parr. This would ensure continued investment by companies in cost reduction and technology improvements. Failure to do so could mean the offshore wind sector would suffer the same fate as the European solar PV industry.
Recent results in the offshore wind sector show that, finally, costs are declining:
Reasons for the decline in prices include a new generation of much larger turbines and more efficient construction processes. Administrative techniques such as auctioning shovel ready projects (Denmark, The Netherlands and soon Germany) also appear to help with “price discovery”. Expressed another way, when there are 28 consortia bidding for a contract (as is the case for Borssele III and IV) pricing becomes much keener.
Fits and starts
Europe is, at the moment, the global leader with respect to offshore wind both in terms of project developers, owner/operators, and equipment suppliers. The top 11 owner/operators are all European (with Dong leading the pack). In terms of wind turbine suppliers Siemens (65%) is number 1, followed by Vestas (21% ), Senvion (6.6%) Bard (5%) and other European players. The only non-European suppliers are GE and Samsung and they are not active in the EU.
There is a reason for this. The EU was amongst the first to develop offshore wind projects. During the past 16 years it has, albeit with fits and starts, stuck with building projects and thus developing the technology. As of end 2015 there was 11GW of commissioned and firm projects. By 2020 another 16GW will be added.
However, markets outside of the EU will add 13 GW by 2020, according to figures from Bloomberg New Energy Finance (BNEF). In the period 2020 to 2025 the EU plans to add only a further 7GW, with 15G W of “maybe” capacity sitting on top of this. The rest of the world will add 21 GW (2020-2025).
EU offshore wind policy sees member states all “doing their own thing”. There is no attempt to ensure a steady stream of projects
The comment “fits and starts” or “feast and famine” thus continues to apply to EU offshore developments. This is no way to encourage what is, at the moment, a world leading industry sector.
The EU needs an industrial policy for offshore wind that recognises that project volumes deliver two things.
First, project volumes lead to declines in the MWh cost of offshore wind. Second, steady and significant volumes of EU offshore projects keep both equipment suppliers and project developers at the leading edge of technical and organisational developments.
Competition for projects (28 bidders per contract!) focuses minds on areas such as construction costs and wind farm yields. In turn this will help both equipment manufacturers and wind farm developers to maintain their positions as leaders in this area. It will also ensure that the bulk of R&D activity remains focused in the EU. Other areas where EU companies and organisations are leaders include incremental improvements in wind farm performance and optimisation software for wind farms both on and offshore. A steady and clear stream of projects provides justification for on-going investments in these areas.
First mover advantage
In terms of market trajectory it is tempting to compare offshore wind to PV. In PV, the EU enjoyed first mover advantage which led to the emergence of manufacturing companies (and equipment manufacturers). Sadly this advantage and its early promise was eroded as Chinese suppliers vastly expanded their manufacturing capacity leading to a decline of EU cell and module manufacturers (although German companies still hold prime position with respect to the supply of equipment).
However, offshore wind is different from PV at a number of levels. For example, wind turbines and their installation have a different production process compared to PV panels. The latter lend themselves to mass production techniques which are a blend of semiconductor and consumer electronics. 8MW wind turbines, perhaps for obvious reasons, do not use either set of production techniques. Furthermore, the high levels of quality demanded in an offshore environment play to EU engineering strengths.
The recent auction results from Denmark, with world beating prices, did not result in a great deal of enthusiasm at a political level
Currently, EU offshore wind policy sees member states all “doing their own thing”. There is no attempt to ensure a steady stream of projects. There is no thought given to the fact that this is an area where a group of EU companies lead the world and perhaps a modicum of planning at an EU-level could help the industry retain its number 1 position.
There are also political problems. The recent auction results from Denmark, with world beating prices, did not result in a great deal of enthusiasm at a political level. The Danish Ministry of Energy Utilities and Climate, which still has to make a final decision on coastal wind power when it negotiates its 2025 plan, said ” regardless of Vattenfall’s low bid, building the two wind parks will be costly for the country”.
Such statements are unfortunate. They show a lack of imagination and an assumption that power prices will remain low. On the other side of the North Sea, UK wholesale prices average around €51/MWh with a probability that prices will rise in the medium term because the British (or would that be the English?) have no energy policy worthy of the name. Danish offshore wind via an HVDC interconnector to the UK would go some way to helping the British over their imagined energy problems whilst making a profit for the Danes.
Ongoing failure
Moving to EU energy policy, the EU faces three related problems relevant to offshore wind: the ongoing failure of the EU ETS, an over capacity of old fossil stations (in places such as Germany) and a total (political) inability to address these linked problems.
