Analysing public data on offshore wind in Denmark, energy consultant Mike Parr concludes that existing offshore wind is already cheaper than gas-fired power plants. Future offshore wind farms will be cheaper still – and up to 60% less expensive than the proposed nuclear power plant at Hinkley Point C in the UK. This means, writes Parr, that government support for offshore wind can be quickly and substantially reduced.
Offshore wind is routinely criticized for being too expensive. It is true that some offshore wind farms are getting large subsidies. But that does not mean they are expensive. It rather means that their operators are making a lot of money. In fact subsidies can go down considerably and probably will, as I will show in this article.
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Cheaper than gas-fired power and nuclear
What is interesting to note, in addition to the high profitability of Anholt in particular, is that the Danish auctioning process seems to be successful at driving prices down (26% reduction over 5 years Anholt vs Horns Rev 3).
Even more importantly perhaps are the actual costs of offshore wind, which are lower than the bid prices. In the column “lifetime costs per MWh” I have calculated the costs for each of the three projects. This is based on the energy produced in the first 10 years of operation multiplied by the bid e.g. €103/MWh for Horns Rev3 plus the energy produced over 15 years at an estimated wholesale price of €25/MWh. This sum is then divided by the total energy produced by a given project over 25 years. Whilst this is crude, it provides some indication of a “lifetime” cost per kWh for the consumer. In the case of Saeby a simple sensitivity analysis was undertaken with the aim of matching Saeby’s internal rate of return to that of Horns Rev3. A bid price of around €90/MWh would lead to a “lifetime” cost of €51/MWh.
Recent reports such as this one by Ernst & Young on wind in Europe, while positive about offshore wind, still imply that offshore wind is expensive. According to this report, offshore wind power has a price similar to that of CCGTs. Based on the Prognos report for the Bavarian government (published in November 2014) this is around €90/MWh (levellised cost of electricity or LCOE). Anholt turns out to be 14% cheaper and Horns Rev3 around 37% cheaper than CCGT power. If the EU ETS was functioning then the differential would be even greater.
Read more at The myth of expensive offshore wind: it’s already cheaper than gas-fired and nuclear
