As governments are focusing increasingly on industrial growth strategies, offshore wind is becoming a double win for policymakers, says Ray Thompson, Head of Business Development at Siemens Gamesa Renewable Energy. “Offshore wind helps them to achieve carbon targets and to create new jobs.” Thompson explains how the industry managed to bring costs down spectacularly and what is still in store: “Offshore wind is coming to represent a major challenge to competing technologies.”
For Ray Thompson, nothing illustrates the progress of offshore wind better than the new Siemens blade manufacturing facility and project execution harbour in Hull in northern England, opened in December last year. “The facilities have already created 800 new jobs and the numbers on site will rise to over 1,000 when full production is reached.”
For policymakers the new operations in ‘Green Port Hull’ in Northern England, where skilled manufacturing jobs are scarce, are welcome news. Thompson, who has been involved in the UK energy sector for 35 years and now manages public affairs for Siemens in London (“talking about wind is what I do for a living”), projects like the one in Hull provide the best guarantee for the future of offshore wind.
“Offshore wind could easily provide 20-30% of UK electricity supply in future”
Wholesale electricity prices in the UK are so low at the moment, he points out, that “there is no business case for any plants, so government will always have to intervene to decide what will be in the mix. And policymakers are increasingly focused on the economic benefits of energy production, in addition to concerns over security of supply, cost and climate.”
What this means for offshore wind is “that as long as we are able to offer low costs, there is every reason for them to support us”, says Thompson.
And low cost is certainly what the industry is able to offer. “We have seen truly dramatic reductions in our costs”, says Thompson. “In 2012, the UK Government set a target for the industry to achieve a levelised cost of £100/MWh for projects reaching financial close in 2020. Incredibly, the industry has managed to achieve this four years ahead of target, with the projects reaching financial close in 2016 doing so at £97/MWh.”
He notes that “in the UK the last auction for support for offshore wind farms again delivered significant cost reductions, with East Anglia and the Neart na Gaoithe projects winning the auctions at much lower prices than previous wind farms. Some European projects recently won auctions at even lower prices, a Danish near shore project successfully won an auction with a bid of less than €50/MWH and while there are some differences to UK projects – developers in Denmark don’t pay development or grid costs – it still indicates fantastic progress in the right direction.”
“Of course it would be crazy to have a system designed entirely around wind”
Probably the most important factor in bringing costs down has been the increase in the size of the turbines. “When we installed the London Array project in 2012 – still the largest offshore wind project in the world – it consisted of 175 turbines each generating 3.6MW. For the same size project today we’d be more likely to plan turbines of 7 or 8MW so we could build the same project with around 90 turbines.
Installing 90 foundations, 90 cables and the installation activities involved massively reduces the cost of the project compared to 175.”
But it’s not just about big turbines, he adds. “We are driving down costs across every part of the business, from design to installation, operation and maintenance. For example, we now have highly specialised installation vessels, designed specifically from the outset for our task. We have better, more experienced crew on the vessel and highly automated lifting kit to ensure safe operations offshore in much higher wind speeds than we ever could before.”
“Our aim offshore is to install the turbine components, connect, test and commission the turbine within 24 hours of the vessel being on station at the installation location. Better equipment skills and planning means we are doing in hours what previously took days to achieve.”
The new vessels are “part of the industrialisation of the industry which has enabled us to drive down cost”, says Thompson. “We’ve also seen investment from other port operators in facilities across the UK providing us the large marshalling sites we need to safely and effectively execute our offshore projects.”
On the operations and maintenance side, the story is the same. “Larger turbines mean fewer components offshore and the change of a design philosophy to direct drive turbines means each turbine has half the number of moving parts compared to previous generations. We’re also better at monitoring and understanding the performance of turbines so our maintenance activities are getting smarter and we’re visiting each turbine less often; a big driver of costs.”
“We are likely to see bids beneath the £92.50 offered by the Government to the first of the nuclear plants”
On the denominator side of the cost equation is the higher energy production that can now be achieved. Thompson: “Again, all aspects are showing progress. The latest turbines have huge rotor diameters, advanced aerodynamics and more reliable technologies. This ensures that the maximum possible energy production is achieved and, by working with our customers, we are driving up availability and output from the turbines.” The capacity factor of the latest offshore wind farms is already at 50%, he adds.
So how far could the development of offshore wind go? How much could it contribute, for example, to UK electricity supply? Thompson: “Wind energy currently supplies 11% of UK electricity demand. Half of that is offshore wind. We have 5 GW of offshore wind installed. Another 30 GW has already been planned or identified. And we hope to do more after that. So offshore wind could easily provide 20-30% of UK electricity supply in future.”
He is convinced that this will not create any problems for the power system. “Wind power is variable, but not unpredictable. The people who manage the grid can handle it. Of course it would be crazy to have a system designed entirely around wind. It has to be part of a balanced energy mix. In the UK that means mostly with gas-fired power stations. Coal is rapidly being phased out altogether.”
“It’s staggering to think that in not much more than five years, we could have turned a technology seen as prohibitively expensive into the lowest cost, utility-scale technology available”
Offshore wind has in fact become so reliable that pension funds and other risk-averse institutional investors are eager to invest in projects, says Thompson. “They are not only willing to invest in completed parks, they are even willing to participate in construction stage investments. This reflects the move of the industry from a new sector to one which is seen as a mature and safe investment. The cost of capital for wind farm investment has fallen dramatically with investors and banks accepting lower returns for the lower levels of risk involved. As the industry has matured so have our customers, and we now have a core of key customers who are experienced in offshore, and this increased sophistication further drives down cost.”
How far does Thompson think that cost reductions can still go? “We will shortly get another measure of our progress in the UK as we have the next auction round running across the summer”, he says. “Analysts and our own internal evaluations suggest that the developers will compete aggressively for the support available. We are likely to see bids beneath the £92.50 offered by the Government to the first of the nuclear plants. If the forecasts turn out to be correct, then the point at which offshore wind can compete with the lowest cost of new electricity plants (new build combined cycle gas at around £70-80/MWH) is surely in sight.”
He adds that “it’s staggering to think that in not much more than five years, we could have turned a technology seen as prohibitively expensive into the lowest cost, utility-scale technology available.”
Beyond the current incremental cost improvements, Thompson believes that the next big step in lower cost will be taken when a next generation of turbines will be built in the 2020s, with even larger capacities. He adds that “the amazing reductions in offshore wind costs present a major challenge to competing technologies, which have an entirely new set of goal posts to aim for.”
Perhaps the biggest challenge for the industry now, he says, is “to effectively communicate this message to politicians and decision makers and ensure that having developed a low cost contribution to our low carbon energy needs, we now maximise its deployment.”
And this does not have to be confined to the UK or Europe. “The ability to deliver utility-scale projects at such low costs should help the European offshore wind industry to open up new markets for offshore wind, particularly in the United States and Asia.”