The EU ETS should have priced out fossil stations and priced in renewables. It has not and in the view of people such as the CEO of EON, it never will (Dong holds a similar view). The reverse side of high renewable energy subsidies are low wholesale electricity prices. This is due in part to low EU ETS prices coupled to, once again, a failure to retire old fossil stations. Politicians are the only ones who can break this log-jam. If they can do this whilst also keeping up momentum on offshore build-out, there is a very good prospect that wholesale prices and offshore prices will converge.
A properly-scaled fossil retirement programme would lead to wholesale electricity price rises. Anything in the range €50-70/MWh would all but eliminate the need for subsidies for on or offshore wind in North Western Europe
Unfortunately, in countries such as Germany, owners of old fossil stations are holding off closing them because they think that if they hold on for a bit longer, other stations will close, and they will be able to squeeze a few more GWh of (profitable) power out of their assets. Thus the bigger picture (an EU industrial base with world-beating industries such as offshore) is sub-subsumed by short-termism and lobbying by industries which should have had the vet called in some years ago to have them humanely put down.
Knock heads together
A properly-scaled fossil retirement programme would lead to wholesale electricity price rises. Anything in the range €50-70/MWh would all but eliminate the need for subsidies for on or offshore wind in North Western Europe. That surely is a worthy goal. Not forgetting, that in Germany, for example, RES subsidies are running at around €60/MWh. A small rise in wholesale prices will thus have a disproportionate impact on subsidies which would be vastly reduced, if not eliminated.
The EC and its Commissioners cannot, on their own deliver on the above. But they could and should knock heads together at member state level and try to get the politicians to think more strategically
I have been reliably informed that recent offshore projects, even with relatively low wholesale prices (see box) have a subsidy contribution that accounts for less than 6% of overall project cost. In the context of a new and growing EU industry sector, which is world-leading, this is tiny and could be eliminated if politicians focused on the future, not the past.
The EC and its Commissioners cannot, on their own deliver on the above. But they could and should knock heads together at member state level and try to get the politicians to think more strategically. These same politicians are supposed to, amongst other things, ensure an economic framework that delivers good, well paid jobs for EU citizens. The actions suggested above will do that for an industry sector with a very promising future.
Editor’s Note
Mike Parr is Director of energy consultancy PWR which undertakes research in the area of climate change and renewables for clients which include a G7 country and global corporations. See his author archive on Energy Post.
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Frans Rusting says
Make offshore wind available to the whole of Europe. Make use of ‘there is always somewhere wind’. In other words: finally create One Electricity Market!
This cannot be done by merely interconnecting neighbors. That will lead to transit-problems: capacity needs to be available, and operational procedures and tariffs agreed.
What is needed is a European Supergrid. If properly designed, a supergrid means that ‘direct interconnections’ are available between all countries (TSO-networks) instead of only between neighbors! Hence: the one market!
In the present political reality, where ‘national sovereignty’ plays a major role, a Supergrid under the wings of the EU does not seem to be a realistic proposal.
There is a solution which does not require the EU. See:
https://energypost.eu/exclusive-overlay-network-telecom-experts-present-revolutionary-plan-integrate-eu-power-market/
In short: set up a cooperative company, jointly owned and governed by the TSO’s and jointly controlled by the governments. The cooperative designs, invests and operatebgs the grid. TSO’s of course pay for the use (detail: one standard set of operational procedures and standardised tariffs!). Such a cooperative was in the past the solution for solving the same kind of problems related to ‘sovereignty’ for the realisation of international satellite systems for telecommunications. In spite of the fact that ‘electricity’ and ‘telecom’ are of course very different, the type of organisation certainly can be used in the case of a Supergrid.
If properly planned, the project could start with ‘regional grids’, to be connected at a later stage in order to realise a true Europe-covering network.
Frans Rusting
Bas says
Frans,
Can you show a business case for such organization and its HVDC lines?**)
As far as I can see the only useful purpose of such network is the decrease of av. whole sale tariffs which the network generates in connected countries. So you can calculate the business case, assuming no political hurdles, by considering that decrease as income.*)
Btw.
Don’t forget to include the increase of whole sale rates in Germany as negative income.
Anxious to see your bus.case!
______
*) Germany having lowest whole sale rates may not be very happy as it may experience increased rates, which prolong the life of coal & lignite.
UK govt may not be happy as lower whole sale rates make new nuclear even more difficult to sell. And new nuclear is strategic for UK government.
These are probably not the only political hurdles.
