Offshore Wind

www.renewable-uk.com

Offshore Wind Forecasts of future costs and benefits June 2011 RenewableUK is the trade and BVG Associates is a technical professional body for the UK wind and consultancy with expertise in wind and marine renewables industries. Formed marine energy technologies. The team in 1978, and with over 660 corporate probably has the best independent members, RenewableUK is the leading knowledge of the supply chain and renewable energy trade association market for wind turbines in the UK. BVG in the UK. Wind has been the world’s Associates has over 120 man-years fastest growing renewable energy experience in the wind industry, many source for the last seven years, and of these being “hands on” with wind this trend is expected to continue with turbine manufacturers, leading RD&D, falling costs of wind energy and the purchasing and production departments. urgent international need to tackle CO2 BVG Associates has consistently emissions to prevent climate change. delivered to customers in many areas of the wind energy sector, including: In 2004, RenewableUK expanded its mission to champion wave and tidal energy and use the Association’s • Market leaders and new entrants in experience to guide these wind turbine supply and UK and EU technologies along the same wind farm development. path to commercialisation. • Market leaders and new entrants in wind farm component design and Our primary purpose is to promote the supply. use of wind, wave and tidal power in • New and established players within and around the UK. We act as a central the wind industry of all sizes, in the point of information for our membership UK and on most continents. and as a lobbying group to promote • Department of Energy and Climate wind energy and marine renewables to Change (DECC), RenewableUK, government, industry, the media and the The Crown Estate, the Energy public. We research and find solutions to Technologies Institute, the Carbon current issues and generally act as the Trust, Scottish Enterprise and other forum for the UK wind, wave and tidal similar enabling bodies. industry, and have an annual turnover in excess of five million pounds. The views expressed in this report are those of BVG Associates.

Authors

Christopher Willow has worked in the Bruce Valpy is the director of BVG offshore wind industry for more than Associates. Before founding the company three years and offers a comprehensive in 2005, Bruce led wind turbine design knowledge of both the UK’s offshore activities in the UK for NEG Micon (since wind supply chain and port industry. merging with Vestas). Since then he has Recent work he has led includes a created a rapidly growing and diverse countrywide “meet-the-buyer” supply client base including the market leaders chain event for a leading turbine in the wind turbine and tidal turbine manufacturer and a project modelling sectors, RenewableUK, The Crown the logistical benefits of clustered and Estate, UK Government (DECC), utility distributed supply chains. providers and multi-nationals. 1

Table of Contents

Introduction 2

Executive summary 3

1. Methodology 5 1.1 Introduction 5 1.2 Capital expenditure (CAPEX) 5 1.3 Operational expenditure (OPEX) 6 1.4 Cost of energy 6 1.5 Forecasting wind farm costs 6

2. Review of costs to date 8 2.1 Quoted costs 8 2.2 Standardising costs 8 2.3 Conclusions 9

3. Forecast of costs to 2022 10 3.1 Market forecast 10 3.2 Future trends in wind farm characteristics 10 3.3 Technology characteristics 11 3.4 Learning rates 12 3.5 Future costs 13 3.6 Other influences on costs 15

4. Costs and benefits to the UK 18 4.1 Carbon avoidance 18 4.2 A healthy UK offshore wind industry 19 4.3 Balance of payments 23

Appendix A - Consultation 24

Endnotes 24

This document contains revisions made on July 4th 2011 2

Introduction

In 2009, RenewableUK (then the British which is also dependent on operational Wind Energy Association) published costs (OPEX) and the energy yield from UK Offshore Wind: Charting the Right wind farms. Course, which presented a range of scenarios illustrating how capital costs RenewableUK commissioned BVG (CAPEX) of offshore wind farms might Associates to undertake this study into change over time.1 the whole-life costs of offshore wind, producing forecasts out to 2022. This is At the time, wind farm CAPEX was seen intended to be a reference document for to be rising rapidly and the authors of use by government, industry, investors the report sought to identify the factors and the public. It will also be used to brief that were driving this increase. banks and investors on developments in the offshore wind sector. Overall, their conclusions were that they expected CAPEX levels to remain at A particular focus has been on how approximately £3 million per MW with a these costs will change over the slight increase between 2009 and 2012, four-yearly periods previously set out followed by a drop back down to slightly for the Government’s review of its lower levels by 2015. This forecast financial support mechanisms, which was qualified with assumptions about also correlate with milestones in the confidence within the supply chain, development of UK offshore wind. increasing UK content, and the market dynamics between offshore wind and These wind farm costs are then set in other industries. the context of the wider benefits that the offshore wind industry provides for the CAPEX is indeed a critical element, but UK, including reduced carbon dioxide the most important measure for the emissions, significant domestic industry industry is whole-life cost of energy, turnover and generation of tax revenue. 3

Executive Summary

Offshore wind is now widely accepted key elements. The cost of each of these as the central focus of the UK’s plans elements has been forecast for 67 to increase the amount of energy it discrete projects that are anticipated to “Over the next decade, produces from renewable sources be installed in UK waters between now the cost of energy is over the next decade. The creation of and 2022. For each project, specific site likely to fall by 15%. With a project pipeline of nearly 50GW by parameters such as water depth, mean The Crown Estate has put the country wind speed and export cable length are strong competition and at the forefront of the world market considered alongside turbine rating, innovation, combined and is attracting key players to set up rotor diameter and foundation and with favourable design and manufacturing facilities in electrical transmission technology. the UK to serve the sector. movements in steel Trends in capital expenditure prices and exchange There are still major challenges ahead. (CAPEX), operational expenditure rates, costs could fall by The offshore wind industry is not yet (OPEX) and energy generation due to mature in either technology or supply these parameters and other relevant 33% to approximately chain and, if it is to play a significant, considerations were peer reviewed by a £100/MWh.” long-term role in the low carbon future cross-section of industry, facilitated by of the UK, it must improve costs. A RenewableUK. Results of the analysis world-class offshore wind supply chain and conclusions drawn were also peer may develop in the UK, but investment reviewed, giving further integrity to the • The most important measure for the is needed in the short term to realise the following conclusions. offshore wind industry is whole-life long term benefits. cost of energy, which is dependent on Based on a buoyant market, with a CAPEX, OPEX and the energy yield from This study looks at the whole-life costs cumulative installation in the UK of wind farms. This cost of energy from of offshore wind projects forecast to be more than 30GW by the end of 2022 UK offshore wind projects is expected built up to 2022 with a focus on how and an anticipation of growth extending to be driven down by more than 15% these costs will change over four-yearly beyond the next decade, we forecast the in real terms between 2011 and 2022, periods. The first period, 2011-14, is following: despite the increase in costs due to associated with early learning and the working in harsher conditions on later build out of Round 2 developments; • UK offshore wind farm CAPEX per MW projects. Comparing the cost of energy 2015-18 sees volume starting to be of installed capacity will continue to improvement over the three periods delivered though early Round 3 and increase over the next decade as while removing the impact of working in Scottish Territorial Waters (STW) sites; projects are located further offshore harsher conditions gives an improvement and 2019-22 looks at the middle phase and in deeper water. Technology of more than 20%. of STW and Round 3 activities. development and industry learning • A range of other factors beyond those will have a significant impact in relating to site conditions and the Having explored capital and operational offsetting the costs caused by these choice of technology can also affect costs, the report then sets these costs in conditions so that by the third period prices. These include competition, the context of the wider benefits that the costs will be improving, despite innovation, exchange rates and steel offshore wind industry can be expected projects being located in increasingly prices. Opportunities exist for cost to provide for the UK. challenging locations. improvements of more than 15% • OPEX per MW installed will decrease between 2011 and 2022, with strong significantly over the lifetime of wind competition and innovation able to Forecasts of costs to 2022 farms installed in the next decade, reduce the cost of energy by a further primarily due to the use of larger and £20 per MWh. Favourable conditions The focus of the study is an analysis more reliable turbines. across all four factors could see of lifetime costs based on technical • The move to sites further offshore will costs fall to around £100 per MWh (a considerations, though sensitivity to give developers access to improved 33% reduction). However, this cost market dynamics and external factors wind resources. Combined with reduction could be lost altogether if a such as exchange rate variation are increases in turbine size, this will lack of Government ambition fails to also considered. In order to forecast increase the energy yield per MW stimulate competition and innovation, the lifetime cost of offshore wind, installed by more than a fifth over the or exchange rates and steel prices overall cost is broken down into five period considered. move the wrong way. 4

• In addition, assuming a buoyant Figure 1: Forecast wind farm CAPEX and cost of energy for UK projects installed in each market in the UK, elsewhere in the period with error bars reflecting market and economic uncertainties (relating to CAPEX only) EU and beyond, plus the availability

of sites similar to those that will be 4 200 constructed during the third period, CAPEX Cost of energy CAPEX OPEX Cost of energy preliminary analysis of technology and process improvements available 3 150 suggests that a reduction in the cost 2011 2022 of energy of a further 15% over the 2011 2022 12 years after 2022 is well within 2 100 the capability of the industry. This improvement would be in line with CAPEX (£million/MW) the historical trend in cost of energy reduction achieved during the growth 1 50 Wind farm CAPEX (£million/MW) of the global wind industry over the Wind farm cost of energy (£/MWh)

lastCost of energy (£/MWh) and OPEX (£k/MW/year) two decades. 8 8.5 9 9.5 10 Project Turbine Foundation Electrical Installation OPEX 0 0 Project Turbine Foundation Electrical Installation Mean wind speed (m/s) 2011–2014 2015–2018 2019–2022

Costs and benefits

It is forecast that the installation of

3.5 offshore wind farms between 2011 and 3.5 2022 will: 3.5 CAPEX OPEX Cost of energy 3.0 3.0 -2%• Avoid nearly 800 million tonnes of 3.0

2.5 2.5 carbon dioxide emissions by fossil fuel energy generation in the UK. 2.5 1% 2.0 2.0 26% • Add approximately £60 billion to the 26% 2.0 28% 17% UK economy through development,

1.5 (£k/MW/year) 1.5 manufacture and installation activities. 1.5

• Create a further £20 billion in UK CAPEX (£million/MW)

1.0 Wind farm CAPEX (£million/MW) 1.0 gross value added (GVA) in operation 1.0 Cost of energy (£/MWh) and OPEX Wind farm CAPEX (£million/MW) and maintenance over the lifetime of Wind farm CAPEX (£million/MW) 0.5 0.5 offshore wind farms built during this 0.5

period. 4 5 6 7 8 0.0 0.0 0.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010• Provide approximately £14 billion in Turbine rating (MW) 2005 2006 2007 2008 2009 2010 Treasury revenue through taxation and The Crown Estate licensing arrangements. • Trigger £3 billion of investment in the UK supply chain that will support 120 12 40 more than 45,000 long-term jobs.

80 90 9 30 UK EU non-UK UK Cumulative EU Cumulative

6 20 60

40 Average water depth (m) Average cable length (km) 3 10 30 Annual mean wind speed (m/sec) Installed capacity (GW) 20

0 0 0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

100% 3.5 100% 8 3.0

75% 2.5 75% 6 2.0

50% 1.5 50% 4

1.0 Wind farm CAPEX (£million/MW) 0.5 25% Average turbine rating (MW) 2 25% Proportion of projects using monopiles

Proportion of projects using HVDC systems 0.0 2011–2014 2015–2018 2019–2022

0 0% Project Turbine Foundation Electrical Installation 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 4 100 100% 150

120 3 75 75%

90 2 50

60 (£million/MW) 50%

1 Mean capacity factor

Wind farm cost of energy (£/MWh) 30 Wind farm OPEX (£k/MW/yr) Potential impact of factors on CAPEX 25 25%

0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 800 160 60 Net CO2 avoided Cumulative 25 140

UK projects Continental projects Cumulative 120 600

40 20 100

80 15 400 60 20

40 avoided (million tonnes) 10 2 UK captial phase GVA (£billion) 20 200 Net CO 5 0 Potential impact of factors on cost energy (£MWh) 0 2011–2014 2015–2018 2019–2022 UK operational phase GVA (£billion) 2011–2014 2015–2018 2019–2022

UK projects GVA relating to projects post 2022 Continental projects Cumulative 0 Exchange rate Steel price Technology Competing markets 0 2011–2014 2015–2018 2019–2022 2023+ 2011–2014 2015–2018 2019–2022 2023+

1.5 3.0 3.5 50 8 16 1.2 2.4 3.0 25 6 12 2.5 0.9 1.8

0 2.0 4 8 0.6 1.2

1.5 -25 0.3 0.6 2 4 Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion) Government revenue (£billion) -50 0.0 0.0 Balance of payments (£billion)

Wind farm CAPEX (£million/MW) 2011–2014 2015–2018 2019–2022 0.5 2011-14 2015-18 2019-22 2023+ 0 0 2011–2014 2015–2018 2019–2022 2023+ Development and consenting Turbine manufacture 0.0 Capital GVA (Imported) Capital GVA (Exported) 2011-14 2015-18 2019-22 Operational GVA (Imported) Operational GVA (Exported) Capital phase tax Operational phase tax Capital phase (projects post 2022) Balance of plant manufacture Installation and commissioning Avoided cost of fossil fuel Cumulative The Crown Estate seabed lease Cumulative Investment for post-2022 projects Cumulative Project Turbine Foundation Electrical Installation Cumulative (high fuel price) 5

1. Methodology

1.1 Introduction Turbine systems that include the onshore This element covers the manufacture and cables and substation at the point of This report is based upon forecasts of assembly of the turbine components, connection to the transmission system. three measures of project cost: CAPEX; including the nacelle and its sub-systems, OPEX; and cost of energy. the blades and hub, the tower and the In the past, the cost of this element was turbine electrical systems to the point met entirely by the wind farm developer, Both CAPEX and OPEX are “real” costs of connection to the array cables. This but the introduction of the Offshore insofar as they represent the expenditure cost is assumed to be ex-works so does Transmission Network Owner (OFTO) on goods or services. Cost of energy not include any cost for transporting regime means that the wind farm and is defined here as the total revenue the turbine to a construction port or any the electrical transmission systems must required per MWh to provide a given rate installation costs. now be owned separately (“unbundled”). of return for an investor based on the time-offset CAPEX, OPEX and energy For projects in 2011, this element is For owners of existing wind farms, this generated by the wind farm. forecast to account for around 40% of has meant they have needed to transfer total CAPEX, increasing to nearly 44% the offshore and onshore substations by 2022. and the export cable systems into 1.2 Capital expenditure (CAPEX) the ownership of OFTOs. For future Foundation projects, all of the electrical systems, For the purpose of this report, CAPEX is Comprising the manufacture of the with the exceptions of the array cables, divided into five elements: project; turbine; foundations of the turbines, this element will either be installed by an OFTO, or foundations; electrical; and installation. does not include transportation or by the developer who will then transfer These elements account for varying installation costs. Time-scales for the asset on completion. In all cases, proportions of the overall spend depending contracting and manufacture are the OFTO will then be paid a fee by the on project parameters. Spend on these assumed to be similar to those of the National Grid, which recovers costs elements is typically spread over at least turbines. through transmission charges to the five years prior to the first generation of wind farm owner. electricity by an offshore wind farm. For projects in 2011, the foundation is forecast to account for around 19% of This arrangement means that, for the Project total CAPEX, increasing to 22% by 2022. wind farm owner, these costs will be Included within this element are all of the elements of OPEX rather than CAPEX. It development and consenting processes Electrical has been decided, however, that these that are required up to the point of financial This element covers offshore substations electrical costs will remain as CAPEX in close or the placing of firm orders for wind and their foundations, array cables, this study, for the sake of consistency farm construction. It covers activities such export cables linking the wind farm to with the conventional understanding of as environmental and wildlife surveys, the shore, and the onshore electrical the split between CAPEX and OPEX. engineering studies, and planning and legal 4 200 activities. CAPEX Cost of energy Figure 2: Breakdown of CAPEX into key elements (based on forecast 2011 and 2022 project costs) CAPEX OPEX Cost of energy This element also includes the project 3 150 management of all other activities up to the first generation of electricity, as well 2011 2022 as other administrative activities and 2011 2022 professional services such as accountancy 2 100 and legal advice.

CAPEX (£million/MW) For projects being built in 2011, project 1 50 costs are forecast to account for around Wind farm CAPEX (£million/MW) Wind farm cost of energy (£/MWh) 4% of total CAPEX. Economies of scale are expected to mean that these costs will Cost of energy (£/MWh) and OPEX (£k/MW/year) 8 8.5 9 9.5 10 Project Turbine Foundation Electrical Installation OPEX 0 0 become proportionally smaller as projects Project Turbine Foundation Electrical Installation Mean wind speed (m/s) 2011–2014 2015–2018 2019–2022 grow in size, so that by 2022 they are anticipated to be less than 3% of costs.

