Offshore wind energy becoming competitive

The clock is ticking for the offshore wind industry. Within the next few years, the price of offshore wind energy will have to be brought down to a point where this green energy source can compete with oil, coal and nuclear power.

In several European countries, concerns related to European competitiveness have put the political goals for expanding offshore wind power under pressure. Offshore wind energy will simply have to become less expensive or the huge sums invested in it will lose their justification, critical voices say.

According to industry players, competitive offshore wind power will be a realistic scenario within a few years. The industry is in the midst of a rapid growth trend that has truly gained velocity in recent years. Europe's offshore wind energy capacity has more than doubled since 2010, and each wind farm has brought with it new and crucial experience, knowledge and technological progress throughout the entire supply chain, from production and installation to operation and maintenance.

Offshore wind turbines on the assembly line

Bringing costs down even further is a challenge the entire wind turbine industry faces and will have to tackle together: not just in Denmark, but in all of Europe. CEO of the European Wind Energy Association (EWEA) Thomas Becker is optimistic about the prospects:

"Offshore wind is a dynamic industry: every day brings new developments and innovations. So I'm confident about the future of the industry," he says. He also stresses that, if it is to continue, this positive trend depends on five factors: specialisation, industrialisation, and volume, volume, volume.

"The first offshore wind farms were built one at a time, but the time has come for us to start mass-producing them. In other words, let's get those wind turbines onto the assembly line. We also have to industrialise the logistics. We need to industrialise wind turbine handling and transport, along with the techniques we use to set them up," he says, adding

"But we can only do that if there's enough market volume."

Dong: We make efficient use of our time

Here in Denmark, Dong Energy has led the battle with its target to cut costs connected with wind farms by 35-40 per cent for projects planned in 2020. To this end, the Danish energy company has set up a special costs unit to work towards more efficient production of offshore wind energy through innovation, supply chain improvements and a continual refining of technologies and processes. Dong Energy is also involved in several Danish and European research programmes launched to optimise the competitive ability of offshore wind energy.

Mats Vikholm, senior vice president for Dong Energy Wind Power and in charge of the company's 'cost of electricity' project, points out that the industry is in a race against time to reduce offshore wind energy prices.

"As we near 2020, offshore wind subsidies will be phased out, so we have to start making offshore wind power competitive now. By 2020, then, we have to have energy costs that correspond to or are lower than those of other kinds of energy. With 35-40 per cent lower costs and a CO2 price that reflects the actual cost to society, our calculations indicate that offshore wind power will be competitive on the market so this form of energy will be able to compete with oil, gas, coal and nuclear power," he says.

But with only six years to the cut-off date, there is no time to lose, says Mr Vikholm.

"We need to make very efficient use of our time. Over the next six years, we will be focusing on all links in our supply chain, developing and implementing more cost-effective solutions. All the links in the supply chain have the potential to help us reduce costs; to reach the 40 per cent figure, we're going to have to tackle all areas," he states.

Turbines getting bigger

There has already been a quantum leap since the world's first offshore wind farm, Vindeby, was built and set up in 1991. Denmark's Bonus – today Siemens Windpower – supplied the wind turbines, each of which had a capacity of 450 kW, or 0.45 MW. Today, Siemens ships wind turbines with a capacity of 6 MW – more than ten times that original capacity – out of Esbjerg harbour, and MHI Vestas Offshore Wind is working on a new giant 8 MW turbine.

At the same time, the industry has made great strides towards more efficient production and installation of wind farms. Previously, each offshore wind farm project was run independently at its own sites and with its own equipment. This was not an efficient utilisation of resources compared with how things are done today, with Vestas and Siemens each running several projects from Esbjerg harbour at the same time.

At Siemens Offshore, which today manufactures about 80 per cent of the offshore wind turbines on the European market, CEO Michael Hannibal points out that innovation will continue at full speed over the next many years:

"We've seen amazing progress: continual innovation that just keeps increasing the amount of power generated by an individual wind turbine. It happens in small evolutionary steps, where we refine the design and gradually make the rotors or generators larger. At some point, then, we jump to a larger platform and then evolve it. And that's the way it will keep on going," he says.

Harbours play a vital role

But the innovation also has to encompass everything outside the wind turbines themselves. This includes their foundations, which today are designed and built for the specific sites and sea floor upon which they will stand. This is demanding and expensive in cost terms, which is why the industry is also working to develop new types of foundations that can anchor the ever-larger wind turbines to the ocean floor – foundations that could potentially be mass-produced.

At the Port of Esbjerg, Port Director Ole Ingrisch believes that Denmark's harbours also have an important role to play in the hunt for cost reductions.

"Ensuring cost-effective and low-risk operations is very much a crucial part of the equation. This means you need a harbour that can accommodate offshore wind project activities at short notice, suitable facilities with enough capacity and safety, and an optimal infrastructure. An integrated supply chain and the presence of an offshore cluster are also crucial in bringing costs down," says Mr Ingrisch.

