Powerful winds of change: Supportive policy, better tech help sector globally

As offshore wind energy is based on expensive technology, pilot projects need support

By Mandvi Singh, Shweta Miriam Koshy
Published: Wednesday 13 November 2019

This is the second part of a three-part series. 

Despite the phenomenal progress in this decade, offshore wind is still a nascent sector with about two decades of serious research and development efforts. At the end of 2018, the global offshore wind energy stood at 23 gigawatts (GW) compared to 540 GW of global onshore wind energy.

The last two years have seen installations to the tune of 4.5 GW each supported by technological advancements and supportive policies. The main contributors to this energy capacity are the United Kingdom, Germany, the Netherlands and China. These countries made policies attractive to investors.

Nordic countries like Denmark and Norway removed penalties for project failure, emphasising on the importance of learning over project operation. As offshore wind energy sector is based on expensive technology, pilot projects need support. This is generally in form of investment subsidies. For instance, the UK provided large grants, to the tune of £10 million per project, to the early offshore wind projects. 

The UK now provides Contract for Difference (CfD) to new technologies. CfD is a financial instrument offered to clean new technologies to help them stay competitive in the energy markets. CfDs provide a guaranteed price for the electricity that generators sell into the wholesale market, known as a “strike price”. When the wholesale price is below the strike price, generators are paid the difference. When it is higher, the generator pays the difference back. 

CfD helps derisk the technologies by offering a minimum price for energy generated and they offer this rate for an extended period. The contract is signed between a developer and a hedger, typically a government entity. With growing industry experience, these support mechanisms are steadily withdrawn as the industry transitions to a more competitive system — such as auctions.

Offshore projects in the UK now bid for the level of support they would require to compete in the electricity market and projects which quote the lowest level of subsidy win.  

In Germany, feed-in tariffs (FiTs), pre-defined tariffs for the electricity produced, were offered to the offshore wind farms for long durations to ensure that they remain financially viable. With support, offshore wind energy is projected to grow to 200 GW in 2030, according to estimates from Global Wind Energy Council (GWEC), a Brussels-based industry association. 

Erneuerbare-Energien Gesetz (EEG) or the Renewable Energy Sources Act guided renewable energy development in Germany and offered a surcharge to compensate for the difference between the market price for the technology and the tariff rate agreed to in the power purchase agreement (PPA).

Auctions in 2017 saw bidders willing to develop offshore wind with minimal EEG surcharge — called near zero bids. These projects will be commissioned between 2021 and 2025 and bidders believe that by then the technology costs would have fallen sufficiently for the projects to be financially viable without EEG surcharge. Auctions in UK are also seeing near zero bids, highlighting the increasing competitiveness in the industry.

Other than policy support, the boom in offshore wind energy sector is mainly driven by improved technology which helped developers cut costs. A February 2019 report by Brussels-based organisation WindEurope shows that investment cost of offshore wind in Europe has fallen by 44.5 per cent between 2013 and 2018. Other than competitive tendering, the report attributes it to larger turbines and more capacity.

It has been seen that even a small increase in wind speed can significantly enhance energy production. For example, a turbine in a 25 kilometres per hour wind can generate twice as much energy as a turbine in a 19 kmph wind. Offshore wind speeds are also steadier than on land and is thus a more reliable source of energy.

Turbines are the most crucial and costly component of an offshore wind farm. Over the recent years, the turbines have become bigger and more efficient. Offshore wind turbines deployed at present are typically of 6 MW capacity with rotor diameters of around 150 metres.

However, MHI Vestas, a Danish company, provides turbines of 9.5 MW capacity and 164 m diameter blades and these are set to be installed in the UK, Denmark, Germany and the Netherlands.

According to an International Renewable Energy Agency (Irena) report published in 2018, the average turbine size could increase from 2.9 MW to 8.3 MW (184 per cent) between 2010 and 2022. These technology improvements are set to continue beyond 2022, as GE announced in 2018 that it is developing the 12 MW Haliade-X turbine for offshore applications, with blade diameters of over 200 m. Such large sizes make installations difficult and costly.

Wind turbines are large concrete and steel structures, and so far building a wind farm in waters deeper than 60 metres has been found to be difficult. Installations require large vessels equipped with improved navigation, higher crane capacity and increased deck space during the construction phase.

The high initial capital expenditure is the reason why companies with deep pockets like Siemens AG and GE Co lead the sector. But costs are now steadily falling. Many tailor-made technologies have been developed in the offshore wind sector and there is higher availability of offshore-wind vessels and vessels for specific operations such as laying down the foundations and cables.

Then there are smaller innovations to improve design and reduce costs. Ørsted A/S, the Danish global offshore wind farm developer, has developed a digital tool called OptiArray to optimally design the cable layout connecting the turbines to the substations. This helps reduce overall design time.

Wison Offshore & Marine has developed BT Wind, a technology that uses a truss buoyant tower for supporting a large offshore wind turbine. This makes installation easier and reduces costs.

However, the biggest innovation in the sector and one that is likely to reduce costs further is floating turbines. This has made installations in the deeper seas possible. The 30 MW Hywind, the first floating offshore wind farm, was commissioned in Scotland in 2017. It is operated by Statoil, a Norwegian company which changed its name to Equinor ASA last year to reflect its ambition to be associated with clean energy rather than oil.

As of now, there are 13 floating offshore projects under various stages of development across the globe. Nine of these plants are in Europe, three in Asia and one in the US. South Korea is currently planning the largest of these — the 2.1 GW Donghae project to be commissioned in 2024.

Quest, a market intelligence firm for floating wind energy, projects that more than 16 GW of floating offshore wind will be installed worldwide by 2030.

“With the advent of floating offshore wind, every coastal country should be facilitating, through policy mechanisms, the largescale growth of offshore wind,” says Mark Jacobson, professor of civil and environmental engineering, Stanford University.

However, Desikan Sundararajan, country manager, Equinor, suggests that India should focus on fixed foundations for offshore wind for the next five-seven years till the costs for installing floating turbines have fallen sufficiently. 

This was first published in Down To Earth's print edition dated 1-15 November, 2019

Read the third partHow India can benefit from offshore

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