3.5 3.5 3.5 CAPEX OPEX Cost of energy 3.0 3.0 -2% 3.0

2.5 2.5 2.5

1% 2.0 2.0 26% 26% 2.0 28% 17%

1.5 (£k/MW/year) 1.5 1.5 CAPEX (£million/MW)

1.0 Wind farm CAPEX (£million/MW) 1.0 1.0 Cost of energy (£/MWh) and OPEX Wind farm CAPEX (£million/MW) Wind farm CAPEX (£million/MW) 0.5 0.5 0.5

4 5 6 7 8 0.0 0.0 0.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010

120 12 40

80 90 9 30 UK EU non-UK UK Cumulative EU Cumulative

6 20 60

40 Average water depth (m) Average cable length (km) 3 10 30 Annual mean wind speed (m/sec) Installed capacity (GW) 20

0 0 0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

100% 3.5 100% 8 3.0

75% 2.5 75% 6 2.0

50% 1.5 50% 4

1.0 Wind farm CAPEX (£million/MW) 0.5 25% Average turbine rating (MW) 2 25% Proportion of projects using monopiles

Proportion of projects using HVDC systems 0.0 2011–2014 2015–2018 2019–2022

0 0% Project Turbine Foundation Electrical Installation 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 4 100 100% 150

120 3 75 75%

90 2 50

60 (£million/MW) 50%

1 Mean capacity factor

Wind farm cost of energy (£/MWh) 30 Wind farm OPEX (£k/MW/yr) Potential impact of factors on CAPEX 25 25%

0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 800 160 60 Net CO2 avoided Cumulative 25 140

UK projects Continental projects Cumulative 120 600

40 20 100

80 15 400 60 20

1.5 3.0 3.5 50 8 16 1.2 2.4 3.0 25 6 12 2.5 0.9 1.8

0 2.0 4 8 0.6 1.2

1.5 -25 0.3 0.6 2 4 Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion) Government revenue (£billion) -50 0.0 0.0 Balance of payments (£billion)

Again, the time scales for contracting Other costs include the building rent the Department of Energy and Climate and constructing the electrical system for the wind farm control building and Change (DECC) in 2010.2 are similar to those of the turbines component warehousing, port berthing and foundations. For projects in 2011, fees, insurance, legal and accountancy No inflators have been used on either this element is forecast to account for fees, bank charges, depreciation, audit the costs or revenues of wind farm around 14% of total CAPEX, with only a fees and sea bed lease fees charged by projects. The cost of energy used in slight increase forecast by 2022. The Crown Estate. this study is therefore not an absolute forecast of expected levels, but an Installation As discussed above, the cost of indicator of the impact of physical and This element includes the transportation constructing the electrical systems has technical parameters on whole-life costs of components to a construction port, been included in the CAPEX, whereas over the next decade or so. onshore preparation and installation. it would be expected to be included in the OPEX of wind farm owners operating The evolution of the combined contribution Today, foundations, substations and under the OFTO regime. of CAPEX and OPEX to whole-life cost of cables are usually installed in the year energy between wind farms installed in before the turbines, although strategies 2011 and 2022 is shown below. in the future are likely to evolve. For 1.4 Cost of energy projects in 2011, this element is forecast to account for around 23% of total The cost of energy is defined here as the 1.5 Forecasting wind farm costs CAPEX, reducing to less than 18% by total revenue required per MWh of energy, 2022. such that the wind farm owner secures Wind farm CAPEX, OPEX and cost a 10% return on CAPEX and OPEX paid of energy are influenced by a range As the discounted decommissioning from its balance sheet over the project’s of factors, both specific to particular costs for offshore wind farms at the end lifetime. Various models for financing wind farm locations (such as the water of their 20 to 25 year operational life offshore wind are likely to be used over the depth, wind and wave conditions, and are relatively low, and partly offset by next decade, but this simple model gives distance to port facilities and point of opportunities to reuse and recycle much revenues that are representative of those grid connection) and to the technology of the hardware, they are not considered needed to facilitate decisions to allow used in the wind farm, such as the wind further here. progress to construction. This revenue turbine power rating and rotor diameter. may be secured through a combination In order to model the combined impact of electricity price and market support of these different factors, we have 1.3 Operational expenditure (OPEX) mechanisms. This rate of return is slightly established the impact of each factor lower than that assumed by Redpoint on CAPEX, OPEX and energy output/ Unlike sources of conventional Energy/Trilemma UK in Electricity Market efficiency of specific elements of the generation, offshore wind benefits Reform: Analysis of policy option for wind farm, then combined these impacts from having no primary fuel costs, but operational costs are a significant Figure 3: Breakdown of cost of energy into key elements (based on forecast costs for projects to be 4 200 element of whole-life cost of energy. installed in 2011 and 2022) CAPEX Cost of energy CAPEX OPEX Cost of energy The largest contribution to OPEX are costs relating to the operation and 3 150 maintenance of the wind farms, including 2011 2022 2011 2022 condition monitoring, preventative and reactive maintenance, health and safety 2 100 inspections and monitoring of the local environmental impact of the wind farm. CAPEX (£million/MW) Direct costs include engineering and 1 50

technician staff salaries, vessel charter Wind farm CAPEX (£million/MW) Wind farm cost of energy (£/MWh) costs and the procurement of spare components, electrical and mechanical Cost of energy (£/MWh) and OPEX (£k/MW/year) 8 8.5 9 9.5 10 tools and cleaning and personal Project Turbine Foundation Electrical Installation OPEX 0 0 Project Turbine Foundation Electrical Installation Mean wind speed (m/s) 2011–2014 2015–2018 2019–2022 protective equipment.

3.5 3.5 3.5 CAPEX OPEX Cost of energy 3.0 3.0 -2% 3.0

2.5 2.5 2.5

1% 2.0 2.0 26% 26% 2.0 28% 17%

1.5 (£k/MW/year) 1.5 1.5 CAPEX (£million/MW)

1.0 Wind farm CAPEX (£million/MW) 1.0 1.0 Cost of energy (£/MWh) and OPEX Wind farm CAPEX (£million/MW) Wind farm CAPEX (£million/MW) 0.5 0.5 0.5

4 5 6 7 8 0.0 0.0 0.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010

120 12 40

80 90 9 30 UK EU non-UK UK Cumulative EU Cumulative

6 20 60

40 Average water depth (m) Average cable length (km) 3 10 30 Annual mean wind speed (m/sec) Installed capacity (GW) 20

0 0 0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

100% 3.5 100% 8 3.0

75% 2.5 75% 6 2.0

50% 1.5 50% 4

1.0 Wind farm CAPEX (£million/MW) 0.5 25% Average turbine rating (MW) 2 25% Proportion of projects using monopiles

Proportion of projects using HVDC systems 0.0 2011–2014 2015–2018 2019–2022

0 0% Project Turbine Foundation Electrical Installation 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 4 100 100% 150

120 3 75 75%

90 2 50

60 (£million/MW) 50%

1 Mean capacity factor

Wind farm cost of energy (£/MWh) 30 Wind farm OPEX (£k/MW/yr) Potential impact of factors on CAPEX 25 25%

0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 800 160 60 Net CO2 avoided Cumulative 25 140

UK projects Continental projects Cumulative 120 600

40 20 100

80 15 400 60 20

1.5 3.0 3.5 50 8 16 1.2 2.4 3.0 25 6 12 2.5 0.9 1.8

0 2.0 4 8 0.6 1.2

1.5 -25 0.3 0.6 2 4 Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion) Government revenue (£billion) -50 0.0 0.0 Balance of payments (£billion)

through our knowledge of the cost The trends generated show a reduction Finally, larger turbines typically have breakdown of offshore wind farms. in the CAPEX per MW between 4MW greater hub heights so they operate in to 7MW where the increased cost per higher mean wind speeds. This means The trends that we developed were then MW of the turbine is more than offset by more energy is generated than by a reviewed in two industry workshops savings on the foundation, but then the turbine with a lower hub height in the organised by RenewableUK, with trend levels off. same conditions, which also contributes representatives from offshore wind farm to the reduction in the cost of energy. developers, turbine manufacturers, A more significant change can be seen In this analysis, due to the relatively low vessel owners and engineering in OPEX as the turbine rating increases. wind shear at sea, hub height has been consultancies. For details of the It costs less to maintain fewer, larger modelled as the minimum required for consultation process undertaken for this turbines than smaller machines with a given rotor diameter in order to meet report, see Appendix A. the same combined rating, as many current Marine and Coastguard Agency activities have only a small associated (MCA) requirements. As an example of these trends, Figure 4 cost increase when working with larger shows the impact of mean wind speed turbines. on wind farm CAPEX, OPEX and cost of energy. The trend is developed while keeping all the other factors that affect Figure 4: Impact of mean wind speed at 100m height above LAT on offshore wind farm project the cost of a wind farm unchanged, and CAPEX, OPEX and cost of energy equal to those expected for a typical 4 200 Round 3 project. 4 200 CAPEX Cost of energy CAPEX OPEX Cost of energy CAPEX Cost of energy CAPEX OPEX Cost of energy Both CAPEX and OPEX increase slightly with increasing mean wind speed as wind 3 150 3 150 farm structures are designed to handle 2011 2022 2011 2022 2011 2022 greater loads, there is greater wear-and- 2011 2022 tear on the hardware during operation and 2 100 delays to operational activities. The cost of 2 100

CAPEX (£million/MW) energy drops, however, as the additional CAPEX (£million/MW) energy generated due to the greater wind 1 50 Wind farm CAPEX (£million/MW)

resource outweighs these additional costs. Wind farm cost of energy (£/MWh) 1 50 Wind farm CAPEX (£million/MW) Wind farm cost of energy (£/MWh) Cost of energy (£/MWh) and OPEX (£k/MW/year) 8 8.5 9 9.5 10 Figure 5 considers the impact of Project Turbine Foundation Electrical Installation OPEX 0 0 Cost of energy (£/MWh) and OPEX (£k/MW/year) Project Turbine Foundation Electrical Installation Mean wind speed (m/s) increasing turbine rating on costs. 8 2011–20148.5 2015–20189 9.52019–2022 10 Project Turbine Foundation Electrical Installation OPEX 0 0 Project Turbine Foundation Electrical Installation Again, the trend is developed while Mean wind speed (m/s) 2011–2014 2015–2018 2019–2022 keeping all other factors fixed to that of a typical Round 3 project. The Figure 5: Impact of turbine rating on wind farm project CAPEX, OPEX and cost of energy, taking into account increased optimisation of rotor diameter for larger turbines rotor diameter increases along with 3.5 3.5 the turbine rating, moving from the 3.5 3.5 3.5 typical specific ratings (rated power CAPEX OPEX Cost of energy 3.0 3.5 3.0 / rotor swept area, W/m²) seen today CAPEX OPEX Cost of energy -2% 3.0 3.0 3.0 towards relatively larger rotors that we -2% 3.0 2.5 2.5 consider optimum for large turbines in 2.5 2.5 2.5 the future. We acknowledge that this 2.5 1% 2.0 2.0 26% move to an optimum diameter will take 26% 1% 2.0 2.0 17% 2.0 26% 28% some time. The trend towards relatively 2.0 17% 26% 1.5 28% (£k/MW/year) 1.5 larger rotor diameters is evidenced by 1.5

1.5 (£k/MW/year) 1.5 announcements from, for example, CAPEX (£million/MW) 1.5 Wind farm CAPEX (£million/MW) 1.0 1.0 Alstom, Siemens and Vestas in early 2011. CAPEX (£million/MW) 1.0 Cost of energy (£/MWh) and OPEX Wind farm CAPEX (£million/MW)

Wind farm CAPEX (£million/MW) 1.0 1.0 Wind farm CAPEX (£million/MW) 1.0 Cost of energy (£/MWh) and OPEX

0.5 Wind farm CAPEX (£million/MW) 0.5 0.5 Wind farm CAPEX (£million/MW) 0.5 0.5 0.5 4 5 6 7 8 0.0 0.0 0.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 4 2005 5 2006 2007 6 2008 7 2009 20108 0.0 0.0 0.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010

120 12 40 120 12 40

80 90 9 30 UK EU non-UK UK Cumulative EU Cumulative 80 90 9 30 UK EU non-UK UK Cumulative EU Cumulative 60

6 60 20 60 60 6 20 40

40 Average water depth (m) Average cable length (km) 3 10 30 Annual mean wind speed (m/sec) Installed capacity (GW) Average water depth (m)

Average cable length (km) 20 3 10 30 Annual mean wind speed (m/sec) Installed capacity (GW) 20

0 0 0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 0 0 0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

100% 3.5 100% 8 100% 3.5 100% 3.0 8 3.0 75% 2.5 75% 6 75% 2.5 2.0 75% 6 2.0 50% 1.5 50% 4 50% 1.5 50% 1.0 4

Wind farm CAPEX (£million/MW) 1.0 0.5 25% Average turbine rating (MW) 2 25% Wind farm CAPEX (£million/MW) 0.5 Proportion of projects using monopiles Average turbine rating (MW) Proportion of projects using HVDC systems 25%0.0 2 25%

2011–2014 2015–2018 2019–2022 Proportion of projects using monopiles Proportion of projects using HVDC systems 0.0 0 0% Project Turbine Foundation Electrical Installation 2011–2014 2015–2018 2019–2022 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 0 0% Project Turbine Foundation Electrical Installation 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 4 100 180 100% 150 4 100 100% 150 120 3 75 75% 120 3 75 90 75% 2 90 50

60 (£million/MW) 2 50% 50

60 1 (£million/MW) 50% Mean capacity factor

Wind farm cost of energy (£/MWh) 30 Wind farm OPEX (£k/MW/yr) Potential impact of factors on CAPEX 251 25% Mean capacity factor

Wind farm cost of energy (£/MWh) 30

0 Wind farm OPEX (£k/MW/yr) 0 Potential impact of factors on CAPEX 25 2011–2014 2015–2018 2019–2022 25% 2011–2014 2015–2018 2019–2022 0 0 Project Turbine Foundation Electrical Installation OPEX Exchange2011–2014 rate Steel price2015–2018Technology 2019–2022Competing markets 0 0% 20112011–2014–2014 20152015–2018–2018 20192019–2022–2022 2011–2014 2015–2018 2019–2022

Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 800 160 60 180 Net CO2 avoided Cumulative 800 25 140 160 60 Net CO2 avoided Cumulative UK projects Continental projects Cumulative 120 600 25 140 40 20 100 UK projects Continental projects Cumulative 120 600

40 2080 100 15 400 60 20 80 15 400 40 avoided (million tonnes) 10 2 60 UK captial phase GVA (£billion) 20 20 200

40 avoided (million tonnes) 2

10 Net CO

UK captial phase GVA (£billion) 5 0 Potential impact of factors on cost energy (£MWh) 0

UK operational phase GVA (£billion) 20 200 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 Net CO 5 0 Potential impact of factors on cost energy (£MWh) 0 0

UK operational phase GVA (£billion) 0 UK projects GVA relating to projects post 2022 Continental projects Cumulative 2011–2014 2015–2018 2019–2022 Exchange rate Steel price Technology Competing markets 2011–2014 2015–2018 2019–2022 2023+ 2011–20142011–2014 2015–2018 2015–2018 2019–2022 2019–2023+2022

1.5 3.0 3.5 50 8 16 1.2 2.4 1.5 3.0 3.0 3.5 50 25 8 16 6 12 1.2 2.4 2.5 3.0 0.9 1.8 25 0 6 12 2.0 2.5 4 8 0.6 1.2 0.9 1.8

0 1.5 2.0 -25 40.3 0.6 8 0.6 1.2 2 4 Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion)

1.5 Government revenue (£billion) -25 -50 0.0 0.0 0.3 0.6 Balance of payments (£billion) 2 4 Wind farm CAPEX (£million/MW)

2011–2014 2015–2018 2019–2022 Cumulative investment (£billion) 0.5 2011-14 2015-18 2019-22 2023+ 0 0

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion) 2011–2014 2015–2018 2019–2022 2023+ Government revenue (£billion) -50 0.0 0.0 Capital GVA (Imported) Capital GVA (Exported) Balance of payments (£billion) Development and consenting Turbine manufacture Wind farm CAPEX (£million/MW) 2011–2014 2015–2018 2019–2022 0.0 0.5 2011-14 2015-18 2019-22 2023+ 0 0 2011-14 2015-18 2019-22 Operational GVA (Imported) Operational GVA (Exported) Capital phase tax Operational phase tax Capital phase (projects post 2022) 2011Balance–2014 of plant manufacture2015–2018 2019Installation–2022 and commissioning2023+ Avoided cost of fossil fuel Cumulative Development and consenting Turbine manufacture 0.0 TheC Crownapital G EstateVA (Im seabedported) lease Cumulative Capital GVA (Exported) Investment for post-2022 projects Cumulative Project Turbine Foundation Electrical Installation Cumulative (high fuel price) 2011-14 2015-18 2019-22 Operational GVA (Imported) Operational GVA (Exported) Capital phase tax Operational phase tax Capital phase (projects post 2022) Balance of plant manufacture Installation and commissioning Avoided cost of fossil fuel Cumulative The Crown Estate seabed lease Cumulative Investment for post-2022 projects Cumulative Project Turbine Foundation Electrical Installation Cumulative (high fuel price) 8

2. Review of Costs to Date

2.1 Quoted costs As can be seen in Figure 7, there are continued to sell energy in pounds. sizable differences between the quoted Similarly, steel accounts for an estimated

4 200A key purpose of this report is to forecast and estimated CAPEX, although the 12% of CAPEX and has also seen similar CAPEX Cost of energy the cost of future offshore wind projects. In difference decreases for later years. Key price variations over the period. Inflation CAPEX OPEX Cost of energy doing so, it is important to look at the past factors in explaining this discrepancy are also means that the costs of later projects and understand the trends and factors the impacts of inflation, exchange rates can be expected to be proportionally 3 150 that have shaped costs to date. and steel price variation during the period. higher than those of earlier ones. 2011 2022 2011 2022 Learning curves and engineering The majority of the equipment and The upper green bars in Figure 8 show 2 100 assessments have been used in different services used in UK wind farms to the effect of compensating for the impact reports to predict decreasing capital costs, date have been bought from either the of these three factors. The impact of CAPEX (£million/MW) but these forecasts have subsequently eurozone or from countries with currencies inflation has been calculated using the 1 50been contradicted by the reality of rising pegged to the Euro. Between 2005 and Consumer Price Index as published by the Wind farm CAPEX (£million/MW) costs,Wind farm cost of energy (£/MWh) especially in the last three years. 2010, the exchange rate between the Euro Office for National Statistics.3 Exchange

Cost of energy (£/MWh) and OPEX (£k/MW/year) and sterling varied by almost a quarter, rate adjustments have been calculated 8 8.5 9 9.5 10 Project Turbine Foundation Electrical Installation OPEX 0 0As can be seen in Figure 6, between 2005 which increasedProject costs Turbinesignificantly for Foundationusing data fromElectrical the Bank of England.Installation4 Mean wind speed (m/s) 2011–2014 2015–2018 2019–2022 and 2010 the average annual CAPEX UK offshore wind farm developers who The impact of changing steel cost has quoted by project developers has more than doubled. Figure 6: Average offshore wind farm CAPEX quoted by developers

3.5 There are significant uncertainties in 3.5 these quoted figures, leading to a degree 3.5 4 200 CAPEX OPEX Cost of energy 3.0 of scatter around the trend line. For CAPEX Cost of energy 3.0 CAPEX OPEX Cost of energy -2% example, they have been quoted by a 3.0

2.5 2.5 range of developers who may each be 3 150 2.5 referring to a different scope, or using a 1% 2011 2022 2011 2022 2.0 2.0 26% different accounting system, so it is not 26% 2.0 28% 17% possible to know whether they are directly 2 100

1.5 (£k/MW/year) 1.5 comparable. In some cases, the quoted 1.5

CAPEX (£million/MW) figures may also hide overspend that CAPEX (£million/MW) 1.0 Wind farm CAPEX (£million/MW) 1.0 supply chain companies have absorbed. 1.0

Cost of energy (£/MWh) and OPEX 1 50 Wind farm CAPEX (£million/MW) Wind farm CAPEX (£million/MW)

This overspend certainly occurred on Wind farm CAPEX (£million/MW) Wind farm cost of energy (£/MWh) 0.5 0.5 earlier projects where a lack of application- 0.5 Cost of energy (£/MWh) and OPEX (£k/MW/year) 4 5 6 7 8 specific experience meant companies did 8 8.5 9 9.5 10 0.0 0.0 Project0.0 Turbine Foundation Electrical Installation OPEX 0 0 Project Turbine Foundation Electrical Installation 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) not accurately estimate the cost of their 2005 2006 2007 2008 2009 2010 Mean wind speed (m/s) 2011–2014 2015–2018 2019–2022 activities.