"That was the reason for the expansion and improvements we've made at Esbjerg: last year we opened a new 600,000 m2 harbour area that is currently dedicated to the assembly, testing and shipping of offshore wind turbines."

Streamlining and joint standards are necessary

But it will take more than bigger wind turbines and dedicated production sites. Both Dong Energy and Siemens are calling for a higher level of standardisation in the industry to make it easier to transfer knowledge and methods from one wind farm to another: about the way projects are handled, about the way the regulatory framework is interpreted, and about the manufacture of these huge wind turbines.

"What we primarily need is standard solutions for the industry that we can use for several wind farms, not just a one-time solution for a single wind farm. This would make it more cost-effective to re-use solutions, and it would help pave the way for larger volumes. We need to have offshore wind turbines mass-produced across the market," says Dong Energy's Mats Vikholm.

Dong Energy has been behind the construction of one-fourth all European offshore wind farms, and, according to Mr Vikholm, the company has enough volume in its pipeline to drive the development of standard solutions. However, he also believes that it is vital that the other energy companies join in on the same set-up, so that there will be an even higher degree of scale added to the manufacturing process.

"Money talks. That's why we believe the future lies in the power companies having several joint solutions to draw on and thus also shared solutions with respect to sub-suppliers. So the less expensive the solutions we can make, the less expensive the solutions our colleagues and competitors can also make, and that increases the volume of what we buy from sub-suppliers, which again will give us better prices. It's a win-win situation for everyone."

Stable policy framework essential

Lastly, the political decision-makers play a central role. If the industry is to reach its cost-cutting goals, it is vital that there is a market and access to investment capital. Any doubts or uncertainty with respect to framework and investment conditions would be poison to the industry.

At Siemens, Mr Hannibal points out that even talk of changes in framework conditions or expansion plans on a political level could prevent the industrialisation and innovation that is needed.

"Stable framework conditions are essential: otherwise, the industry players will stop investing and innovating, and then there will be no market to support the industrialisation initiatives," he says.

"When you see talk of changing energy policies from politicians, it's like poison. What they would really be changing is the basis for a lot of jobs in Denmark. It's a huge export area, and if we lose the Danish domestic market, it will also affect the exports that we and our Danish sub-suppliers can ship from Esbjerg.”

Hold on to that domestic market

Even though the epicentre for offshore wind energy has in recent years been moving from Denmark to Germany, France and the UK, and Denmark is on its way to becoming a minor player as far as expansion plans are concerned, the Danish domestic market is still crucial to the industry as a whole.

It is the Danish domestic market that has tightened the supply chains of Danish businesses and paved the way for our leading position on the global market. That is why the domestic market is key and will continue to be key in safeguarding Danish offshore wind exports and continuing innovation in the technology, according to Mr Hannibal.

"Without stable framework conditions, there will be no investment. And it's not just us that need to invest, but also our sub-suppliers. The framework provides the security that makes it possible to invest. That is why it's vital that politicians don't drop the strategy already laid out – and why two Danish offshore wind farms can make a difference."

Stable framework necessary

EWEA's Mr Becker makes the same request in no uncertain terms.

"Unless there's volume, we won't get that essential push towards specialisation or the necessary business case for industrialisation. Volume will make the industry more mature, increase competition, contribute to innovation and thus help make offshore wind energy competitive. That's why it's so very important and essential that our politicians don't flinch, but instead hold firmly onto the expansion plans that will drive the industry forward."

Asked about future prospects, both Dong Energy and Siemens are optimistic. The unutilised potential in a streamlined offshore wind industry is so great that both companies are convinced that a 40 per cent cut in costs is a realistic ambition.

"Offshore wind is a young industry that needs maturing, and now we simply have to mature it. Although wind turbine technology is already advancing rapidly, there is a huge unrealised potential in innovating everything extraneous to the wind turbines themselves. When we do the math, we are relatively sure that it can be done if the framework conditions remain stable," Hannibal concludes.

Facts: Towards cheaper offshore wind energy

• Dong Energy has set itself the goal of cutting costs by 35-40 per cent by 2020. In that connection, the company has joined forces with Oxford University to clear the way for more efficient designs of offshore wind turbine foundations.
• At the same time, calculations by the European research body European Wind Energy Technology Platform indicate that offshore wind energy can become at least 50 per cent less expensive by 2030.
• A total of 6.6 GW of offshore wind energy is installed in Europe in more than 69 wind farms in 11 countries.
• Offshore wind turbines with a total capacity of 1.6 GW were installed in Europe in 2013. With 12 ongoing projects, there are prospects of an additional 3 GW being added in 2014 and 2015.
• Market research shows that there will be offshore wind turbines with a total capacity of 31 GW in Europe by 2020.

Source: EWEA, Dong Energy, Quartz&co.