**) Electricity is a free market product in the EU.
So such additional organization should pay for itself and not be paid via taxes (e.g. indirectly via TSO’s).
Especially since the value of such organization in the further future is unclear considering the ongoing paradigm change towards decentralized & local generation. And such network involves major investments, requiring a long term profitable bus. case.
Bas says
Amazing statements without good logic. E.g:
– Why should we try to increase wholesale prices by artificially ending power plants? Just to end some relative small subsidies?
But closing power plants is only possible if the owners are compensated with a lot of money..
Worse, the increased whole sale prices will affect competitiveness of the whole industry. Alu smelters first. Those then have to move to other area with low prices if they want to survive. Etc.
Worse, it also implies ending (part of) a free competitive market. The inferior US electricity situation shows that returning to a controlled / guided market is not the way (unless we want to create rigidity and become as backwards regarding electricity)…
– What will be the competition from China?
Not that they install offshore wind projects here in Europe.
Also unlikely that they will operate our wind farms in the N-Sea.
But they may construct cheaper wind turbines (parts) and ship those to e.g. Dong. So we should stay ahead regarding the construction of cheaper producing wind turbines.*)
As visible with the 8MW turbines, the method to do that is bigger wind turbines. Especially offshore as there no transportation problem with the big parts of bigger wind turbines.
That requires research which should be stimulated as that can bring us a longer lasting competitive edge. So the EU should start a development fund to speed up the development of bigger wind turbines offshore (and onshore). Towards 20MW turbines which are feasible according a rather old EU study.
Those offshore turbines will probably produce for 3cent/KWh also because their cap.factor is higher (>60%) as their tower is higher. That will also automatically end the need for guaranteed prices during a period (assuming whole sale price stays at 3cent and doesn’t decline toward 2.5cent)
____
*) The problem with the solar panels was/is that:
– their development roughly ended and it are small items.
So the Chinese could easily buy production equipment and produce…
– those small items easy and cheap to transport.
Wind turbines of 20MW won’t have much easy and cheap to transport parts.
Mike Parr says
Thanks for the comments Bas. The Germans are closing their nuclear fleet early – mainly because of public pressure (around 75% of Germans do not like nuclear – & that figure has been stable since the 1970s). Fukushima was the trigger. In the case of the fossil plants – & Germany – & “closing power plants is only possible if the owners are compensated” – why compensate them? Looking at a list of plants from 2014 – plenty of lignite & hard coal stations built in the 1960s and 1970s which could be closed – at no overall loss to the owners – who have long since made plenty of money out of these plants and the plants themselves are fully amortised. At the moment, German citizens are paying around 65 – 70/MWH just in RES subsidies on their bills. If German wholesale prices rose by Euro20 – 30/MWh it would have minimal impact on retail prices @ Euro300/MWh but would obviate the need for more RES subsidies since it would price into the market on-shore wind (North germany) and PV (south Germany). If the German gov’ can close the nukes, there is no reason why they could not do the same on a range of old fossil plants. That they do not is due to ?????
In the case of the ally plants: Norsk hydro near Neuss in 2012 (or it could have been 2013) took out a long term PPA with Vattenfall. Large amounts of power in Germany & in other locations is purchased on long term contracts. You make a fair point (high elec prices reduce competitiveness) but raising prices in the short/medium term will have little impact on this.
Bas says
“If German wholesale prices rose … it would have minimal impact on retail prices.”
Yes, but a major impact on the economy.
The high wholesale price (~€55/MWh) will have major impact on industries. Those who are now important for balancing the grid, will move out of Germany asap. Because they no longer can operate profitable.
E.g. The alu smelters. Our Dutch alu smelter couldn’t compete and broke because our whole sale prices were ~€10/MWh higher than those of the German smelters
(we are doubling our interconnection capacity now).
Closing old fossil plants, why compensate them?
The compensation is mainly (legally) based on the Net Contant Value, which can be high if they make a profit. Age is only relevant if they have to close in the near future. That the owners made a fortune may increase the compensation slightly. That the plants are amortized is only a sideline.
Then you also must compensate the work force who worked decades at those plants (Germany is far more social than e.g. UK). That is also not a matter of millions.
It’s dangerous for politicians to close such plants.
So Merkel won’t do that, unless it delivers other popularity benefits. Which was the case when she decided to close 8 NPP’s in 2011.
Btw.
First Energiewende law was installed in 2001. Autumn 2010 Merkel made the mistake to prolong the life of NPP’s on which her popularity felt, So Fukushima was a gift from heaven for her.
If they can close the nukes, why don’t they do the same on old fossil plants?