Figure 7: Estimated average annual CAPEX of completed UK wind farms based on 2010 costs 2.2 Standardising costs 3.5 3.5 120 12 40 3.5 A further problem with using these quoted CAPEX OPEX Cost of energy 3.0 costs directly is that the commercial and 3.0 -2% 3.0 80 economic conditions in which the wind 2.5 90 farms were built have changed over the 92.5 30 UK EU non-UK UK Cumulative EU Cumulative 2.5 years, with different market conditions 1% 2.0 2.0 26% 60 affecting the prices of services, materials 26% 2.0 28% 17% and finished goods. 6

60 1.5 (£k/MW/year) 20 1.5 1.5 40 In order to better understand these CAPEX (£million/MW) 1.0 Wind farm CAPEX (£million/MW) 1.0 1.0

conditions, we have used the trends that Cost of energy (£/MWh) and OPEX Wind farm CAPEX (£million/MW) Average water depth (m) Wind farm CAPEX (£million/MW) Average cable length (km) 3 10 30 have been developed for this study to Annual mean wind speed (m/sec) Installed capacity (GW) 0.5 0.5 0.5 20 derive an estimated cost for each project 4 5 6 7 8 based on the wind farm parameters, but 0.0 0.0 0.0 using 2010 costs. 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010 0 0 0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

120 12 40 100% 3.5 100% 8 3.0 80 90 9 30 UK EU non-UK UK Cumulative EU Cumulative 75% 2.5 75% 6 60 2.0 6 20 60

50% 1.5 50% 4 40

1.0 Average water depth (m) Average cable length (km) 3 10 30 Annual mean wind speed (m/sec) Installed capacity (GW)

Wind farm CAPEX (£million/MW) 20 0.5 25% Average turbine rating (MW) 2 25% Proportion of projects using monopiles

Proportion of projects using HVDC systems 0.0 2011–2014 2015–2018 2019–2022 0 0 0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 0 0% Project Turbine Foundation Electrical Installation 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

100% 3.5 100% 8 180 3.0 4 100 100% 150 75% 2.5 75% 6 2.0 120 3 75 75% 50% 1.5 50% 4 90 2 1.0 50

60 (£million/MW) 50% Wind farm CAPEX (£million/MW) 0.5 25% Average turbine rating (MW) 2 25%

1 Proportion of projects using monopiles Mean capacity factor Proportion of projects using HVDC systems Wind farm cost of energy (£/MWh) 30 0.0 Wind farm OPEX (£k/MW/yr) Potential impact of factors on CAPEX 25 25% 2011–2014 2015–2018 2019–2022

0 0 0 0% Project Turbine Foundation Electrical Installation 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 4 100 100% 180 150 800 160 60 3 120 Net CO2 avoided Cumulative 75 25 140 75%

UK projects Continental projects Cumulative 120 90600 2 40 20 100 50

60 (£million/MW) 50% 80 15 400 1 Mean capacity factor 60 Wind farm cost of energy (£/MWh) 30 Wind farm OPEX (£k/MW/yr)

20 Potential impact of factors on CAPEX 25 25%

40 avoided (million tonnes) 10 2

UK captial phase GVA (£billion) 0 0 2011–2014 2015–2018 2019–2022 20 200 2011–2014 2015–2018 2019–2022 Net CO 5 0 Potential impact of factors on cost energy (£MWh) 0 Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 0% 2011–2014 2015–2018 2019–2022 UK operational phase GVA (£billion) 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 800 160 601.5 3.0 Net CO2 avoided Cumulative 3.5 50 8 16 25 140 1.2 2.4 3.0 UK projects Continental projects Cumulative 120 600 25 6 12 40 20 2.5 0.9 1.8 100 80 0 2.0 4 8 0.6 1.2 15 400 60 20 1.5

-25 0.3 0.6 40 avoided (million tonnes) 2 4 10 2 UK captial phase GVA (£billion) Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion)

Government revenue (£billion) 20 200

-50 0.0 0.0 Net CO Balance of payments (£billion) 5 Wind farm CAPEX (£million/MW) 2011–2014 2015–2018 2019–2022 0.5 2011-14 2015-18 2019-22 2023+ 0 0 0 Potential impact of factors on cost energy (£MWh) 0 2011–2014 2015–2018 2019–2022 2023+ 2011–2014 2015–2018 2019–2022 UK operational phase GVA (£billion) 2011–2014 2015–2018 2019–2022 Development and consenting Turbine manufacture 0.0 Capital GVA (Imported) Capital GVA (Exported) UK projects GVA relating to projects post 2022 Continental projects Cumulative 0 Exchange rate Steel price Technology Competing markets 0 2011-14 2015-18 2019-22 Operational GVA (Imported) Operational GVA (Exported) Capital phase tax Operational phase tax Capital phase (projects post 2022) Balance of plant manufacture Installation and commissioning 2011–2014 2015–2018 2019–2022 2023+ 2011–2014 2015–2018 2019–2022 2023+ Avoided cost of fossil fuel Cumulative The Crown Estate seabed lease Cumulative Investment for post-2022 projects Cumulative Project Turbine Foundation Electrical Installation Cumulative (high fuel price)

1.5 3.0 3.5 50 8 16 1.2 2.4 3.0 25 6 12 2.5 0.9 1.8

0 2.0 4 8 0.6 1.2

1.5 -25 0.3 0.6 2 4 Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion) Government revenue (£billion) -50 0.0 0.0 Balance of payments (£billion)

3 150

2011 2022 2011 2022

9 2 100 CAPEX (£million/MW)

1 50 Wind farm CAPEX (£million/MW) Wind farm cost of energy (£/MWh) Cost of energy (£/MWh) and OPEX (£k/MW/year) 8 8.5 9 9.5 10 Project Turbine Foundation Electrical Installation OPEX 0 0 Project Turbine Foundation Electrical Installation Mean wind speed (m/s) 2011–2014 2015–2018 2019–2022

been calculated using the average price Figure 8: Gap between quoted costs and estimated and compensated CAPEX based on 2010 costs of northern European flat product.5 The impact of these factors has been offset 3.5 3.5 because most CAPEX is spread over the 3.5 years before installation. CAPEX OPEX Cost of energy 3.0 3.0 -2% 3.0 Despite compensating for these 2.5 2.5 key external factors, there is still a 2.5 gap between these estimated and 1% 2.0 compensated costs, and the quoted 2.0 26% 26% 2.0 costs (as shown in Figure 8). 28% 17%

1.5 (£k/MW/year) 1.5 1.5

In RenewableUK’s Charting the Right CAPEX (£million/MW) 1.0 Course, a number of market events and Wind farm CAPEX (£million/MW) 1.0 1.0 Cost of energy (£/MWh) and OPEX Wind farm CAPEX (£million/MW) conditions were highlighted that were Wind farm CAPEX (£million/MW) 0.5 believed to be factors that have affected 0.5 0.5

the costs of building offshore wind farms. 4 5 6 7 8 0.0 These included strong competition for 0.0 0.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010 resources from competing industries such as onshore wind and oil and gas, lack of competition in the supply of offshore wind turbines and limited availability of suitable profits within the supply chain, we have stable economic environment and a more installation vessels. seen significant investments by a range confident and innovative supply chain, this

of players,120 from turbine manufacturers to trend of rising CAPEX would be reversed. 12 40 In addition, a number of contractors suppliers of installation services, that are supplying to early projects underpriced needed to deliver the capacity increases Even when these factors are removed, by work due to the pressures of delivering required. estimating project costs based on 2010 80 90 9 30 to an embryonic sector with marginal conditions, we still see a significant trend UK EU non-UK UK Cumulative EU Cumulative economics and a lack of understanding It is not possible to precisely measure the of increasing CAPEX that is due to the of the challenges and logistics involved. impact of each of these factors, but the specific characteristics of the wind farms 60 This resulted in a number of businesses combined impact is likely to be about 20 constructed. 60 6 20 failing and a lack of competition in various to 30%, accounting for the gap (shown areas of the supply chain. The introduction in Figure 8). In 2009 and 2010 there is a For example, while the Kentish Flats 40 of banding in the Renewables Obligation close correlation between the estimated project was built in 2005 in average water Average water depth (m) eased this situation, making it possible and Average cable length (km) compensated costs and the quoted depths of around five metres, its near 3 10 30 Annual mean wind speed (m/sec) for the supply chain to deliver pioneering costs, indicating that the trends are more neighbour Thanet was installed in water Installed capacity (GW) 20 work at reasonable levels of profit, accurately including the impact of these depths of up to 25 metres in 2010. An compared with the risks it was being factors. Furthermore, greater investment in example of the impact of such a difference 0 asked to take. In its 2007 energy white capacity,0 increasing competition and longer is seen in foundation and installation costs. 0 0 2011–2014 2015–2018 2019–2022 paper, Meeting the energy challenge, industry experience2011–2014 means it is expected 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 the Government announced proposals that these remaining factors are unlikely to The fact that most future UK projects will be to increase the number of Renewables have the same dramatic impact on costs as built in even deeper waters and considerably Obligation Certificates (ROCs) that they have had in the past. For this reason, further offshore than either of these projects offshore wind would receive by 50% for we have not included changes to these means it is unrealistic to expect the trend

100% projects that became operational after factors3.5 from 2010 levels in our forecasts. of rising capital costs to be reversed, or to 100% 6 July 2006. In its 2007 report UK Offshore plateau, in the short term. 8 Wind: moving up a gear, RenewableUK 3.0 noted that most developers were already 2.3 Conclusions By constructing wind farms on such sites, 75% reporting supply chain cost increases 2.5 better wind resources can be accessed, 75% for projects planned for installation from Previous reports on offshore wind costs which will increase energy generation and 6 2009 that were believed to be in response have cited2.0 market and financial factors as in turn decrease the cost of energy from to the anticipated increase in revenue.7 key causes for the increase in CAPEX. As these projects, as shown in Section 3. 50% 1.5 50% Along with this distribution of reasonable a result, it has been assumed that, with a 4

1.0 Wind farm CAPEX (£million/MW) 0.5 25% Average turbine rating (MW) 2 25% Proportion of projects using monopiles

Proportion of projects using HVDC systems 0.0 2011–2014 2015–2018 2019–2022

0 0% Project Turbine Foundation Electrical Installation 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 4 100 100% 150

120 3 75 75%

90 2 50

60 (£million/MW) 50%

1 Mean capacity factor

Wind farm cost of energy (£/MWh) 30 Wind farm OPEX (£k/MW/yr) Potential impact of factors on CAPEX 25 25%

0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 800 160 60 Net CO2 avoided Cumulative 25 140

UK projects Continental projects Cumulative 120 600

40 20 100

80 15 400 60 20

1.5 3.0 3.5 50 8 16 1.2 2.4 3.0 25 6 12 2.5 0.9 1.8

0 2.0 4 8 0.6 1.2

1.5 -25 0.3 0.6 2 4 Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion) Government revenue (£billion) -50 0.0 0.0 Balance of payments (£billion)

3 150

2011 2022 2011 2022

2 100 CAPEX (£million/MW)

3.5 3.5 3.5 CAPEX OPEX Cost of energy 3.0 3.0 -2% 3.0

2.5 2.5 4 200 2.5 CAPEX Cost of energy CAPEX OPEX Cost of energy 1% 2.0 2.0 26% 2.0 17% 26% 328% 150

1.5 (£k/MW/year) 1.5 1.5 2011 2022 2011 2022 10 CAPEX (£million/MW)

Wind farm CAPEX (£million/MW) 1.0 1.0 2 100 1.0 Cost of energy (£/MWh) and OPEX Wind farm CAPEX (£million/MW) Wind farm CAPEX (£million/MW) 0.5 0.5 0.5 CAPEX (£million/MW)

1 50 4 5 6 7 8

0.0 0.0 Wind farm CAPEX (£million/MW) 0.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 3. Wind farm cost of energy (£/MWh) Forecast of costs to 2020 Turbine rating (MW) 2005 2006 2007 2008 2009 2010 Cost of energy (£/MWh) and OPEX (£k/MW/year) 8 8.5 9 9.5 10 Project Turbine Foundation Electrical Installation OPEX 0 0 Project Turbine Foundation Electrical Installation Mean wind speed (m/s) 2011–2014 2015–2018 2019–2022

120 3.1 Market forecast 12 40 Figure 9: Forecast of European offshore wind capacity installed in each period (cumulative lines include capacity installed before 2011) 3.5 3.5 This report bases its market forecast 3.5 CAPEX OPEX Cost of energy on the one used in Towards Round 3: 80 3.0 9 3.0 90 30 -2% Progress in Building the Offshore Wind 3.0 UK EU non-UK UK Cumulative EU Cumulative Supply Chain, prepared for The Crown 2.5 2.5 Estate in February 2011.8 We anticipate 602.5 1% that, by the end of 2022, the UK will 6 2.0 20 2.0 26% 60 26% 2.0 28% 17% have an installed offshore wind capacity of almost 32GW, of which more than 40 1.5 (£k/MW/year) 1.5 1.5

CAPEX (£million/MW) 30GW will be built between 2011 and Average water depth (m) Average cable length (km)

Wind farm CAPEX (£million/MW) 3 1.0 10 1.0 30 2022. This forecast is based on our Annual mean wind speed (m/sec)

Installed capacity (GW) 1.0 20 Cost of energy (£/MWh) and OPEX Wind farm CAPEX (£million/MW)

understanding of the status of individual Wind farm CAPEX (£million/MW) 0.5 0.5 projects and the commercial environment 0.5 in which development and supply chain 0 0 4 5 6 7 8 0 0 0.0 0.0 0.0 2005 2006 2007 2008 2009 2010 2011–2014 2005 20062015–2018 2007 20082019–20222009 2010 2011–2014 Turbine2015–2018 rating (MW) 2019–2022 communities are working. 20052011–2014 2006 2007 2015–20182008 2009 2019–20222010 2011–2014 2015–2018 2019–2022

While this report is focused on UK Figure 10: Average annual mean wind speed at 100m above LAT for UK costs, the available market for much projects installed in each period of the supply chain is the whole of the EU so this wider market also needs to 12 100% 120 3.5 100% 40 be considered in assessing the pace of 8 3.0 technology and process development.

80 Using the same market forecast, it is 90 2.5 9 30 75% UK EU non-UK UK Cumulative EU Cumulative anticipated that, by the end of 2022, there 75% will be a total European installed capacity 6 2.0 60 of more than 60GW.

6 20 60 50% 1.5 50% 4 40 3.2 Future trends in wind farm 1.0 characteristics Average water depth (m) Average cable length (km)

Wind farm CAPEX (£million/MW) 3 10 30 Annual mean wind speed (m/sec)

0.5 Installed capacity (GW) 25% 20 Average turbine rating (MW) 2 25% The CAPEX and OPEX trends developed Proportion of projects using monopiles

Proportion of projects using HVDC systems 0.0 for this report are based on a range of 2011–2014 2015–2018 2019–2022 0 0 0 wind farm and technology characteristics. 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 0 2011–2014 2015–2018 2019–2022 0% Project Turbine Foundation Electrical InstallationThese are summarised below for each 0% 2011–2014 2015–2018 2019–2022 period. 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 construction over a number of years. the second period is caused by the start Wind farm characteristics This means that, for the UK, installation of the first projects in Scottish Territorial The wind speed, water depth, tidal range of a total of 33 projects and zones is Waters (STW) and in Round 3 zones. Wind 100% 3.5 and wave height have been established forecast100% between 2011 and 2022, which speeds have been derived from the UK 8 180 for each project and zone using industry are broken down into 67 projects in this Marine Renewable Energy Resources Atlas. 3.0 4 databases, government data, industry analysis.100 Corrections are applied for projects to take knowledge and discussion with project account of improvements now available 100% 75% 150 2.5 75% 6 developers. The distance to shore for Wind speed through more detailed analysis.10/11 The 2.0 connection to the onshore network has The key benefit from moving projects dominant impact of mean wind speed is on 120 3 75 been calculated using the National Grid further from shore is an increase in energy produced. However, in this analysis 75% 50% 1.5 50% 4 ODIS reports.9 mean wind speed. Figure 10 shows the the impact of mean wind speed on CAPEX 90 1.0 2 change in mean wind speed at 100m and OPEX, especially for the turbine, is also Particularly large zones have been split above 50lowest astronomical tide (LAT) for considered as shown in Figure 4. Wind farm CAPEX (£million/MW) 60 (£million/MW) 50% 0.5 25% Average turbine rating (MW) 2 into projects to reflect the considerable projects25% to be installed in each period.

1 variation in environmental conditions The increaseProportion of projects using monopiles in the average wind speed in Proportion of projects using HVDC systems 0.0 Mean capacity factor Wind farm cost of energy (£/MWh) 30 across the zone and the phased

2011–2014 2015–2018 2019–2022 Wind farm OPEX (£k/MW/yr) Potential impact of factors on CAPEX 25 25% 0 0% Project Turbine Foundation Electrical Installation 0% 2011–2014 2015–2018 2019–2022 0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 4 100 100% 150 180

120 3 800 75 160 60 75% Net CO2 avoided Cumulative 140 90 25 2 UK projects Continental projects Cumulative 120 50 600

60 (£million/MW) 50% 40 20 100 1 Mean capacity factor

Wind farm cost of energy (£/MWh) 30 80 Wind farm OPEX (£k/MW/yr)

Potential impact of factors on CAPEX 15 25 25% 400 60 0 20 0 2011–2014 2015–2018 2019–2022 40 avoided (million tonnes) 2011–2014 2015–2018 2019–2022 10 2 UK captial phase GVA (£billion) Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 200% 200 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 Net CO 5 0 Potential impact of factors on cost energy (£MWh) 0 2011–2014 2015–2018 2019–2022 UK operational phase GVA (£billion) 2011–2014 2015–2018 2019–2022

180 800 160 60 Net CO2 avoided Cumulative 25 140 1.5 3.0 UK projects Continental projects Cumulative 120 3.5 50 600 8 16 40 20 100 1.2 2.4 3.0 25 80 15 6 12 2.5 400 0.9 1.8 60 20 0 40 avoided (million tonnes) 2.0 10 2 4 8 0.6 1.2 UK captial phase GVA (£billion) 20 200

1.5 Net CO 5 -25 0.3 0.6 0 Potential impact of factors on cost energy (£MWh) 0 2 4 UK operational phase GVA (£billion) 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion) Government revenue (£billion) 0 -50 0 0.0 0.0 UK projects GVA relating to projects post 2022 Continental projects Cumulative Balance of payments (£billion) Exchange rate Steel price Technology Competing markets Wind farm CAPEX (£million/MW) 2011–2014 2015–2018 2019–2022 0.5 2011–2014 2015–2018 2019–2022 2023+ 2011-14 2015-18 2019-22 2023+ 0 2011–2014 2015–2018 2019–2022 2023+ 0 2011–2014 2015–2018 2019–2022 2023+ Development and consenting Turbine manufacture 0.0 Capital GVA (Imported) Capital GVA (Exported) 2011-14 2015-18 2019-22 Operational GVA (Imported) Operational GVA (Exported) Capital phase tax Operational phase tax Capital phase (projects post 2022) Balance of plant manufacture Installation and commissioning Avoided cost of fossil fuel Cumulative The Crown Estate seabed lease Cumulative Investment for post-2022 projects Cumulative Project Turbine Foundation Electrical Installation Cumulative (high fuel price) 1.5 3.0 3.5 50 8 16 1.2 2.4 3.0 25 6 12 2.5 0.9 1.8

0 2.0 4 8 0.6 1.2

1.5 -25 0.3 0.6 2 4 Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion) Government revenue (£billion) -50 0.0 0.0 Balance of payments (£billion)

3 150

2011 2022 2011 2022

2 100 CAPEX (£million/MW)

3.54 200 3.5 CAPEX Cost of energy 3.5 CAPEX OPEX Cost of energy CAPEX OPEX Cost of energy 3.0 3.0 -2% 3.0 3 150 2.5 2.5 2.5 2011 2022 2011 2022 1% 2.0 2.0 26% 2 26% 100 2.0 11 28% 17%

1.5 (£k/MW/year) 1.5 1.5 CAPEX (£million/MW) CAPEX (£million/MW)

1.0 Wind farm CAPEX (£million/MW) 1.01 50 1.0 Wind farm CAPEX (£million/MW) Cost of energy (£/MWh) and OPEX Wind farm cost of energy (£/MWh) Wind farm CAPEX (£million/MW) Wind farm CAPEX (£million/MW) 0.5 0.5 0.5 Cost of energy (£/MWh) and OPEX (£k/MW/year) 8 8.5 9 9.5 10 Project Turbine Foundation Electrical Installation OPEX 0 0 4 Project 5 Turbine 6Foundation 7 Electrical 8 Installation 0.0 Mean wind speed (m/s) 0.0 2011–2014 2015–2018 2019–2022 0.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010

