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.