1. General opinion (incl. scientists): Nukes are far more dangerous for genetic , children, etc. health.
2. The govt promised to keep the costs of the Energiewende insignificant. Important for public support. The costs are now ~the max. of what can be considered to be insignificant. In Germany govt (and public) find it important to keep promises.
Btw.
Those costs will rise hardly and decrease after 2023 towards ~5cnt/KWh in 2035.
3. Despite pressure from e.g. Greenpeace, there is no urgency feeling in Germany regarding the climate.
4. Why would Merkel take the political risk to close old fossil. Those plants will close anyway in next two decades when all nuclear is out, as they cannot compete with av. price of 2.5cnt/Kwh. Then the closure costs fall to the owners.
Btw.
Neither nuclear, so the low whole sale price decreases also the compensation costs for premature closing the 8 NPP’s in 2011…
Mike Parr says
“Nukes are far more dangerous for genetic , children, etc. health.”
Coal = mecury. I think we need to agree to disagree (btw – no probs with the nuke closure but the fossils need to follow asap). & as for the “two decades” – we don’t have two decades – hell we don’t have next week & for the record I’m 60 – the problems will come down the track well after I’m dead. So it ain’t for me I’m making these points – it’s for young chaps like you 🙂
“The govt promised to keep the costs of the Energiewende insignificant.” I think Craig Morris would have a different view.
Bas says
Energiewende costs insignificant?
Our opinion is not relevant. That of Germans is.
Some protests when the levy grew fast from 4 to >6 ct/KWh due to the PV-solar explosion in 2010-2012. People were afraid that the increases would continue.
When Merkel promised that the levy would not increase significantly and would decrease after 2023, all protests stopped. Energiewende enjoys same high ~90% support….
Note that av. German household pays a lower share of its income for electricity than av. USA household.
Culture in USA/UK is different, less democratic, most people less rich, etc. So there different actions for a successful transition to renewable.
fossils follow nuke closure?
Little doubt about that. Due to the ~90% support for the Energiewende. I estimate that Germany will continue to follow Denmark with a delay of 10-20years.
Denmark will reach 100% renewable electricity in 2040 (they are at >50%) and 100% renewable regarding all energy in 2050. E.g:
Basically all new buildings in Denmark are energy neutral since 2014..
The Danish are about the happiest people in the world according to the UN.
fossils need to follow asap
Then it’s better to fight the by far biggest polluter in the world (pp); USA! USA’s emissions are still at 1990 Kyoto level, while they should be -20% in 2020. Even after Paris, Obama’s clean power plan is hanging around the court rooms….
No chance that German govt will further increase the speed of the Energiewende (it’s now ~50% higher than targeted) if that increases the levy to above ~6cnt/KWh.
Degrading German Energiewende as many people do, takes support for a migration to renewable away in other countries…
Applaud is a far better strategy if you want less emissions.
Jeffrey Michel says
For the German government to terminate lignite power generation, an alternative plan would first be necessary for implementing and financing post-mining landscape reclamation. The water being pumped from active mines fills former excavation pits, converting them into lakes for local recreation. Ongoing population decline in eastern Germany might accelerate if the lignite regions were deprived of their main industry. Neighboring Poland is presently expanding its 1,500 MW generation capacity at Turów with a 500 MW block scheduled for completion in 2019. It is also contemplating a 49-year lignite mining project in Polish Lusatia with three 830 MW power plants commencing operation in 2030. It would be difficult to make a case for the abandonment of lignite power generation at the Jänschwalde power station with this project beginning just across the Neisse River.
Bas says
@Jeffrey,
You touch one of the reasons, I estimate that the lignite plants may be roughly the last fossil plants to be closed in Germany (others; their low cost price and their ability to operate flexible similar as gas plants in USA).
Why:
– spend major community money; and
– create social unrest (workers to be fired);
to stop an activity while 100miles further on the same activity is expanded, and will expand more when Germany stop it’s mines?
Btw.
The owners of the lignite mines are obliged to reserve funds to restore the landscape in good consultation with the local community.**)
And they do it well, often leaving a nicer landscape behind. So, in general people living around are not unsatisfied.
____
*) Except nuclear, the Energiewende leaves the closure of non-renewable to the free market. Which of course can change but I don’t think so. If there is enough money, the authorities will spend it to secure the transition towards 100% renewable more.
E.g.
The temporal 30% subsidy for home owners to buy a battery in addition to their rooftop solar. Not only less swings in consumption, but it also stimulate the upcoming of virtual power plant communities. In line with the second target of the Energiewende: Democratize (electric) energy.