Water depth Figure 11: wind farm water depth for UK projects installed in each period The water depth for installed projects 3.5 3.5 increases substantially over time. It should 120 3.5 12 40 CAPEX OPEX Cost of energy be noted that, while there is a strong 3.0 3.0 general upward trend, the average depths -2% 3.0

2.5 mask considerable variation in the water 2.5 80 90 2.5 9 depth of projects during each period. 30 UK EU non-UK UK Cumulative EU Cumulative 1% 2.0 2.0 26% 26% 60 2.0 The second period sees the start of 28% 17%

project installations in Scottish Terrotorial 1.5 (£k/MW/year) 6 1.5 20 60 1.5

waters, which are typically located in CAPEX (£million/MW) 40 1.0 deeper water than projects elsewhere in Wind farm CAPEX (£million/MW) 1.0 1.0 Cost of energy (£/MWh) and OPEX

Wind farm CAPEX (£million/MW) the UK. It is expected that, for economic Average water depth (m) Wind farm CAPEX (£million/MW) Average cable length (km) 3 0.5 0.510 30 Annual mean wind speed (m/sec) reasons, Round 3 developers will tend Installed capacity (GW) 0.5 20 to focus on the shallower areas of their 4 5 6 7 8 0.0 zones during the second period before 0.0 0.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010 moving into the deeper water sites in the 0 0 0 0 third period. 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

The impact of water depth on foundation Figure 12: Average export cable length for UK projects installed in each period and installation costs is modelled here. It

is a key driver in the choice of foundation 120 12 40 type. 100% 3.5 100% 8 Export cable length 3.080 90 9 30 Figure 12 shows a mid-decade peak in UK EU non-UK UK Cumulative EU Cumulative the export cable length. Again, this is a 75% 2.5 75% 6 combination of the start of the installation 60 2.0 of Round 3 projects and projects in STW. 6 20 60 For a number of projects off the west coast 50% 1.5 50% of Scotland, the remote location of these 40 4 farms means they are expected to need 1.0 Average water depth (m) Average cable length (km) 3 10 relatively long subsea connections in order 30 Annual mean wind speed (m/sec) Wind farm CAPEX (£million/MW) Installed capacity (GW) 0.520 to reach mainland connection sites, despite 25% Average turbine rating (MW) 2 25%

being relatively close to shore. Proportion of projects using monopiles Proportion of projects using HVDC systems 0.0 2011–2014 2015–2018 2019–2022 0 0 0 0 2011–2014 2015–2018 2019–2022 The effect of export cable length on 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 0 2011–2014 2015–2018 2019–2022 0% Project Turbine Foundation Electrical Installation 0% cable supply, installation and operational 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 costs is modelled, along with the impact on transmission system design, with in the average rating of turbines over time projects. This is expected to cause a knock on impact on substation costs and and is based on both public information jump in the average rating. The average transmission system losses. and technology forecasts. It is expected turbine size will continue to increase as 3.5 100% that, until 2014, the average rated still larger turbines are introduced to the 100% 180 8 power will be broadly similar to that of market and the sales cycles of today’s 3.0 4 100 3.3 Technology characteristics today, with the market continuing to state-of-the-art turbines come to an end. 100% 150 be dominated by Siemens 3.6MW and 75% 2.5 75% In addition to changes in wind farm Vestas 3MW turbines, and the gradual Alongside the increase in the turbine 6 120 3 2.0 75 characteristics, there will be significant growth of market share for 5MW to 6MW rating, we have incorporated a significant 75% changes in technology that will impact upon turbines. increase in the rotor diameter over time, 50% 1.590 50% the costs of wind farms in the next decade. as discussed in Section 1.5, which also 42 By 2015, however, it is anticipated that considers the impact of turbine size on 50

1.0 (£million/MW) 50% Turbine rating more turbines60 with ratings of 5MW to CAPEX, OPEX and the cost of energy.

Figure 13 shows the anticipated change 7MWWind farm CAPEX (£million/MW) will be installed in commercial 0.5 1 25% Average turbine rating (MW) 2 25% Mean capacity factor

Wind farm cost of energy (£/MWh) 30 Proportion of projects using monopiles Wind farm OPEX (£k/MW/yr) Potential impact of factors on CAPEX 25 25% Proportion of projects using HVDC systems 0.0 0 2011–2014 2015–2018 2019–2022 0 2011–2014 2015–2018 2019–2022 0 2011–2014 2015–2018 2019–2022 0% Project Turbine Foundation Electrical Installation 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 180 4 100 100% 800 150 160 60 Net CO2 avoided Cumulative 25 140 120 3 75 UK projects Continental projects Cumulative 120 75% 600 40 20 90 100 2 50 80

60 (£million/MW) 15 50% 400 60 20 1

40 avoided (million tonnes) 2 Mean capacity factor Wind farm cost of energy (£/MWh) 30 10 UK captial phase GVA (£billion) Wind farm OPEX (£k/MW/yr) Potential impact of factors on CAPEX 25 20 25% 200 Net CO 0 0 5 2011–2014 2015–2018 2019–2022 0 Potential impact of factors on cost energy (£MWh) 0 2011–2014 2015–2018 2019–2022 UK operational phase GVA (£billion) 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 0% UK projects GVA relating to projects post 2022 Continental projects Cumulative 0 2011–2014 2015–2018 2019–2022 Exchange rate 2011–2014Steel price 2015–2018Technology Competing2019–2022 markets 0 2011–2014 2015–2018 2019–2022 2023+ 2011–2014 2015–2018 2019–2022 2023+

180 1.5 3.0 3.5 50 8 800 16 160 60 1.2 2.4 3.0 Net CO2 avoided Cumulative 25 14025 6 12 2.5 0.9 1.8 UK projects Continental projects Cumulative 120 600 40 20 0 2.0 100 4 8 0.6 1.2

1.5 80 -25 15 400 0.3 0.6 2 4

60 Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) 20 Cumulative revenue (£billion) Government revenue (£billion)

40-50 avoided (million tonnes) 0.0 0.0 2 10 Balance of payments (£billion)

Wind farm CAPEX (£million/MW) 2011–2014 2015–2018 2019–2022 UK captial phase GVA (£billion) 0.5 2011-14 2015-18 2019-22 2023+ 0 0 20 2002011–2014 2015–2018 2019–2022 2023+

Capital GVA (Imported) Capital GVA (Exported) Net CO Development and consenting Turbine manufacture 5 0.0 0 Potential impact of factors on cost energy (£MWh) 0

UK operational phase GVA (£billion) 2011-14 2015-18 2019-22 Operational GVA (Imported) Operational GVA (Exported) Capital phase tax Operational phase tax Capital phase (projects post 2022) Balance of plant manufacture Installation and commissioning 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 Avoided cost of fossil fuel Cumulative Investment for post-2022 projects Cumulative Project Turbine Foundation Electrical Installation The Crown Estate seabed lease Cumulative UK projects GVA relating to projects post 2022 Continental projects Cumulative 0 CuExchangemulative ( hrateigh fuel price) Steel price Technology Competing markets 0 2011–2014 2015–2018 2019–2022 2023+ 2011–2014 2015–2018 2019–2022 2023+

1.5 3.0 3.5 50 8 16 1.2 2.4 3.0 25 6 12 2.5 0.9 1.8

0 2.0 4 8 0.6 1.2

1.5 -25 0.3 0.6 2 4 Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion) Government revenue (£billion) -50 0.0 0.0 Balance of payments (£billion)

3 150

2011 2022 2011 2022

2 100 CAPEX (£million/MW)

3.5 3.5 3.5 CAPEX OPEX Cost of energy 43.0 200 3.0 CAPEX Cost of energy -2% 3.0 CAPEX OPEX Cost of energy

2.5 2.5 2.5 3 150 1% 2.0 2.0 26% 2011 2022 26% 2011 2022 2.0 28% 17%

1.5 (£k/MW/year) 1.5 2 100 1.5 CAPEX (£million/MW)

1.0 Wind farm CAPEX (£million/MW) 1.0 1.0 CAPEX (£million/MW) Cost of energy (£/MWh) and OPEX Wind farm CAPEX (£million/MW) 1 50 Wind farm CAPEX (£million/MW) 0.5 0.5 0.5 Wind farm CAPEX (£million/MW) Wind farm cost of energy (£/MWh) 4 5 6 7 8

0.0 Cost of energy (£/MWh) and OPEX (£k/MW/year) 0.0 0.0 8 2005 8.5 2006 20079 2008 9.5 2009 201010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010 Project Turbine Foundation Electrical Installation OPEX 0 0 Project Turbine Foundation Electrical Installation Mean wind speed (m/s) 2011–2014 2015–2018 2019–2022

12 3.5 120 3.5 40 3.5 CAPEX OPEX Cost of energy 3.0 3.0 -2% 3.080 90 9 30 UK EU non-UK UK Cumulative EU Cumulative 2.5 2.5 2.5 60 1% 2.0 2.0 26% 2.0 26% 6 20 28% 17% 60

1.5 1.5 (£k/MW/year) 1.540

CAPEX (£million/MW) 12 Wind farm CAPEX (£million/MW) 1.0 Average water depth (m) 1.0 Average cable length (km) 1.0 3 10 30 Annual mean wind speed (m/sec) Cost of energy (£/MWh) and OPEX Wind farm CAPEX (£million/MW) Installed capacity (GW) Wind farm CAPEX (£million/MW) 20 0.5 0.5 0.5

4 5 6 7 8 0.0 0.00 0 0.00 0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

Figure 13: Average turbine rating for UK projects installed in each period monopiles will only be used in a limited 120 3.5 12 40 100% number of projects. We do not anticipate 100% 8 a need for floating turbine support 3.0 structures in the delivery of any currently 80 planned commercial offshore wind 90 2.5 9 30 75% UK EU non-UK UK Cumulative EU Cumulative 75% 6 projects in UK waters. 2.0 60 High voltage transmission system type 6 20 6050% 1.5 All UK projects built to date have been 50% 4 located relatively close to shore and have 40 1.0 either been linked directly to an onshore Average water depth (m)

Wind farm CAPEX (£million/MW) substation or connected via an offshore Average cable length (km) 3

30 0.5 Annual mean wind speed (m/sec) 10 25% Average turbine rating (MW) 25%

Installed capacity (GW) 2 20 substation to shore using alternating Proportion of projects using monopiles

Proportion of projects using HVDC systems current (AC) export cable. 0.0 2011–2014 2015–2018 2019–2022

0 0 0 00 High voltage direct current (HVDC) 0% Project Turbine Foundation Electrical Installation 0% 2011–2014 2015–2018 2019–2022 2011–20142011–2014 2015–20182015–2018 2019–20222019–2022 2011–2014 2015–2018 2019–2022 2011–20142011–2014 2015–20182015–2018 2019–20222019–2022 systems currently provide a more cost- 2011–2014 2015–2018 2019–2022 effective solution for export connections above approximately 80km, so will be Figure 14: Proportion of UK projects installed in each period using monopiles used in many upcoming projects. As can be seen in Figure 15, in the third period 3.5 approximately half of UK projects will use 100% 180 100% 8 HVDC technology. 4 100 3.0 100% 150

75% 2.5 75% 3.4 Learning rates 120 6 3 75 2.0 75% Learning rates are used to reflect the 90 underlying impact of improvements in 50% 1.5 2 50% 4 50 designs and processes within industries

(£million/MW) 50% 1.060 as they carry out broadly repeated activities, independent of the effects of Wind farm CAPEX (£million/MW) 1 0.5 Average turbine rating (MW) Mean capacity factor 25% Wind farm cost of energy (£/MWh) 30 2 25% short-term market dynamics. Wind farm OPEX (£k/MW/yr) Potential impact of factors on CAPEX Proportion of projects using monopiles 25 25% Proportion of projects using HVDC systems 0.0 0 2011–2014 2015–2018 2019–2022 0 Learning rates are usually expressed 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 as the percentage of cost reduction for 0% 0 0% Project Turbine Foundation Electrical Installation each doubling of cumulative supply. For 2011–2014 2015–2018 2019–2022 Project Turbine Foundation Electrical Installation OPEX Exchange2011–2014 rate Steel price2015–2018 Technology 2019–2022Competing markets 0 2011–2014 2015–2018 2019–2022 0% 2011–2014 2015–2018 2019–2022 offshore wind, reductions may be due to 2011–2014 2015–2018 2019–2022 the standardisation of key components, Foundation type For such projects, other designs such improvements in manufacturing The consequence of the increasing as jackets (space-frames), tripile and technology and the introduction of new water depth seen in Figure 11 and the concrete gravity-based foundations are turbine access methods, enabling more 180 increase180 in turbine size seen in Figure more likely to be used. The transition timely repairs to turbines and improved 4 100 13, is 100%the need for a new generation of between monopile and other foundation reliability. 800 160 150 60 designs is assessed here using a model foundation designs. To date, foundations Net CO2 avoided Cumulative 25 have typically140 been cylindrical, steel of foundation costs incorporating material There has been debate about the 120 3 75 monopiles but these structures become mass and cost, manufacturing and extent to which learning rates based UK projects Continental projects Cumulative 12075% uneconomical once larger turbines are installation cost as well as the availability on installed capacity are applicable to 600 40 20 90 used in100 deeper water. This is due to of suitable installation tooling. offshore wind. Previous industry reports 2 the diameter and wall thickness that is have used relatively high learning rates 50 80 60 (£million/MW) 15 required50% in order to provide resistance to As can be seen in Figure 14, the for CAPEX, which have led to forecasts 400 the larger60 loads imposed on them and to combined impact of larger turbines of decreasing CAPEX levels that have 201 avoided (million tonnes)

provideMean capacity factor 40the required stiffness to ensure a and deeper water means that from later been proved inaccurate. Another

Wind farm cost of energy (£/MWh) 30 10 2 UK captial phase GVA (£billion) Wind farm OPEX (£k/MW/yr) Potential impact of factors on CAPEX 25 satisfactory25% structural dynamic response. the second period it is expected that important consideration is that offshore 20 200

0 Net CO 0 5 2011–2014 2015–2018 2019–2022 0 Potential impact of factors on cost energy (£MWh) 0

2011–2014 2015–2018 2019–2022 UK operational phase GVA (£billion) 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 0% UK projects GVA relating to projects post 2022 Continental projects Cumulative 0 2011–2014 2015–2018 2019–2022 Exchange2011–2014 rate Steel price 2015–2018Technology 2019–2022Competing markets 0 2011–2014 2015–2018 2019–2022 2023+ 2011–2014 2015–2018 2019–2022 2023+

180 1.5 3.0 3.5 50 800 160 8 16 60 Net CO2 avoided Cumulative 1.2 2.4 3.0 140 25 25 6 12 2.5 UK projects Continental projects Cumulative 120 600 0.9 1.8 40 20 100 0 2.0 4 8 0.6 1.2 80 15 1.5 400 -25 0.3 0.6 60 2 4 20 Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion) Government revenue (£billion) 40 avoided (million tonnes) 10 2 -50 0.0 0.0 UK captial phase GVA (£billion) Balance of payments (£billion)

Wind farm CAPEX (£million/MW) 2011–2014 2015–2018 2019–2022 0.5 20 2011-14 2015-18 2019-22 2023+ 0 200 0 2011–2014 2015–2018 2019–2022 2023+ Net CO 5

Potential impact of factors on cost energy (£MWh) Development and consenting Turbine manufacture 0 0.0 0 Capital GVA (Imported) Capital GVA (Exported) 2011–2014 2015–2018 2019–2022 UK operational phase GVA (£billion) 2011-14 2015-18 2019-22 Oper2011ationa–l2014 GVA (Imported) 2015–2018 Operational GVA2019 (Expo–2022rted) Capital phase tax Operational phase tax Capital phase (projects post 2022) Balance of plant manufacture Installation and commissioning Avoided cost of fossil fuel Cumulative Investment for post-2022 projects Cumulative UK projects GVA relating to projects post 2022 Continental projects Cumulative 0 Project Turbine Foundation Electrical Installation Exchange rate Steel price Technology Competing markets 0 The Crown Estate seabed lease Cumulative 2011–2014 2015–2018 2019–2022 2023+ Cumulative (high fuel price) 2011–2014 2015–2018 2019–2022 2023+

1.5 3.0 3.5 50 8 16 1.2 2.4 3.0 25 6 12 2.5 0.9 1.8

0 2.0 4 8 0.6 1.2

1.5 -25 0.3 0.6 2 4 Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion) Government revenue (£billion) -50 0.0 0.0 Balance of payments (£billion)

3 150

2011 2022 2011 2022

2 100 CAPEX (£million/MW)

3.5 3.5 3.5 CAPEX OPEX Cost of energy 3.0 3.0 -2% 3.0

2.5 2.5 2.5

1% 2.0 2.0 26% 26% 2.0 28% 17%

1.5 (£k/MW/year) 1.5 1.5 CAPEX (£million/MW)

1.0 Wind farm CAPEX (£million/MW) 1.0 1.0 Cost of energy (£/MWh) and OPEX Wind farm CAPEX (£million/MW) Wind farm CAPEX (£million/MW) 0.5 0.5 0.5

4 5 6 7 8 0.0 0.0 0.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010

120 12 40

80 90 4 200 9 30 UK EU non-UK UK Cumulative EU Cumulative CAPEX Cost of energy CAPEX OPEX Cost of energy 60

3 150 6 20 60

2011 2022 40 2011 2022

2 100 Average water depth (m) Average cable length (km) 3 10 30 Annual mean wind speed (m/sec) Installed capacity (GW) 20 CAPEX (£million/MW)

1 50 Wind farm CAPEX (£million/MW) 0 0 0 Wind farm cost of energy (£/MWh) 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 Cost of energy (£/MWh) and OPEX (£k/MW/year) 8 8.5 9 9.5 10 Project Turbine Foundation Electrical Installation OPEX 0 0 Project Turbine Foundation Electrical Installation Mean wind speed (m/s) 2011–2014 2015–2018 2019–2022

100% 3.5 100% 8 3.03.5 3.5 3.5 CAPEX OPEX Cost of energy 75% 2.53.0 75% 3.0 -2% 6 3.0 2.0 2.5 2.5 2.5 50% 1.5 1% 50% 2.0 2.0 26% 4 26% 2.0 1.0 28% 17%

1.5 (£k/MW/year) 1.5 1.5 Wind farm CAPEX (£million/MW)

0.5 CAPEX (£million/MW) 25% Average turbine rating (MW) 2 25% Wind farm CAPEX (£million/MW) 1.0 1.0 Proportion of projects using monopiles 1.0 Proportion of projects using HVDC systems

0.0 Cost of energy (£/MWh) and OPEX Wind farm CAPEX (£million/MW) 2011–2014 2015–2018 2019–2022 Wind farm CAPEX (£million/MW) 0.5 0.5 0.5 0 0% Project Turbine Foundation Electrical Installation 0% 2011–2014 2015–2018 2019–2022 4 2011–20145 2015–20186 7 2019–2022 8 2011–2014 2015–2018 2019–2022 0.0 0.0 0.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010

180 4 120 100 12 40 100% 150

120 3 80 90 75 9 30 UK EU non-UK UK Cumulative EU Cumulative 75%

90 2 60 50

(£million/MW) 6 2060 60 50% 13 1 40 Mean capacity factor

Wind farm cost of energy (£/MWh) 30 Wind farm OPEX (£k/MW/yr) Potential impact of factors on CAPEX

Average water depth (m) 25

Average cable length (km) 25% 3 10 30 Annual mean wind speed (m/sec) Installed capacity (GW) 0 0 20 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 0% 0 0 0 2011–2014 2015–2018 2019–2022 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

wind benefits from the development of Figure 15: Proportion of UK projects installed in each period using HVDC electrical systems technologies and skills in other industries, 180 many of which are much more mature 3.5 100% 100%800 than offshore wind and hence have 1608 60 Net CO avoided Cumulative longer doubling periods associated with 3.0 2 25 140 them. Onshore wind is in this category, as we anticipate a little over two doublings 75% 2.5 UK projects Continental projects Cumulative 120 60075% 6 of installed capacity in the period to 2022 40 20 100 2.0 compared with four for offshore wind. 80 50% 1.515 40050% In its report, Offshore Wind Power: Big 460 20 Challenge, Big Opportunity, the Carbon 1.0 40 avoided (million tonnes) 10 2

Trust highlighted the range of industries UK captial phase GVA (£billion) Wind farm CAPEX (£million/MW) 0.5 20 200 from which offshore wind will adapt 25% Average turbine rating (MW) 2 25% Net CO

5 Proportion of projects using monopiles existing technologies and the learning 0 Potential impact of factors on cost energy (£MWh) 0 Proportion of projects using HVDC systems

UK operational phase GVA (£billion) 0.0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 rates for each of these industries. This 2011–2014 2015–2018 2019–2022 included onshore wind, construction and 0 0 UK 0%projects GVA relating to projects post 2022 Continental projects Cumulative 0 Exchange rate Steel price Technology Competing markets Project2011–2014 Turbine 2015–2018Foundation 2019–2022Electrical 2023+Installation 0% 2011–2014 2015–2018 2019–2022 2023+ HVDC electricity distribution with learning 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 rates between 5% and 32%.12 Our analysis suggests that the learning rate for the cost of energy in onshore wind Figure 16: Forecast CAPEX for wind farms installed in each period over the last two decades is around 10%. 1.5 3.0 180 3.5 50 In this study, much of the benefit of 8 16 4 100 1.2 2.4 learning on wind turbines is connected 3.0 100% 150 25 with the introduction of larger machines, 6 12 with significant associated enabling 2.5 0.9 1.8 120 3 technology development. The trend for 0 75 2.0 75% larger turbines is already modelled in the 4 8 0.6 1.2 90 analysis, so it would be inappropriate 1.5 2 -25 0.3 0.6 to apply significant additional learning 2 4

50 Cumulative investment (£billion)

60 (£million/MW) 50% 1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion)

to this aspect of turbine cost. Other Government revenue (£billion) -50 0.0 0.0 aspects of turbine cost and elements of Balance of payments (£billion) Wind farm CAPEX (£million/MW) 1 2011–2014 2015–2018 2019–2022 0.5 2011-14 2015-18 2019-22 2023+ 0 0 Mean capacity factor the wind farm, including balance of plant Wind farm cost of energy (£/MWh) 30 2011–2014 2015–2018 2019–2022 2023+ Wind farm OPEX (£k/MW/yr) Potential impact of factors on CAPEX 25 25% Development and consenting Turbine manufacture and installation, have not benefited from 0.0 Capital GVA (Imported) Capital GVA (Exported) Operational GVA (Imported) Operational GVA (Exported) such detailed examination here. For these 0 2011-14 2015-18 2019-22 0 Capital phase tax Operational phase tax Capital phase (projects post 2022) Balance of plant manufacture Installation and commissioning 2011–2014 2015–2018 2019–2022 Avoided cost of fossil fuel Cumulative elements a learning rate should be applied 2011–2014 2015–2018 2019–2022 The Crown Estate seabed lease Cumulative Investment for post-2022 projects Cumulative Project Turbine Foundation Electrical Installation Cumulative (high fuel price) to costs to give a realistic forecast. Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 Discussion with the industry has determined that a learning rate of 3% is If we break down the costs into elements, for electrical systems. By the third period, appropriate to apply to all elements to the cost per MW of turbines increases in the advantages of learning starts to account for the additional learning beyond the second period due to the introduction dominate over the additional costs of that which is implied in the cost trends. of larger turbines. As was shown in Figure working in more difficult conditions and 180 5, all other things being equal, increasing CAPEX per MW starts to fall. 800 160 60 the size of turbines actually reduces the Net CO2 avoided Cumulative 3.5 Future costs total wind farm CAPEX per MW due to The cost of installation falls slightly in the 25 140 savings elsewhere in the wind farm. second period and then again in the last UK projects Continental projects Cumulative 120 600 Figure 16 shows the predicted trend for period. The fact that larger foundations 40 20 100 CAPEX between 2011 and 2022, with an The move to deeper water drives an and turbines are more expensive to handle overall increase in costs over the three increase of around a fifth in foundation is compensated by the fact that fewer 80 periods and a peak in the middle of the costs in the second period. The extra units need to be installed per MW, which 15 400 60 decade. costs of20 projects being installed further reduces the number of vessel moves and

40 avoided (million tonnes) offshore causes a similar jump in costs installation operations required. 10 2 UK captial phase GVA (£billion) 20 200 Net CO 5 0 Potential impact of factors on cost energy (£MWh) 0 2011–2014 2015–2018 2019–2022 UK operational phase GVA (£billion) 2011–2014 2015–2018 2019–2022

1.5 3.0 3.5 50 8 16 1.2 2.4 3.0 25 6 12 2.5 0.9 1.8

0 2.0 4 8 0.6 1.2

1.5 -25 0.3 0.6 2 4 Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion) Government revenue (£billion) -50 0.0 0.0 Balance of payments (£billion)

3 150

2011 2022 2011 2022

2 100 CAPEX (£million/MW)

4 200 CAPEX Cost of energy CAPEX OPEX Cost of energy 3.5 3.5 3 150 3.5 CAPEX OPEX Cost of energy 3.0 3.0 2011 2022 -2% 2011 2022 3.0

2.5 2.5 2 100 2.5

1% 2.0 2.0 26% 2.0 CAPEX (£million/MW) 26% 28% 17% 1 50

1.5 (£k/MW/year) 1.5 1.5 Wind farm CAPEX (£million/MW) Wind farm cost of energy (£/MWh) CAPEX (£million/MW)

1.0 Wind farm CAPEX (£million/MW) 1.0

Cost of energy (£/MWh) and OPEX (£k/MW/year) 1.0 Cost of energy (£/MWh) and OPEX

8 Wind farm CAPEX (£million/MW) 8.5 9 9.5 10 Project Turbine Foundation Electrical Installation OPEX 0 0 Project Turbine Foundation Electrical Installation Wind farm CAPEX (£million/MW) 0.5 Mean wind speed (m/s) 0.5 2011–2014 2015–2018 2019–2022 0.5

4 5 6 7 8 0.0 0.0 0.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010

3.5 3.5 3.5 CAPEX OPEX Cost of energy 3.0 3.0 -2% 120 3.0 12 40 2.5 2.5 2.5 80 2.0 1% 2.0 26% 90 9 30 26% 2.0 UK EU non-UK UK Cumulative EU Cumulative 28% 17%

1.5 (£k/MW/year) 1.5 601.5 CAPEX (£million/MW) 60 6

Wind farm CAPEX (£million/MW) 20 1.0 1.0 1.0 Cost of energy (£/MWh) and OPEX Wind farm CAPEX (£million/MW)

Wind farm CAPEX (£million/MW) 40 0.5 0.5 0.5 Average water depth (m) Average cable length (km) 3 10 30 Annual mean wind speed (m/sec)

4 5 6 7 8 Installed capacity (GW) 0.0 0.0 200.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010

0 0 0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

120 12 40

100% 3.5 100% 80 8 90 9 30 3.0UK EU non-UK UK Cumulative EU Cumulative

75% 60 2.5 75% 6 6 20 60 2.0

40 50% 1.5 50% 4 Average water depth (m) Average cable length (km) 1.0 14 3 10 30 Annual mean wind speed (m/sec) Installed capacity (GW) 20 Wind farm CAPEX (£million/MW) 0.5 25% Average turbine rating (MW) 2 25% Proportion of projects using monopiles

Proportion of projects using HVDC systems 0.0 0 0 0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 0 0% Project Turbine Foundation Electrical Installation 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

100% 3.5 100% Figure 17: Forecast undiscounted average annual OPEX for wind farms installed in each period 8 Figure 17 shows the forecast trend in 180 3.0 OPEX for wind farms installed in each 4 100 period. The trend shows a reduction 100% 150 75% 2.5 of almost a quarter between 2011 and 75% 6 2022 despite the significant increases 2.0 120 3 75 in the distances of projects from shore. 75%

50% 1.5 The distance of a wind farm from shore 50% 90 4 2 affects the OPEX of a wind farm because, 1.0 50

60 (£million/MW) once a project reaches a certain distance 50%

Wind farm CAPEX (£million/MW) from shore, the transit time means it 0.5 25% Average turbine rating (MW) 2 1 25% Mean capacity factor Wind farm cost of energy (£/MWh) 30 becomes inefficient to send technicians Proportion of projects using monopiles Wind farm OPEX (£k/MW/yr) Potential impact of factors on CAPEX

Proportion of projects using HVDC systems 25 0.0 out by boat from the mainland. In 25% 2011–2014 2015–2018 2019–2022 0 0 this case, offshore hotel solutions are 2011–2014 2015–2018 2019–2022 0 2011–2014 2015–2018 2019–2022 0% Project Turbine Foundation Electrical Installation expected to be used along with a fleet 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 0 Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing ofmarkets daughter vessels. This will have an 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 associated increase in cost compared with near shore solutions.

This upward pressure on OPEX is Figure 18: Forecast capacity factor of UK offshore wind farms installed in period 180 based on forecast wind speed, hub height, reliability and wind farm layout more than compensated, however, by 180 4 100 anticipated savings due to the use of 100% 800 160 150 60 larger and more reliable turbines. Many Net CO2 avoided Cumulative 25 maintenance activities are at an almost 140 120 3 75 UK projects Continental projects Cumulative constant cost per unit, independent 12075% 600 40 20 of turbine size. Others do increase in 100 90 2 cost for larger turbines but few scale 80 50 15 as quickly as the turbine rating. As 400 60 (£million/MW) 50% CAPEX relating to grid connection 60 20

1 has been incorporated into Figure 16, 40 avoided (million tonnes) 10 2 Mean capacity factor

Wind farm cost of energy (£/MWh) 30 UK captial phase GVA (£billion)

Wind farm OPEX (£k/MW/yr) OPEX relating to grid connection is for Potential impact of factors on CAPEX 25 25%20 200

maintenance of the transmission assets Net CO 5 0 0 0 Potential impact of factors on cost energy (£MWh) 0 2011–2014 2015–2018 2019–2022 UK operational phase GVA (£billion) rather than fees payable for use of the 2011–2014 2011–2014 2015–2018 2015–2018 2019–2022 2019–2022 2011–2014 2015–2018 2019–2022 assets. Note that the OPEX stated is an 0 0 Project Turbine Foundation Electrical Installation OPEX ExchangeUK projects rate GVASteel relating price to projects postTechnology 2022 ContinentalCompeting projects markets Cumulative 0 0% Exchange rate Steel price Technology Competing markets 20112011–2014–2014 2015–20182015–2018 2019–2022 2019–20222023+undiscounted average for the whole of 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2023+ the lifetime of the wind farms installed in the given period. We anticipate that, especially with the introduction of the in energy generation. One measure of effects along with likely improvements in next generation of larger turbines in the this energy generation is capacity factor, optimising the layout of wind farms. 1.5 3.0 3.5 180 50 period 2015-18, OPEX in the early years which is the ratio of energy generated As shown by Figure 18, the impact of 8 16 of these wind farms may exceed OPEX to the theoretical800 energy generation if all these factors is that capacity factor 1.2 2.4 3.0 160 60 25 today. Over the lifetime of the wind farm, wind turbines ranNet at CO rated2 avoided power, at Cumulativeall increases by more than a fifth over the 6 12 25 2.5 140 however, assuming a buoyant ongoing times. Larger turbines generally have an three periods. 0.9 1.8 market extending beyond the period increased hub height which also enables UK projects Continental projects Cumulative 120 0 600 2.0 forecast in Section 3.1, we anticipate access4 to higher winds. This effect is Cost of energy 8 0.6 1.2 40 20 100 1.5 significant savings as improved reliability not significant, however, as discussed Figure 19 shows the cost of energy from -25 0.3 0.6 80 and learning impact ongoing costs. in Section2 1.5. Improved reliability in UK offshore wind farms (as 4defined in 15 400 Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion) 60 turn Government revenue (£billion) also increases the time available for Section 1.4) being driven down by more -50 0.0 0.0 20 Balance of payments (£billion)

Wind farm CAPEX (£million/MW) 2011–2014 2015–2018 2019–2022 0.5 A key benefit of installing projects in the generation.0 than 15% in real terms over0 the three 40 2011-14 2015-18 2019-22 2023+ avoided (million tonnes) 10 2 2011–2014 2015–2018 2019–2022 2023+

UK captial phase GVA (£billion) harsher conditions of STW and Round periods. The increase in capacity factor, Development and consenting Turbine manufacture 0.0 20 Capital GVA (Imported) Capital GVA (Exported) 3 zones is access to the increased Also impacting200 on capacity factor are combined with the reduced OPEX, 2011-14 2015-18 2019-22 Operational GVA (Imported) Operational GVA (Exported) Net CO Capital phase tax Operational phase tax Capital phase (projects post 2022) Balance of plant manufacture Installation and commissioning 5 0 Potential impact of factors on cost energy (£MWh) 0 Avoided cost of fossil fuel Cumulative mean wind speeds associated with wake losses due to interactions between outweighs the impact of rising CAPEX 2011–2014 2015–2018 2019–2022 UK operational phase GVA (£billion) The Crown Estate seabed lease Cumulative Investment for post-2022 projects Cumulative Project Turbine Foundation Electrical Installation 2011Cum–2014ulative (high fuel price) 2015–2018 2019–2022 such locations. Under UK offshore wind rows of wind turbines in a wind farm so that the overall cost of energy is

UK projects GVA relating to projects post 2022 Continental projects Cumulative 0 Exchange rate Steel price Technology Competing marketsconditions, a 1% increase in mean wind and between0 wind farms located close reduced. Comparing the cost of energy 2011–2014 2015–2018 2019–2022 2023+ speed enables more than a 1% increase together. We have2011–2014 considered these2015–2018 improvement2019–2022 over the three2023+ periods

1.5 3.0 3.5 50 8 16 1.2 2.4 3.0 25 6 12 2.5 0.9 1.8

0 2.0 4 8 0.6 1.2

1.5 -25 0.3 0.6 2 4 Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion) Government revenue (£billion) -50 0.0 0.0 Balance of payments (£billion)

3 150

2011 2022 2011 2022

2 100 CAPEX (£million/MW)

3.5 3.5 3.5 CAPEX OPEX Cost of energy 3.0 3.0 4 -2%200 3.0 CAPEX Cost of energy CAPEX OPEX Cost of energy 2.5 2.5 2.5

3 1% 150 2.0 2.0 26% 26% 2.0 28% 17% 2011 2022 2011 2022

1.5 (£k/MW/year) 1.5 1.5

2 100 CAPEX (£million/MW)

1.0 Wind farm CAPEX (£million/MW) 1.0 1.0 Cost of energy (£/MWh) and OPEX Wind farm CAPEX (£million/MW) CAPEX (£million/MW) Wind farm CAPEX (£million/MW) 0.5 0.5 1 50 0.5 Wind farm CAPEX (£million/MW) Wind farm cost of energy (£/MWh) 4 5 6 7 8 0.0 0.0 0.0

2005 2006 2007 2008 2009 2010 Cost of energy (£/MWh) and OPEX (£k/MW/year) 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010 8 8.5 9 9.5 10 Project Turbine Foundation Electrical Installation OPEX 0 0 Project Turbine Foundation Electrical Installation Mean wind speed (m/s) 2011–2014 2015–2018 2019–2022

120 12 40 3.5 3.5 3.5 CAPEX OPEX Cost of energy 3.0 80 3.0 -2% 90 3.0 9 30 UK EU non-UK UK Cumulative EU Cumulative 2.5 2.5 2.5 60 2.0 1% 2.0 26% 60 6 20 26% 2.0 28% 17% 40

1.5 (£k/MW/year) 1.5 1.5 CAPEX (£million/MW) Average water depth (m) Average cable length (km)

Wind farm CAPEX (£million/MW) 1.0 3 1.0 10 30 1.0 Annual mean wind speed (m/sec) Installed capacity (GW)

Cost of energy (£/MWh) and OPEX 20 Wind farm CAPEX (£million/MW) Wind farm CAPEX (£million/MW) 0.5 0.5 0.5

0 4 0 5 6 7 8 0 0 0.0 0.0 0.0 2005 2006 2007 2008 2009 2010 20052011–2014 2006 20072015–2018 2008 2009 2019–20222010 2011–2014 Turbine rating2015–2018 (MW) 2019–2022 2005 2011–20142006 2007 2015–20182008 2009 2019–20222010 2011–2014 2015–2018 2019–2022

100% 3.5 120 12 100% 40 8 3.0

80 75% 2.5 90 9 75% 30 UK EU non-UK UK Cumulative EU Cumulative 6 2.0 60

50% 1.5 6 50% 20 60 4 15 401.0 Wind farm CAPEX (£million/MW) Average water depth (m)

Average cable length (km) 0.5 25% 3Average turbine rating (MW) 25% 10 30 Annual mean wind speed (m/sec) 2 Installed capacity (GW)

20 Proportion of projects using monopiles

Proportion of projects using HVDC systems 0.0 2011–2014 2015–2018 2019–2022

0 0 00% 0 Project Turbine Foundation Electrical Installation 0 0% 2011–2014 2015–2018 2019–2022 2011–20142011–2014 2015–20182015–2018 2019–20222019–2022 2011–2014 2015–2018 2019–2022 2011–20142011–2014 2015–20182015–2018 2019–20222019–2022 2011–2014 2015–2018 2019–2022

while removing the impact of working in Figure 19: Forecast wind farm cost of energy for wind farms installed in each period (excluding sensitivity analysis, considered in Section 3.6) harsher conditions gives an improvement

100% of over 20%. 1803.5 100% 8 4 100 3.0 100% This improvement is dependent on 150 the levels of deployment forecast in 75% 2.5 75% Section 3.1. A reduction in Government 120 6 3 75 ambition or gaps in activity caused 2.0 75%

by planning delays would discourage 90 50% investment by the supply chain and 1.5 2 50% 4 reduce innovation and competition. 50 60 (£million/MW) 50% This could remove the cost reduction 1.0 1 altogether. Investment, innovation Wind farm CAPEX (£million/MW) Mean capacity factor

Wind farm cost of energy (£/MWh) 0.530 25% Average turbine rating (MW) 2 25% Wind farm OPEX (£k/MW/yr) and competition are essential for Potential impact of factors on CAPEX 25 Proportion of projects using monopiles 25%