**) Local communities have major influence in Germany as they can make business very difficult, if not impossible.
As far as I know, Germany is the only country where local communities stopped the ongoing construction of a NPP and enforced the expensive restoration of the land towards farmland, while the big utility had all licenses to construct the NPP, didn’t violate any rule and had support from state as well as federal govt.
Frans Rusting says
Sorry to disappoint: no business case. Even if I could I wouldn’t, but I don’t have the required knowledge. But enough people and organisations have done the sums and there are enough of those around.
It all depends on what you want. I, and certainly I am not alone, want a free European market with real competition between producers. Because that is the only way to achieve lower production costs and more innovation. And: I want to, ideally, get rid of the fact that Europe is much too dependent of the import of ‘conventional fuels’, including nuclear fuel. That is dangerous. Economically and also from a security point of view. What one needs is Europe-wide competition, and for that a Supergrid is needed. See also below.
One of the ‘fuels’ Europe does not have to import is wind. Sun is another. But both are not stable enough, unless use is made of the large distances in Europe: regional lack of wind can be compensated by regions with abundant wind. Same of course for sun. This also requires a Supergrid.
So why a Supergrid, and not just interconnections between neighbors? ‘One market’, with all those small European countries, undoubtedly requires ‘transit’. E.g., if you have a producer in Italy with a customer in The Netherlands, French and Belgian TSO’s (or the Swiss and Germans) should have capacity available.
Which has to be ordered and the usage paid for. In Europe one can be sure that in all countries the operational procedures related to both ordering and billing will be different.
But if indeed all TSO’s need to have transit capacity available, why not have a complete network? A Supergrid?
If this Supergrid is owned and operated by one organisation, it in fact offers ‘direct interconnections’ between all TSO’s instead of only between neighbors.
The required organisation should best be a kind of cooperative company, owned and governed by the TSO’s. Involvement of the EU is not needed. TSO’s can continue to function like they do; countries don’t have to transfer any sovereignty to whomever.
Mike Parr says
Is the “Supergrid” a solution looking for a problem? Would it be better if it emerged organically rather than planned? I ask this because looking at current developments – many/most/all?? TSOs seem to be addicted to the “income based on asset-base” model. (the recent moves by the German gov to reduce returns seem to suggest this). The HVDC interconnector between Spain & France being just the most recent of over priced power connections that are electrical viagra for the power engineers in the project & which enlarge the TSO asset base very nicely. The same is happening in the North-South interconnector saga in Germany – the same old tedious arguments (locals don’t like O/H lines etc etc ad nauseum). & do you know who pays for all this – you do, the readers of Energy Post & 500 million other EU Citizens. Moving back to France – Spain – HVDC cost Euro800m, double circuit 400kV O/H line – Euro50m. You talk about “free markets” – don’t make me laugh – in the context of Europe they are about as real as something from Hans Christian Anderson.
Bas says
We both want a free market… As long it’s economic.
The issue is:
What will deliver lowest total costs for the consumer (assuming e.g. 60% by wind+solar).
Your response concerns optimizing production costs which is a sub-optimization, as transport / grid costs are a substantial part of total costs nowadays. And that share will increase as grids & lines don’t follow the production cost decrease.
If the lines of the Supergrid only handle international traffic, those lines will have a lower utilization factor than the national lines with short interconnections between adjacent countries. Hence the Supergrid will be too expensive.
Traffic from Italy to NL will then go via the cheaper (different routes possible) national grids!
If the Supergrid underbids and takes part of the traffic, than existing lines will become under-utilized, which is not a problem in an expanding market. But the market may not expand at all…
If procedures hinder fast & flexible transport of electricity between far away EU countries, then those procedures should be reviewed and standardized.
A coordination job which may deliver substantial cost savings. An investment of a few million.
A Supergrid cost billions.
“… market with real competition … Because that is the only way to achieve … more innovation.”
Not really. Lowest pricing imply smallest innovation budget.
The Energiewende is an example of ‘govt’ guided innovation thanks to restricted competition.
Considering the ongoing paradigm change, you need a picture of the cheapest future situation with clear arguments why that will be cheapest. Without numbers you fantasize (KPN Telecom did that and moved from healthy to the edge of bankruptcy in 3yrs as it lost >€3billions).
That picture should include tendencies in advanced countries towards:
– distributed electricity generation (solar, wind, etc)
– micro-grids
– energy/electricity autonomy. Batteries become cheap and an emergency generator for few days a year is cheap.
Even micro Power-to-Gas may emerge…
Note that polls in Germany found that substantial part of consumers think that they will go off-grid in next decade.