Proportion of projects using HVDC systems creating sustained cost improvements. 0.0 0 0 Opportunities exist for improvements 2011–20142011–2014 2015–2018 2019–20222019–2022 2011–2014 2015–2018 2019–2022 0 0% greater than 15%, provided there remains Project Turbine Foundation Electrical Installation 0% 2011–2014 2015–2018 2019–2022 Project Turbine Foundation Electrical Installation OPEX Exchange2011–2014 rate Steel price2015–2018 Technology 2019–2022Competing markets 0 2011–2014 2015–2018 2019–2022 0% long term Government commitment, 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 industrialisation and strong competition in the supply chain. Figure 20: Sensitivity of CAPEX to variation in exchange rates, steel price, technology In addition, assuming a buoyant market in development and competition 180 the UK, elsewhere in the EU and beyond 180 and the availability of sites similar to 4 100 100% 800 150 those that will be constructed during the 160 60 Net CO avoided Cumulative third period, preliminary analysis of the 2 25 140 120 technology and process improvements 3 75 available suggests that a reduction in the UK projects Continental projects Cumulative 75%120 600 40 20 90 cost of energy of a further 15% over the 12 100 years after 2022 is well within the capability 2 50 80 60 of the industry. This improvement would (£million/MW) 15 50% 400 be in line with the historical trend in cost 60 20 1

of energy reduction achieved during the avoided (million tonnes) Mean capacity factor

Wind farm cost of energy (£/MWh) 30 40 10 2 Wind farm OPEX (£k/MW/yr) UK captial phase GVA (£billion) growth of the global wind industry over the Potential impact of factors on CAPEX 25 25% 20 200

0 last two decades. Net CO 0 5

2011–2014 2015–2018 2019–2022 Potential impact of factors on cost energy (£MWh) 0 2011–2014 2015–2018 2019–2022 0 2011–2014 2015–2018 2019–2022 UK operational phase GVA (£billion) In order to most clearly demonstrate the 2011–2014 2015–2018 2019–2022 Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 0% impact of the wind farm parameters and UK projects GVA relating to projects post 2022 Continental projects Cumulative 0 2011–2014 2015–2018 2019–2022 Exchange2011–2014 rate Steel price2015–2018 Technology 2019–2022Competing markets 0 2011–2014 2015–2018 2019–2022 2023+ 2011–2014 2015–2018 2019–2022 2023+ technical factors considered, the impact of inflation on either costs or revenue has For some factors, such as exchange CAPEX levels, Charting the right course. not been incorporated. The relative costs rates and steel prices, historical data The impact of inflation has not been therefore are of most interest and care can be used to give an indication of considered. While it is likely to have a should be exercised in comparing absolute the possible range of impact that could significant impact on both CAPEX and 180 1.5 3.0 costs with costs from other analyses that be seen in3 .the5 future. For others, such OPEX over the life time of the offshore 50 800 160 8 16 60 may have different base assumptions. as competing markets, the impact can wind farms considered, energy prices are Net CO avoided Cumulative 2 1.2 2.4 3.0 be determined25 by industry experience also likely to rise, which would increase 140 25 and an awareness of expected future revenue and offset these cost increases. 6 12 2.5 UK projects Continental projects Cumulative 120 600 0.9 1.8 3.6 Other influences on costs developments within the supply chain. It is beyond the scope of this report to 40 20 100 In both cases, the scale of the impact is consider the net impact of such effects. 0 2.0 4 8 0.6 1.2 As discussed in Section 2, a range of affected by both the proportion of the 80 15 1.5 400 factors beyond those relating to site project value that is affected by a change Error bars should be taken as standard 60 -25 0.3 0.6 20 2 4 conditions and choice of technology have in factor and the potential for change in uncertainties so that it is assumed that Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion) avoided (million tonnes)

40 Government revenue (£billion) affected the CAPEX of offshore wind that factor,10 as discussed in more detail approximately 70% of values will fall 2 UK captial phase GVA (£billion) -50 0.0 0.0 Balance of payments (£billion)

Wind farm CAPEX (£million/MW) 2011–2014 2015–2018 2019–2022 projects over the last decade. in RenewableUK’s0.5 2010 report on future within the limits stated. 20 2011-14 2015-18 2019-22 2023+ 2000 0

Net CO 2011–2014 2015–2018 2019–2022 2023+ 5 0 Potential impact of factors on cost energy (£MWh) 0 Capital GVA (Imported) Capital GVA (Exported) Development and consenting Turbine manufacture 2011–2014 2015–2018 2019–2022 UK operational phase GVA (£billion) 0.0 2011–2014 2015–2018 2019–2022 2011-14 2015-18 2019-22 Operational GVA (Imported) Operational GVA (Exported) Capital phase tax Operational phase tax Capital phase (projects post 2022) Balance of plant manufacture Installation and commissioning 0 Avoided cost of fossil fuel Cumulative 0 UK projects GVA relating to projects post 2022 Continental projects Cumulative Exchange rate Steel price Technology Competing markets The Crown Estate seabed lease Cumulative Investment for post-2022 projects Cumulative Project2011–2014Turbine 2015–2018Foundation 2019–2022Electrical Installation2023+ Cumulative (high fuel price) 2011–2014 2015–2018 2019–2022 2023+

1.5 3.0 3.5 50 8 16 1.2 2.4 3.0 25 6 12 2.5 0.9 1.8

0 2.0 4 8 0.6 1.2

1.5 -25 0.3 0.6 2 4 Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion) Government revenue (£billion) -50 0.0 0.0 Balance of payments (£billion)

Figure 20 shows the forecast levels of with that for exchange rate variations still dominates, with offshore wind only CAPEX as derived in Section 3.5 with the described above. As above also, the representing a few per cent of the global potential impact that some of these key impact of variations in the steel price is demand. As seen during the last decade, factors could have on costs. In the short- significantly less than the variation itself strong demand in the onshore sector term, market dynamics (competition) in as, on average, steel accounts for only could therefore draw resources away from the supply of components and services around 12% of CAPEX. the offshore market and impact prices to the sector leads to the biggest single significantly. The high technical barriers uncertainty but, over time, exchange Technology development to entering the offshore market have rates, steel price and the pace of new As discussed in Section 3.4, some also meant that there have traditionally technology development also have a improvements in CAPEX have been been a limited number of turbine supply similar effect. modelled directly through the adoption options for developers. This situation is of larger wind turbines while other now changing rapidly, as there is clear Exchange rate improvements have been modelled evidence of a significant number of new Currently, a dominant fraction of using an assumed 3% learning rate. players positioning to enter the offshore offshore wind farm CAPEX is linked to market, including players such as Alstom, the supply of components and services Such a learning rate depends on Gamesa, General Electric and Mitsubishi, a from the Eurozone or countries with investment within the supply chain and a number of which have signalled their intent currencies pegged to the euro. Variation steady flow of projects being consented to establish new manufacturing facilities in in the euro to sterling exchange rate and financed. A market that experiences the UK to serve the market. The eventual therefore has a significant impact on a series of peaks of activity separated establishment of Chinese players in the UK UK offshore wind farm CAPEX. When by little investment is unlikely to deliver offshore wind market will also likely impact forecasting the potential impact of such levels of cost improvement. On significantly on competition and hence help variation in this exchange rate, it has the other hand, based on the size of the reduce prices, as we are starting to see in been assumed that the maximum market and the significant potential for the onshore market. deviation (above or below current levels) cost improvements, a higher learning over a given number of years into the rate is attainable given a buoyant In terms of balance of plant, we continue future is equal to the maximum variation market, strong, long-term supply chain to see a significant number of players, seen in the historical exchange rate over confidence and investment in design and whether already in offshore wind or from the same number of years to today. The process improvement in an environment parallel sectors, investing in new capacity source of the historical exchange rate is in which a sustainable number of to manufacture, thus increasing competition the same as used in Section 2. companies compete to win orders. and leading to downward pressure on Given the interdependencies within prices. The scale of advanced deep water As the UK content of wind farm CAPEX the industry, progress is unlikely to foundation designs and high voltage rises, the impact of exchange rate be strong in one field but remain slow electricity transmission systems, however, variations on CAPEX decreases, as only in another, so it can be assumed will also limit the number of companies the non-sterling portion of CAPEX is that market conditions that promote who have the relevant level of expertise and impacted by variations in the exchange investment in one sector are likely to be production capacity to deliver and could rate. As discussed in Section 4, the felt across the supply chain. To reflect therefore limit competition. Competing size of the UK’s offshore wind market is a low confidence scenario, the learning markets such as oil and gas and electrical acting as an incentive to the industry to rate in addition to the impact of turbine infrastructure could also divert supply away set up facilities in the country. Here, we size has been removed, while the high from offshore wind and increase prices. assume that almost 70% of UK orders confidence scenario sees it doubled. could be captured by the UK by 2022 The oil and gas industry also has with a gross value added (GVA) of 40%. Competing markets the potential to affect the supply of Finally, in order to model wind farm In Charting the right course, considerable installation vessels, either through contracting more realistically, the impact importance was rightly placed on the increased activity that could absorb the of the exchange rate on CAPEX has impact that competition in the supply new capacity being developed or by a been derived using a forecast a number chain for goods and services, from rival reduction in activity, which could see of years ahead of installation. markets, would have on the CAPEX of UK more vessels being made available. offshore wind projects. Up until 2010 there has only been one Steel price purpose built wind turbine installation The process for deriving the impact of The report highlighted that, within the wind vessel available. However, since 2010 steel price variations on CAPEX is in line turbine supply market, onshore demand and the award of Round 3 leases, 4 200 CAPEX Cost of energy CAPEX OPEX Cost of energy

3 150

2011 2022 2011 2022

2 100 CAPEX (£million/MW)

3.5 3.5 3.5 CAPEX OPEX Cost of energy 3.0 3.0 -2% 3.0

2.5 2.5 2.5

1% 2.0 2.0 26% 26% 2.0 28% 17%

1.5 (£k/MW/year) 1.5 1.5 CAPEX (£million/MW)

1.0 Wind farm CAPEX (£million/MW) 1.0 1.0 Cost of energy (£/MWh) and OPEX Wind farm CAPEX (£million/MW) Wind farm CAPEX (£million/MW) 0.5 0.5 0.5

4 5 6 7 8 0.0 0.0 0.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010

120 12 40

80 90 9 30 UK EU non-UK UK Cumulative EU Cumulative

6 20 60

40 Average water depth (m) Average cable length (km) 3 10 30 Annual mean wind speed (m/sec) Installed capacity (GW) 20

0 0 0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

100% 3.5 100% 8 3.0

75% 2.5 75% 6 2.0

50% 1.5 50% 4

1.0 Wind farm CAPEX (£million/MW) 0.5 25% Average turbine rating (MW) 2 25% Proportion of projects using monopiles

Proportion of projects using HVDC systems 0.0 2011–2014 2015–2018 2019–2022

0 0% Project Turbine Foundation Electrical Installation 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 4 100 100% 150

120 3 75 75%

90 2 50 60 (£million/MW) 17 50%

1 Mean capacity factor

Wind farm cost of energy (£/MWh) 30 Wind farm OPEX (£k/MW/yr) Potential impact of factors on CAPEX 25 25%

0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

more than 10 new installation vessels, Figure 21: Impact of CAPEX variation on cost of energy forecast designed primarily for use in offshore wind, have been delivered or ordered. 180 800 160 60 This report has used similar methods to Net CO2 avoided Cumulative 25 Charting the right course by combining 140 the potential value that could be affected UK projects Continental projects Cumulative 120 600 by market dynamics and forecast 40 20 volatility of prices for each key element 100 of wind farms to get an overall impact. 80 15 The volatility has been determined 400 60 20 through industry knowledge and

40 avoided (million tonnes) 10 discussion with relevant players. 2 UK captial phase GVA (£billion) 20 200 Net CO 5 Conclusions 0 Potential impact of factors on cost energy (£MWh) 0 2011–2014 2015–2018 2019–2022 UK operational phase GVA (£billion) In terms of impact, Figure 20 shows 2011–2014 2015–2018 2019–2022 that, while the exchange rate could UK projects GVA relating to projects post 2022 Continental projects Cumulative 0 Exchange rate Steel price Technology Competing markets 0 2011–2014 2015–2018 2019–2022 2023+ have a strong impact in the short term 2011–2014 2015–2018 2019–2022 2023+ up to 2018, the forecast increase in UK content means that its potential impact is stabilised by 2022. Figure 22: Forecast CAPEX and cost of energy for wind farms installed in each period, also showing uncertainty

For steel, as a fixed proportion of costs, 1.5 3.0 4 200 3.5 50 the impact continues to increase as 8 CAPEX Cost of energy 16 CAPEX OPEX Cost of energy the potential for variance in steel price 1.2 2.4 3.0 25 increases with each period. Even so, by 63 15012 2.5 the final period, the most serious impact 0.9 1.8 is still forecast to be less than 10% of 2011 2022 0 2011 2022 2.0 the total wind farm CAPEX. 4 8 0.6 1.2 2 100 1.5 -25 The importance of technology 0.3 0.6 2 4 Cumulative investment (£billion) CAPEX (£million/MW) development progress by a confident 1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion) Government revenue (£billion) -50 supply chain is seen by the fact that, 1 50 0.0 0.0 Balance of payments (£billion)

Wind farm CAPEX (£million/MW) 2011–2014 2015–2018 2019–2022 0.5 Wind farm CAPEX (£million/MW) 0 0

2011-14 2015-18 2019-22 2023+ Wind farm cost of energy (£/MWh) in all three periods, the impact of this 2011–2014 2015–2018 2019–2022 2023+ Capital GVA (Imported) Capital GVA (Exported) factor is equivalent to that of exchange Development and consenting Turbine manufacture 0.0 Cost of energy (£/MWh) and OPEX (£k/MW/year) 2011-14 2015-18 2019-22 8 Operation8.5al GVA (Imported) 9 Opera9.5tional GVA (Exported) 10 rates. Indeed, the cost improvements Capital phase tax Operational phase tax Capital phase (projects post 2022) Balance of plant manufacture Installation and commissioning Project Turbine Foundation Electrical Installation OPEX 0 0 Project Turbine Foundation Electrical Installation Mean wind speed (m/s) 2011–2014 2015–2018 2019–2022 Avoided cost of fossil fuel Cumulative achieved in a long-term, high- Investment for post-2022 projects Cumulative Project Turbine Foundation Electrical Installation The Crown Estate seabed lease Cumulative Cumulative (high fuel price) confidence scenario could even reduce CAPEX back down to below today’s wind speed measurement on uncertainty other hand, a positive scenario would see levels by the third period. in the cost of energy. levels of less than £2.5 million per MW suggesting the potential exists for CAPEX 3.5 3.5 Competition leads to the biggest The four sources of uncertainty considered to fall well below today’s levels. single uncertainty in early years, as are largely independent, so their aggregate 3.5 CAPEX OPEX Cost of energy 3.0 3.0 evidenced by the swings of 20 to 30% impact may be estimated by calculating a The analysis suggests that, despite the -2% 3.0 in onshore turbine costs over the last root sum of squares (RSS). This aggregate reductions expected to be generated 2.5 2.5 decade, much of which can be traced uncertainty is shown in Figure 22 for both through larger turbines and increased 2.5 to changes in market dynamics. CAPEX and the cost of energy. mean wind speeds, it is possible that 1% 2.0 2.0 26% the cost of energy remains largely level 26% 2.0 28% 17% As shown in Figure 21, the changes in Such an exercise suggests that the throughout the periods considered.

1.5 (£k/MW/year) 1.5 the levels of CAPEX discussed above average CAPEX in the second period Favourable conditions could, however, 1.5

impact the cost of energy. We have not couldCAPEX (£million/MW) increase by nearly a third, reaching see costs fall to around £100 per MWh. 1.0 Wind farm CAPEX (£million/MW) 1.0 investigated the uncertainty of OPEX or levels of almost £4 million per MW, 1.0 Cost of energy (£/MWh) and OPEX Wind farm CAPEX (£million/MW) looked at the impact of uncertainty in excluding the impact of inflation. On the Wind farm CAPEX (£million/MW) 0.5 0.5 0.5

4 5 6 7 8 0.0 0.0 0.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010

120 12 40

80 90 9 30 UK EU non-UK UK Cumulative EU Cumulative

6 20 60

40 Average water depth (m) Average cable length (km) 3 10 30 Annual mean wind speed (m/sec) Installed capacity (GW) 20

0 0 0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

100% 3.5 100% 8 3.0

75% 2.5 75% 6 2.0

50% 1.5 50% 4

1.0 Wind farm CAPEX (£million/MW) 0.5 25% Average turbine rating (MW) 2 25% Proportion of projects using monopiles

Proportion of projects using HVDC systems 0.0 2011–2014 2015–2018 2019–2022

0 0% Project Turbine Foundation Electrical Installation 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 4 100 100% 150

120 3 75 75%

90 2 50

60 (£million/MW) 50%

1 Mean capacity factor

Wind farm cost of energy (£/MWh) 30 Wind farm OPEX (£k/MW/yr) Potential impact of factors on CAPEX 25 25%

0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 800 160 60 Net CO2 avoided Cumulative 25 140

UK projects Continental projects Cumulative 120 600

40 20 100

80 15 400 60 20

1.5 3.0 3.5 50 8 16 1.2 2.4 3.0 25 6 12 2.5 0.9 1.8

0 2.0 4 8 0.6 1.2

1.5 -25 0.3 0.6 2 4 Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion) Government revenue (£billion) -50 0.0 0.0 Balance of payments (£billion)

3 150

2011 2022 2011 2022

2 100 CAPEX (£million/MW)

3.5 3.5 3.5 CAPEX OPEX Cost of energy 3.0 3.0 -2% 3.0

2.5 2.5 2.5

1% 2.0 2.0 26% 26% 2.0 28% 17%

1.5 (£k/MW/year) 1.5 1.5 CAPEX (£million/MW)

1.0 Wind farm CAPEX (£million/MW) 1.0 1.0 Cost of energy (£/MWh) and OPEX Wind farm CAPEX (£million/MW) Wind farm CAPEX (£million/MW) 0.5 0.5 0.5

4 5 6 7 8 0.0 0.0 0.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010

120 12 40

80 90 9 30 UK EU non-UK UK Cumulative EU Cumulative

6 20 60

40 Average water depth (m) Average cable length (km) 3 10 30 Annual mean wind speed (m/sec) Installed capacity (GW) 20

0 0 0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

100% 3.5 100% 8 3.0

75% 2.5 75% 6 2.0

50% 1.5 50% 4

1.0 Wind farm CAPEX (£million/MW) 0.5 25% Average turbine rating (MW) 2 25% Proportion of projects using monopiles

Proportion of projects using HVDC systems 0.0 2011–2014 2015–2018 2019–2022

0 0% Project Turbine Foundation Electrical Installation 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 4 100 100% 150

120 3 75 75%

90 2 50

60 (£million/MW) 18 50%

1 Mean capacity factor

Wind farm cost of energy (£/MWh) 30 Wind farm OPEX (£k/MW/yr) Potential impact of factors on CAPEX 25 25%

0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 4. Costs and Benefits to the UK

Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

The UK is established as the market Figure 23: Net carbon dioxide emissions avoided in each period and the remaining lifetime of offshore wind farms installed 2011 – 2022 leader in offshore wind and has the 180 world’s most advanced pipeline of 800 160 60 projects planned for the next decade. Net CO2 avoided Cumulative These projects will help the Government 25 140 to meet its legally binding targets to 120 UK projects Continental projects Cumulative generate renewable energy and also 600 40 20 100 create a range of other economic

80 benefits. This section considers these 15 benefits in more detail. 400 60 20

40 avoided (million tonnes) 10 2 UK captial phase GVA (£billion) 4.1 Carbon avoidance 20 200 Net CO 5 0 Potential impact of factors on cost energy (£MWh) 0 The UK is still heavily dependent on 2011–2014 2015–2018 2019–2022 UK operational phase GVA (£billion) 2011–2014 2015–2018 2019–2022 fossil fuels. Coal and gas are the source UK projects GVA relating to projects post 2022 Continental projects Cumulative 0 Exchange rate Steel price Technology Competing marketsof nearly 80% of all electricity generation 0 2011–2014 2015–2018 2019–2022 2023+ 2011–2014 2015–2018 2019–2022 2023+ and power stations account for more than 30% of the UK’s total annual carbon dioxide emissions.13 Carbon considering all activities over an Providing this extra functionality means dioxide, with other greenhouse gases assumed 20 year lifetime.15 This footprint that some power plants will not operate produced by the combustion of fossil covered the emissions generated during consistently at full load and therefore will 1.5 3.0 3.5 50 fuels, is a key cause of climate change the manufacture of the turbines, offshore have a lower thermal efficiency that will 8 16 and strong European and domestic laws substation,1.2 export/array/onshore mean higher emissions. Studies2.4 suggest 3.0 have been passed to reduce emissions cables and the onshore substation. It that even at penetration levels of 20% 25 6 12 2.5 and increase the use of renewable also included0.9 the primary production (equivalent to 80TWh or more 1.8than energy sources. of materials and the entire project’s 20GW installed offshore wind capacity) 0 2.0 4 8 transportation,0.6 installation, operation, this would only reduce the amount1.2 of

Government figures for 2009 state that decommissioning and scrapping avoided CO2 by a little over 1% while 1.5 -25 coal-fuelled power stations emitted activities.0.3 This figure is consistent with even higher penetration levels 0.6up to 40% 2 4 17 carbon dioxide at a rate of 915kg per other wind industry estimates. have an impact of around 3%. Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion) Government revenue (£billion) MWh while their oil and gas equivalents -50 0.0 0.0 Balance of payments (£billion)

Wind farm CAPEX (£million/MW) 2011–2014 2015–2018 2019–2022 0.5 2011-14 2015-18 2019-22 2023+ 0 0 emitted 633kg per MWh and 405kg To calculate the carbon footprint of the In total, this means that up to 45 million 2011–2014 2015–2018 2019–2022 2023+ per MWh respectively.14 Electricity fossil fuels that would have been used in tonnes of CO per year is avoided, Capital GVA (Imported) Capital GVA (Exported) Development and consenting Turbine manufacture2 0.0 generated by offshore wind will replace place of offshore wind, an avoided CO which is the equivalent of almost a third 2011-14 2015-18 2019-22 Operational GVA (Imported) Operational GVA (Exported) Capital phase tax Operational phase tax Capital phase (projects post 2022) Balance of plant manufacture 2 Installation and commissioning a mix of fuel types with different carbon production of 430kg per MWh has been of estimated UK power station annual Avoided cost of fossil fuel Cumulative Investment for post-2022 projects Cumulative The Crown Estate seabed lease Cumulative 18 Project Turbine Foundation Electrical Installation Cumulative (high fuel price) footprints. It is likely that coal and used in the first period. This is based emissions in 2010. Figure 23 shows the oil power stations will be phased out on calculations by RenewableUK that net carbon dioxide emissions avoided so that, by 2022, low-emission gas- assume a mix of coal, gas and oil.16 To in each period due to the offshore powered plants are expected to be the account for the fact that fuels with higher wind farms installed between 2011 and dominant form of fossil fuel generation. emissions will be used less widely in 2022. Assuming an offshore wind farm Nuclear power stations will provide the future it is assumed that the carbon lifetime of 20 years, it is predicted that a base level of generation alongside footprint of this energy mix decreases nearly 800 million tonnes of carbon renewables while fossil fuels will be slightly over the three periods so that it dioxide emissions are avoided due to used to make up any difference between is level with that of gas by 2022. the offshore wind farms built during the supply and demand. three periods with the majority of the Finally, fossil fuelled power stations act benefit occurring after 2022. Offshore wind farms also have a carbon to some extent as a reserve to balance footprint. In a report investigating the energy production and demand. The Carbon capture and storage (CCS) is a lifetime emissions associated with requirement for balancing increases with method of reducing fossil fuel emissions offshore wind farms using its V90- increased penetration of offshore wind by capturing carbon dioxide and storing 3.0MW turbine, Vestas calculated a due to the variability in energy output it in deep geological formations in such a footprint of just over 5kg per MWh from offshore wind farms with time. way that it does not enter the atmosphere. 4 200 CAPEX Cost of energy CAPEX OPEX Cost of energy

3 150

2011 2022 2011 2022

2 100 CAPEX (£million/MW)

4 200 CAPEX Cost of energy CAPEX OPEX Cost of energy 3.5 3.5 3.5 CAPEX OPEX Cost of energy 3.03 150 3.0 -2% 3.0 2011 2022 2011 2022 2.5 2.5 2.5 2 100 1% 2.0 2.0 26% 2.0 17% 26%

CAPEX (£million/MW) 28%

1.5 1.5 (£k/MW/year) 1 50 1.5 CAPEX (£million/MW) Wind farm CAPEX (£million/MW) Wind farm cost of energy (£/MWh)

1.0 Wind farm CAPEX (£million/MW) 1.0 1.0 Cost of energy (£/MWh) and OPEX Cost of energy (£/MWh) and OPEX (£k/MW/year) Wind farm CAPEX (£million/MW) 8 8.5 9 9.5 10 Wind farm CAPEX (£million/MW) 0 0 Project Turbine Foundation Electrical Installation OPEX 0.5 0.5 Project Turbine Foundation Electrical Installation 0.5 Mean wind speed (m/s) 2011–2014 2015–2018 2019–2022 4 5 6 7 8 0.0 0.0 0.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010

3.5 3.5 3.5 CAPEX OPEX Cost of energy 3.0 3.0 -2% 120 3.0 12 40 2.5 2.5 2.5 80 2.0 1% 2.0 26% 90 9 30 26% 2.0 UK EU non-UK UK Cumulative EU Cumulative 28% 17%

1.5 1.5 (£k/MW/year) 60 1.5 CAPEX (£million/MW) 6 Wind farm CAPEX (£million/MW) 60 1.0 201.0 1.0 Cost of energy (£/MWh) and OPEX Wind farm CAPEX (£million/MW) 40Wind farm CAPEX (£million/MW) 0.5 0.5 0.5 Average water depth (m) Average cable length (km) 3 10 304 5 6 7 8 Annual mean wind speed (m/sec) 0.0 0.0 Installed capacity (GW) 20 0.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010

0 0 0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

120 12 40

100% 3.580 100% 90 9 30 UK EU non-UK UK Cumulative EU Cumulative 8 3.0

60 75% 2.5 75% 6 20 60 6 2.0 40

50% 1.5 50% Average water depth (m)

Average cable length (km) 4 3 10 30 Annual mean wind speed (m/sec) Installed capacity (GW) 1.020 Wind farm CAPEX (£million/MW) 0.5 25% Average turbine rating (MW) 2 25% 0 0 0 0 Proportion of projects using monopiles

2011–2014 2015–2018 2019–2022 Proportion of projects using HVDC systems 2011–2014 2015–2018 2019–2022 0.0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

0 0% Project Turbine Foundation Electrical Installation 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

100% 3.5 100% 8 3.0 180 2.5 75% 4 100 75% 6 100% 150 2.0

120 3 50% 1.5 75 50% 4 75%

1.090 2 Wind farm CAPEX (£million/MW) 0.5 25% Average turbine rating (MW) 50 25% 60 (£million/MW) 2 50% Proportion of projects using monopiles

Proportion of projects using HVDC systems 0.0 19 1

2011–2014 2015–2018 2019–2022 Mean capacity factor

Wind farm cost of energy (£/MWh) 30 Wind farm OPEX (£k/MW/yr) Potential impact of factors on CAPEX 0 25 25% 0% Project Turbine Foundation Electrical Installation 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 4 100 100% 150 Figure 24: UK GVA during the capital phase in each period This technology is currently still under 180 development but it is anticipated that it 3 800 120 160 could be implemented on an industrial 60 75 75% Net CO2 avoided Cumulative scale in the UK. Due to the uncertainties 25 140 90 with its development, the impact of CCS 2 UK projects Continental projects Cumulative 120 600 has not been included in Figure 23. To 50 60 understand its impact, a scenario has 40(£million/MW) 20 100 50% been drawn up in which the use of CCS 1 80 Mean capacity factor Wind farm cost of energy (£/MWh) 30 technology capable of capturing 90% 15 400 Wind farm OPEX (£k/MW/yr) of carbon dioxide increases linearly Potential impact of factors on CAPEX 25 60 25% 20

0 between 2020 and 2050 until it is used 40 avoided (million tonnes) 0 10 2

2011–2014 2015–2018 2019–2022 UK captial phase GVA (£billion) on all gas fuelled power stations. Under 2011–2014 2015–2018 2019–2022 20 200

such a scenario, it is estimated that 0 0% Net CO Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 5 this would reduced the avoided carbon 0 2011–2014 2015–2018 2019–2022 Potential impact of factors on cost energy (£MWh) 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 UK operational phase GVA (£billion) dioxide emissions discussed above by 2011–2014 2015–2018 2019–2022

approximately 20%. UK projects GVA relating to projects post 2022 Continental projects Cumulative 0 Exchange rate Steel price Technology Competing markets 0 2011–2014 2015–2018 2019–2022 2023+ 2011–2014 2015–2018 2019–2022 2023+

4.2 A healthy UK offshore wind Figure 25: UK GVA during the operational phase in each period and the remaining 180 lifetime of offshore wind farms installed 2011 – 2022 industry 800 160 60 Net CO2 avoided Cumulative To date, UK content in UK offshore wind 1.5 3.0 25 3.5 14050 farms has been relatively low and this 8 16 UK projects Continental projects Cumulative 120 1.2 2.4 has caused some projects to attract 3.0 600 40 20 25 negative publicity. In the future, it is in 100 6 12 the interests of both the UK Government 2.5 0.9 1.8 80 and the offshore wind industry itself to 15 0 2.0 400 address this situation and increase UK 60 4 8 0.6 1.2 20 content in offshore wind projects. 1.5 40 avoided (million tonnes) 10 -25 2 0.3 0.6 UK captial phase GVA (£billion) 2 4 20 200 Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion)

For the offshore wind industry, the Government revenue (£billion) Net CO 5 -50 0.0 0.0 Balance of payments (£billion) 0 logistics savings from growing a Potential impact of factors on cost energy (£MWh) 0 Wind farm CAPEX (£million/MW) 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 UK operational phase GVA (£billion) 0.5 2011-14 2015-18 2019-22 2023+ 0 0 focussed supply chain in and around the 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2023+ ports closest to offshore wind sites are Capital GVA (Imported) Capital GVA (Exported) Development and consenting Turbine manufacture UK projects GVA relating to projects post 2022 Continental projects Cumulative 0 0.0 Exchange rate Steel price Technology Competing markets 0 2011–2014 2015–2018 2019–2022 2023+ 2011–2014 2015–2018 2019–2022 2023+ significant, as are the benefits of tapping 2011-14 2015-18 2019-22 Operational GVA (Imported) Operational GVA (Exported) Capital phase tax Operational phase tax Capital phase (projects post 2022) Balance of plant manufacture Installation and commissioning into the experience of companies in the Avoided cost of fossil fuel Cumulative Investment for post-2022 projects Cumulative Project Turbine Foundation Electrical Installation The Crown Estate seabed lease Cumulative UK’s oil and gas sector. In addition, the diversification for existing UK industries Ports for a £180m deepwater berth and Cumulative (high fuel price) more UK jobs that are created, the more such as oil and gas and aerospace. turbine production facility at the port of stable the political support for the industry Hull. In May 2011, Vestas announced that is likely to be. Finally, revenue from UK Finally, as well as serving the UK market, it plans to establish nacelle and blade 1.5 3.0 3.5 50 wind farms is in pounds, so maximising companies setting up facilities in the UK production facilities and a deep water 8 16 1.2 2.4 3.0 UK content minimises the exchange rate will be able to export goods and services construction berth at Sheerness. Gamesa risk for wind farm developers. to the Continental25 and worldwide markets. and Mitsubishi have both announced 6 12 2.5 plans to set up research and development 0.9 1.8 For the Government, companies with A period of rapid and sustainable facilities in Scotland with the expectation 0 2.0 facilities in the UK are more likely to serve growth that full manufacturing facilities will follow 4 8 0.6 1.2 domestic rather than overseas markets There is now clear evidence of the UK in due course. General Electric (GE) has 1.5 which will increase its chance of meeting supply chain-25 starting to take shape as the also committed itself to developing a £100 0.3 0.6 2 4 its renewable targets. Furthermore, as scale of the UK market attracts investment million UK facility while fellow American Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion) Government revenue (£billion) well as the direct economic impacts of job from companies-50 around the world. In company Clipper has already set up a 0.0 0.0 Balance of payments (£billion)

Wind farm CAPEX (£million/MW) 2011–2014 2015–2018 2019–2022 0.5 creation and tax revenue discussed in this January 2011 Siemens2011 announced-14 2015-18 Tyneside2 0blade19-22 facility. A number2023+ of other 0 0 2011–2014 2015–2018 2019–2022 2023+ study, a vibrant domestic offshore wind that it had signed a memorandum of players are also understood to be finalising Capital GVA (Imported) Capital GVA (Exported) Development and consenting Turbine manufacture 0.0 industry will create more opportunities for understanding with Associated British plans for facilities in the UK. 2011-14 2015-18 2019-22 Operational GVA (Imported) Operational GVA (Exported) Capital phase tax Operational phase tax Capital phase (projects post 2022) Balance of plant manufacture Installation and commissioning Avoided cost of fossil fuel Cumulative The Crown Estate seabed lease Cumulative Investment for post-2022 projects Cumulative Project Turbine Foundation Electrical Installation Cumulative (high fuel price) 20

Other examples of supply chain production capacity in the UK would the UK could expect the GVA to be activity include foundation supplier also increase, although it is expected approximately 40 per of CAPEX. For Burntisland Fabrications (BiFab), which that existing overseas production Continental projects, winning half of is progressing a major investment centres are likely to continue to serve the Tier 1 orders by 2022 is forecast to programme at its facilities in Methil the market so UK content in these generate 30% of the CAPEX as UK GVA. and Arnish, and Tees Alliance Group areas will be less than for turbines. The (TAG) which has set up a monopile international nature of installation vessel Total UK GVA is calculated using the manufacturing facility on the Tees. chartering means the UK share of the CAPEX forecast derived in Section JDR Cable Systems has established installation and construction market 3. This is based on the specific a new production facility in Hartlepool would also be lower. characteristics of planned UK wind while Rugby-based Converteam plans farms. Continental projects have to invest £60 million in offshore wind UK offshore wind gross value added different site characteristics and permanent magnet generator production The offshore wind farms that will be built therefore different associated costs. To and £15 million in the production of large across Europe between 2011 and 2022 accurately reflect this difference, the scale power conversion technology, are expected to cost well over a hundred costs of a representative selection of including DC offshore wind farm billion pounds to develop, manufacture, Continental projects covering different architecture. Converteam was itself install and operate over their lifetime. As markets, installation dates and site acquired by GE for £2 billion in March discussed above, we expect that much conditions have also been estimated 2011. of this business could be captured in the using the same methodology as for UK UK, especially looking towards 2020. projects to give an indicative CAPEX and A wide range of factors will affect the OPEX for the non-UK market. level of future UK content including It is important to recognise that a Government support, the confidence of significant fraction of contract value For all projects, CAPEX has been the UK supply chain to invest in facilities ultimately will be spent overseas, even spread over the years before the wind and an effective planning approval for orders secured by UK companies. farm starts generating energy to reflect process. For the purposes of this This is due to the worldwide supply observed trends in contracting for study we have assumed that by 2022 chain that feeds materials, tooling and services and components. No account is almost 70% of orders relating to UK sub-components to Tier 1 suppliers. made for inflation. offshore wind farms during the capital The economic value of this business can phase will be sourced from UK Tier 1 be expressed as the gross value added Figure 24 shows that, while UK wind suppliers compared with around 20% (GVA), which measures offshore wind farms makes up nearly two-thirds of UK today. Furthermore, we assume that by turnover by companies in the UK less GVA, the impact of Continental projects 2022 around half of orders relating to imported costs. is also significant. Activity on projects is Continental projects will also be sourced spread out over a number of years before from the UK compared with around 10% While the effect of this will be relatively installation so UK and Continental projects today. Note that not all of the headline limited for the project element of the built after 2022 also contribute to UK GVA value of orders placed in the UK will offshore wind farm, the impact is more during the third period. In total, the UK remain in the UK. significant for the turbine, foundation and capital phase GVA is expected to total electrical elements because either the almost £60 billion by 2022. This scenario is indicative and has been UK is unable to supply many of the raw drawn up in dialogue with industry as a materials that are required, such as steel More of the activity during the operational means of exploring the wider benefits for towers, or the specialist suppliers of phase is necessarily local to a given that an established UK offshore wind key components are located overseas. project, so the opportunity for capturing industry could generate. It is a positive For the installation element, all of the next domestic business is greater. The UK scenario and the levels of supply may generation jack-up vessels currently on is expected to capture around 80% of not be achieved if the Government is not order are being built in overseas shipyards Tier 1 orders by 2022 with a UK GVA of clear in its support for the supply chain and this means that a significant share nearly 60% of OPEX for UK projects. For or UK companies do not choose to take of the charter contract value ultimately is continental projects, the UK is forecast to the opportunities that the market offers. spent outside of the UK. win approximately 30% of Tier 1 orders Such a scenario would see a UK turbine with a GVA of around 20%. production capacity of around 5.5GW To reflect this, here we assume that, per year by 2022, of which a third would for a headline figure of 70% of capital Figure 25 shows that most GVA will be be exported. Foundation and cable orders won from UK projects by 2022, generated outside the periods because 4 200 CAPEX Cost of energy CAPEX OPEX Cost of energy

3 150

2011 2022 2011 2022

2 100 CAPEX (£million/MW)

3.5 3.5 3.5 CAPEX OPEX Cost of energy 3.0 3.0 -2% 3.0

2.5 2.5 2.5

1% 2.0 2.0 26% 26% 2.0 28% 17%

1.5 (£k/MW/year) 1.5 1.5 CAPEX (£million/MW)

1.0 Wind farm CAPEX (£million/MW) 1.0 1.0 Cost of energy (£/MWh) and OPEX Wind farm CAPEX (£million/MW) Wind farm CAPEX (£million/MW) 0.5 0.5 0.5

4 5 6 7 8 0.0 0.0 0.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010

120 12 40

80 90 9 30 UK EU non-UK UK Cumulative EU Cumulative

6 20 60

40 Average water depth (m) Average cable length (km) 3 10 30 Annual mean wind speed (m/sec) Installed capacity (GW) 20

0 0 0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

100% 3.5 100% 8 3.0

75% 2.5 75% 6 2.0

50% 1.5 50% 4

1.0 Wind farm CAPEX (£million/MW) 0.5 25% Average turbine rating (MW) 2 25% Proportion of projects using monopiles

Proportion of projects using HVDC systems 0.0 2011–2014 2015–2018 2019–2022

0 0% Project Turbine Foundation Electrical Installation 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 4 100 100% 150

120 3 75 75%

90 2 50

60 (£million/MW) 50%

1 Mean capacity factor

Wind farm cost of energy (£/MWh) 30 Wind farm OPEX (£k/MW/yr) Potential impact of factors on CAPEX 25 25%

0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 800 160 60 Net CO2 avoided Cumulative 25 140

UK projects Continental projects Cumulative 120 600

40 20 100 21 80 15 400 60 20

the activity is spread over the operational Figure 26: Treasury revenue from offshore wind industry in each period and the life of the wind farms. This study does remaining lifetime of offshore wind farms installed 2011 - 2022 not take into consideration the cost of maintaining wind farms installed before 1.5 3.0 3.5 50 or after the three periods. 8 16 1.2 2.4 3.0 25 In total, UK GVA from the operational 6 12 2.5 phase of European wind farms installed 0.9 1.8

0 between 2011 and 2022 is predicted to 2.0 total almost £23 billion by the time the 4 8 0.6 1.2

1.5 last project is decommissioned. -25 0.3 0.6 2 4 Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion)

Government revenue Government revenue (£billion) -50 0.0 0.0 Balance of payments (£billion) The UK Government has indicated that it Wind farm CAPEX (£million/MW) 2011–2014 2015–2018 2019–2022 0.5 2011-14 2015-18 2019-22 2023+ 0 0 sees offshore wind as a key opportunity 2011–2014 2015–2018 2019–2022 2023+ Development and consenting Turbine manufacture 0.0 Capital GVA (Imported) Capital GVA (Exported) to re-establish manufacturing jobs in the 2011-14 2015-18 2019-22 Operational GVA (Imported) Operational GVA (Exported) UK. This brings the double benefit of Capital phase tax Operational phase tax Capital phase (projects post 2022) Balance of plant manufacture Installation and commissioning Avoided cost of fossil fuel Cumulative reducing unemployment and generating Investment for post-2022 projects Cumulative Project Turbine Foundation Electrical Installation The Crown Estate seabed lease Cumulative Cumulative (high fuel price) tax revenue. Figure 26 presents a forecast of Government revenue due to UK-based activity in wind farms installed remuneration of £50,000 has been used, total, it is predicted that Government between 2011 and 2022. The tax revenue reflecting the need for many of the staff revenue generated from capital activities generated within the supply chain to to work significant shifts offshore. will be around £5 billion by 2022. the offshore wind industry has been calculated using the predicted levels of When calculating labour costs, During the operational phase of projects, GVA captured during the capital and additional costs such as pensions, tax, the Government will benefit from taxes operational phases as explained above. insurance and the provision of facilities paid both by the supply chain and and other benefits are also incurred by the asset owners. If utility companies These headline costs have been broken companies. To take this into account, continue to hold offshore wind farm down to isolate the portion spent on this study has assumed the real cost of assets long-term, it is likely that early tax labour, based on information gathered an employee is two times remuneration. liabilities will be reduced or eliminated through a survey of industry players As such, an estimated peak workforce of because of set up costs and accelerated that are representative of the whole nearly 40,000 FTE is created for capital capital allowances on the assets, supply chain. The labour content is phase activities and around 5,000 FTE meaning that tax is likely only to be paid approximately a third of total costs for operational phase activities. in the last years of project operation. In and covers direct and indirect full time order to compare with other revenues, equivalents (FTE) including UK office The income tax and national insurance these taxes have been discounted staff and supply chain staff contributions revenue is calculated by applying the back to the year of installation at the that could be realistically associated with relevant bands of taxation to the average current relevant government discount offshore wind activity. salaries assumed.19 Corporation tax has rate of 3.5%. Total discounted tax take also been calculated using an assumed in the operational phase is likely to be This is then divided by an average cost industry profit margin of 5%. Such a approximately £3 billion for wind farms per employee to establish the number of figure should be seen as indicative installed in the period 2011-2022. FTE jobs created. Average total annual and not representative of industry remuneration of £40,000 has been used expectations. The model does not For the operation phase, as well as for employees working during the capital include VAT. through taxation, the UK Treasury can phase. This recognises that, while an also expect significant revenue from increasing number of factory workers UK Government revenue generated by offshore wind through the seabed lease may be facing a downward pressure capital phase activity before the end of contracts agreed between The Crown on their average salary, there will also 2022 on both UK and Continental wind Estate and wind farm developers. be large numbers of skilled engineers farms being installed after 2022 has also The Crown Estate is an independent and project managers required. During been included to reflect the ongoing organisation that manages the property the operational period, an average growth taking place in the industry. In portfolio of the Crown and which passes 4 200 CAPEX Cost of energy CAPEX OPEX Cost of energy

3 150

2011 2022 2011 2022

2 100 CAPEX (£million/MW)

3.5 3.5 3.5 CAPEX OPEX Cost of energy 3.0 3.0 -2% 3.0

2.5 2.5 2.5

1% 2.0 2.0 26% 26% 2.0 28% 17%

1.5 (£k/MW/year) 1.5 1.5 CAPEX (£million/MW)

1.0 Wind farm CAPEX (£million/MW) 1.0 1.0 Cost of energy (£/MWh) and OPEX Wind farm CAPEX (£million/MW) Wind farm CAPEX (£million/MW) 0.5 0.5 0.5

4 5 6 7 8 0.0 0.0 0.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010

120 12 40

80 90 9 30 UK EU non-UK UK Cumulative EU Cumulative

6 20 60

40 Average water depth (m) Average cable length (km) 3 10 30 Annual mean wind speed (m/sec) Installed capacity (GW) 20

0 0 0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

100% 3.5 100% 8 3.0

75% 2.5 75% 6 2.0

50% 1.5 50% 4

1.0 Wind farm CAPEX (£million/MW) 0.5 25% Average turbine rating (MW) 2 25% Proportion of projects using monopiles

Proportion of projects using HVDC systems 0.0 2011–2014 2015–2018 2019–2022

0 0% Project Turbine Foundation Electrical Installation 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 4 100 100% 150

120 3 75 75%

90 2 50

60 (£million/MW) 50%

1 Mean capacity factor

Wind farm cost of energy (£/MWh) 30 Wind farm OPEX (£k/MW/yr) Potential impact of factors on CAPEX 25 25%

0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 800 160 60 Net CO2 avoided Cumulative 25 140

UK projects Continental projects Cumulative 120 600

40 20 100 22 80 15 400 60 20

surplus revenue to the Treasury. Almost Figure 27: Investment in UK infrastructure to deliver offshore wind capacity in each period all the UK’s seabed out to the 12 nautical mile territorial limit is owned by The Crown Estate, including the rights to 1.5 3.0 3.5 50 8 16explore and utilise the natural resources 1.2 2.4 3.0 of the UK continental shelf (not including 25 6 12oil, gas and coal). The Energy Act 2004 2.5 also means that The Crown Estate 0.9 1.8 0 is responsible for developing the 2.0 4 8 0.6 1.2 generation of renewable energy on the 1.5 Continental Shelf within the Renewable -25 0.3 0.6 2 4 Energy Zone out to 200 nautical miles. Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion) Government revenue (£billion) As part of this licensing, The Crown -50 0.0 0.0 Balance of payments (£billion)

Wind farm CAPEX (£million/MW) Estate charges developers lease 2011–2014 2015–2018 2019–2022 0.5 2011-14 2015-18 2019-22 2023+ 0 0 2011–2014 2015–2018 2019–2022 2023+ fees for the use of the sea bed. While Development and consenting Turbine manufacture 0.0 Capital GVA (Imported) Capital GVA (Exported) individual contracts between the parties 2011-14 2015-18 2019-22 Operational GVA (Imported) Operational GVA (Exported) Capital phase tax Operational phase tax Capital phase (projects post 2022) are confidential, it is understood that Balance of plant manufacture Installation and commissioning Avoided cost of fossil fuel Cumulative The Crown Estate seabed lease Cumulative developers are charged around 2% of Investment for post-2022 projects Cumulative Project Turbine Foundation Electrical Installation Cumulative (high fuel price) the value of the total wind farm revenue. In order to compare with other revenues again, lease fees paid over the lifetime Investment in infrastructure Figure 27 shows the level of investment of the wind farm have been discounted If the UK is to capture the levels required between 2011 and 2022 to back to the year of installation at the of expenditure discussed above, build the infrastructure required to meet relevant government discount rate. significant infrastructure investment is the expected UK demand from UK and required. Due to the size of many of Continental markets. As the offshore The cost of energy forecasts calculated the components in an offshore wind market is expected to continue growing in the first half of this study represent farm and the logistical challenges of after the third period, investment made the minimum revenue per MWh required moving them, much of this investment up to the end of 2022 for facilities that for developers to make a suitable rate will be focused on coastal locations. will serve projects that are installed after of return on their investments. Total Manufacturing sites also benefit from 2022 are included. revenue can be calculated by combining being located near existing industrial this forecast of the costs of energy capacity and labour pools. In total, it is forecast that nearly £3 with forecasts of installation rates and billion will be invested in offshore capacity factors. Assuming lease values Combining the UK and Continental wind infrastructure in the UK by 2022. of 2% of the wind farm revenue, UK installation forecasts with the expected While this total level of investment offshore wind farms developed between orders won by UK Tier 1 companies is significant, it is only quarter of the 2011 and 2022 are expected to generate gives the total expected demand for the expected revenue that the Government more than £4 billion via The Crown UK supply chain. There is a gap between can expect through taxing commercial Estate. the point when money is invested in a activity over the lifetime of wind farms facility and when production starts, so installed between 2011 and 2022. It Taxation revenue created by commercial this investment has been offset (brought is also less than 4% of the total GVA activity between 2011 and 2042 in forward) by between two to four years that such investment is forecast to the operational phase of both UK and compared with the year of installation. unlock for the UK. We anticipate that Continental wind farms is expected Assumptions have also been made the majority of this investment will be to total almost £2 billion, meaning about the level of investment required privately funded but some is likely to be the overall revenue generated for the to build up annual production capacity public, such as the £130 million already Treasury is predicted to be more than per MW for various manufacturing allocated to support the development of £14 billion. operations. offshore wind manufacturing facilities at coastal locations. 4 200 CAPEX Cost of energy CAPEX OPEX Cost of energy

3 150

2011 2022 2011 2022

2 100 CAPEX (£million/MW)

3.5 3.5 3.5 CAPEX OPEX Cost of energy 3.0 3.0 -2% 3.0

2.5 2.5 2.5

1% 2.0 2.0 26% 26% 2.0 28% 17%

1.5 (£k/MW/year) 1.5 1.5 CAPEX (£million/MW)

1.0 Wind farm CAPEX (£million/MW) 1.0 1.0 Cost of energy (£/MWh) and OPEX Wind farm CAPEX (£million/MW) Wind farm CAPEX (£million/MW) 0.5 0.5 0.5

4 5 6 7 8 0.0 0.0 0.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Turbine rating (MW) 2005 2006 2007 2008 2009 2010

120 12 40

80 90 9 30 UK EU non-UK UK Cumulative EU Cumulative

6 20 60

40 Average water depth (m) Average cable length (km) 3 10 30 Annual mean wind speed (m/sec) Installed capacity (GW) 20

0 0 0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

100% 3.5 100% 8 3.0

75% 2.5 75% 6 2.0

50% 1.5 50% 4

1.0 Wind farm CAPEX (£million/MW) 0.5 25% Average turbine rating (MW) 2 25% Proportion of projects using monopiles

Proportion of projects using HVDC systems 0.0 2011–2014 2015–2018 2019–2022

0 0% Project Turbine Foundation Electrical Installation 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 4 100 100% 150

120 3 75 75%

90 2 50

60 (£million/MW) 50%

1 Mean capacity factor

Wind farm cost of energy (£/MWh) 30 Wind farm OPEX (£k/MW/yr) Potential impact of factors on CAPEX 25 25%

0 0 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

Project Turbine Foundation Electrical Installation OPEX Exchange rate Steel price Technology Competing markets 0 0% 2011–2014 2015–2018 2019–2022 2011–2014 2015–2018 2019–2022

180 800 160 60 Net CO2 avoided Cumulative 25 140

UK projects Continental projects Cumulative 120 600

40 20 100

80 15 23 400 60 20

4.3 Balance of payments Figure 28: Balance of payments in each period and the remaining lifetime of offshore wind farms installed 2011 - 2022 1.5 3.0 3.5 The scale of the UK’s offshore wind 50 pipeline means that, even if the domestic 8 16 1.2 2.4 3.0 supply chain grows rapidly, there will be a 25 need to import a significant proportion of 6 12 2.5 services, vessels and components from 0.9 1.8 established overseas supply chains for 0 2.0 some time. Almost £80 billion is predicted 4 8 0.6 1.2 1.5 to be spent overseas during the capital -25 0.3 0.6 and operational phases of UK projects 2 4 Cumulative investment (£billion)

1.0 Investment in infrastructure (£billion) Cumulative revenue (£billion)

built between 2011 and 2022 compared Government revenue (£billion) -50 0.0 0.0 with over £50 billion in the UK. Balance of payments (£billion) Wind farm CAPEX (£million/MW) 2011–2014 2015–2018 2019–2022 0.5 2011-14 2015-18 2019-22 2023+ 0 0 2011–2014 2015–2018 2019–2022 2023+ Development and consenting Turbine manufacture 0.0 Looking at the overall UK balance Capital GVA (Imported) Capital GVA (Exported) 2011-14 2015-18 2019-22 of payments, these imports are Operational GVA (Imported) Operational GVA (Exported) Capital phase tax Operational phase tax Capital phase (projects post 2022) Balance of plant manufacture Installation and commissioning compensated to some degree by UK Avoided cost of fossil fuel Cumulative Investment for post-2022 projects Cumulative Project Turbine Foundation Electrical Installation The Crown Estate seabed lease Cumulative exports to continental projects. The Cumulative (high fuel price) supply chain in the UK is growing from a relatively low level during this time but, despite this, we forecast exports to decommissioned in 2042, the balance Continental projects of nearly £25 billion. of payment is only negative by £12 billion. It also shows, using DECC’s high It is also important to consider the fuel price assumptions gives a positive avoided importation of fossil fuels due balance of £2 billion. to energy generation by UK offshore wind projects. The UK currently imports These forecasts are based on 70% of its coal, with Russia responsible predictions of long term increases in for more than half of its steam coal energy prices. The decreased reliance supply since 2006.20 For gas, imports are on imported fuels also protects the expected to exceed forecast offshore country from increasing short-term wind energy production throughout this volatility in the energy markets caused period.21/22 by natural and political crises. Whereas most gas today is delivered to the UK The cost of the avoided fossil fuel is using pipelines connected to Norway calculated by combining the predicted and Continental Europe, an increasing energy generation from UK offshore proportion is expected to be delivered wind projects installed between 2011 in ships as liquefied natural gas (LNG) and 2022 with the Government’s fuel cargo. This means that the UK will be price forecasts.23 To reflect the changing competing for resources with the US nature of the fossil fuel energy mix, it and Asian markets at a time when global has been assumed that offshore wind demand is increasing and prices are is displacing coal between 2011 and expected to be volatile. 2018. From 2019 to 2022, an increasing proportion of gas is used and from 2023 For offshore wind, unlike for fossil fuel it is assumed that only gas is displaced. generation, the majority of lifetime expenditure is known at the point of As seen in Figure 28, using DECC’s the financial decision to invest, giving central price assumptions means the developers a relatively high confidence in total balance of payments remains the lifetime cost of energy at that point. negative during the three periods but, by the time the last wind farm is 24

Appendix A: Consultation

This report has been prepared and written by BVG Associates with input and peer review from members of RenewableUK, including developers, wind turbine manufacturers and engineering consultancies. This feedback was gathered during two workshops held in December 2010 and January 2011.

Further feedback was also gathered via email correspondence with RenewableUK members and RenewableUK Offshore Wind Strategy Group.

We are grateful for the involvement of member Companies, specifically:

A2Sea, Bond Pearce, Centrica, Climate Change Capital, DONG Energy, E.ON Renewables, EDF Energy, Eneco, Eversheds, Fluor, Garrad Hassan, Grant Thornton, Hammonds, Mainstream Renewable Power, Narec, NGET, PMSS, RES Offshore, RWE npower renewables, Scottish Power Renewable, Sheppard and Wedderburn, Siemens T&D, SLP Engineering, SSE Renewables, Statkraft, Statoil, The Crown Estate, Vestas and Warwick Energy.

We are also grateful to The Energy Technologies Institute LLP for insights provided regarding the future CAPEX and OPEX for offshore wind.

Endnotes

1. RenewableUK, UK offshore wind: Charting the right course, 2010, www.bwea.com/pdf/publications/ChartingtheRightCourse.pdf 2. Redpoint Energy in association with Trilemma UK, Electricity Market Reform, Analysis of policy options, 2010, www.redpointenergy.co.uk 3. Office for National Statistics, ‘Consumer Price Indices’, www.statistics.gov.uk/statbase/product.asp?vlnk=868 4. Bank of England, ‘Exchange rate data’, www.bankofengland.co.uk 5. Steel Business Briefing, ‘Flat products/Pleat/N.Europe domestic Ex-Works £/t’, www.steelbb.com 6. Department of Trade and Industry, Meeting the energy challenge: A White Paper on Energy, 2007, www.berr.gov.uk/files/file39387.pdf 7. RenewableUK, UK offshore wind: moving up a gear, 2007, www.bwea.com/pdf/offshore/movingup.pdf 8. The Crown Estate, Towards Round 3: Progress in building the offshore wind supply chain, 2011, www.thecrownestate.co.uk/supply_chain_gap_analysis_2010.pdf 9. National Grid, Offshore development information statement, 2010, www.nationalgrid.com 10. BERR, Atlas of UK Marine Renewable Energy Resources, 2008, www.renewables-atlas.info/ 11. Garrad Hassan, Composite Offshore Resource Mapping Analysis, 2011 12. The Carbon Trust, Offshore Wind Power: Big Challenge, Big Opportunity, 2008, www.carbontrust.co.uk/publications 13. Department of Energy and Climate Change, Annex B: Carbon dioxide emissions by source, 2010, www.decc.gov.uk 14. Department of Energy and Climate Change, Digest of United Kingdom energy statistics, Chapter 5 Electricity, 2010, www.decc.gov.uk 15. Vestas, Life cycle assessment of offshore and onshore sited wind power plants based on Vestas V90-3.0MW turbines, 2005, www.vestas.com 16. RenewableUK, Calculations for wind energy statistics, www.bwea.com/edu/calcs.html. 17. David Milborrow, Managing Variability, A report to WWF-UK, RSPB, Greenpeace UK and Friends of the Earth EWNI, 2009, www.greenpeace.org.uk 18. Department of Energy and Climate Change, Annex B: Carbon dioxide emissions by source, 2010, www.decc.gov.uk 19. HM Revenue & Customs, Taxes, National Insurance and Stamp Taxes, www.hmrc.gov.uk/rates/taxes-ni.htm 20. Department of Energy and Climate Change, Coal imports (ET 2.4), (2010) www.decc.gov.uk 21. Department of Energy and Climate Change, Energy Trends, (2010) www.decc.gov.uk 22. Department of Energy and Climate Change, UKCS Oil and Gas Production Projections, www.og.decc.gov.uk 23. Department of Energy and Climate Change, Fossil fuel price assumptions, 2010, www.decc.gov.uk/

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