Navigant Research Blog

Floating Offshore Wind Showing Potential

— November 1, 2017

Offshore wind is notching up impressive cost reduction success, evidenced by record low power purchase agreement prices in recent UK and other European competitive bidding auctions. This is great news, but the game changer is if floating offshore wind foundations could achieve commercial success.

This could reduce offshore wind foundation costs and open cost-effective wind power in locations coincident with large coastal population centers, energy demand, and deep ocean sea beds that currently aren’t cost-effective with today’s variety of fixed bottom foundations. Potential markets are the entire west coast of the Americas, Hawaii, Japan, South Korea, parts of China, South Africa, New Zealand, and many European markets, including much of the Mediterranean.

Floating Offshore Wind Becoming a Reality

With that context in mind, it’s great news to see that floating offshore wind is moving from the conceptual and design phase to actual projects. In 4Q 2017, Norway’s Statoil installed a 30 MW wind farm on the northeast coast of Scotland. It is made up of five 6 MW Siemens turbines installed on floating structures at Buchan Deep, 25 km off Peterhead, Scotland.

The Hywind Scotland wind farm is expected to power around 20,000 households. Statoil believes the project will demonstrate the feasibility of future commercial floating wind farms “that could be more than four times the size.” From the first pilot floating turbine outside Karmøy, Norway in 2009 to the launch of this new wind farm, capital costs have fallen by around 60%-70%. Statoil says cost reductions of a further 40%-50% are realistic for future projects.

Hywind Scotland Wind Farm

(Source: Statoil)

Hywind Scotland

The Hywind project will cover around 4 square kilometers at a sea depth of 95-120 meters. The floating turbines have a total height of 253 meters, with 175 meters of the structures floating above the surface of the sea (to the wingtip) and 78 meters submerged underwater. The rotor diameter is 154 meters. This is only the first step of the project, with the end goal being to develop a large-scale floating offshore wind project of 500 MW-1,000 MW. Statoil is a serious company with serious money backing its efforts, including the company agreeing in a competitive auction round in December 2016 to pay $42.4 million for lease rights to develop an offshore wind project off the New York coast.

Following France’s Example

The Hywind launch comes on the back of the inauguration of France’s first floating offshore wind turbine—Floatgen—in October and represents an important breakthrough for floating offshore wind. It shows it is ready to be integrated into the energy market. Floatgen’s 2 MW turbine features a number of innovative solutions, from the concrete composition and its construction to the nylon mooring lines.

The consortium developer Ideol has optimized some areas of the design and the construction method. It is building its supply chain in preparation for mass production, all with an eye to driving costs down. Ideol says its solution is ideal because it is compact and does not need to increase in size and mass at the same ratio as the turbine nameplate rating. Ideol says it can potentially be adapted to turbines up to 15 MW, the size range the leading turbine OEMs are planning for next-generation 2025-2030 offshore installations.

Offshore Wind Soon to Be a Legitimate Power Option

Floating offshore wind is not yet commercially viable against fixed bottom foundations. Plenty of fixed bottom locations are available, but these two projects show that commercial viability just around the corner. If the past decade has been any guide, with the costs of onshore wind falling 77% in the past 7 years, the wind market has been attacking challenges, costs, and other impediments and disproving doubters. Floating offshore wind is increasingly likely to prove its legitimacy as a cost-effective offshore wind option.

 

UK Offshore Wind Costs Plummet to Record Lows

— October 5, 2017

Offshore wind power costs are plummeting as wind turbines get bigger and European countries implement a variety of market-oriented competitive pricing schemes. The general pattern is to let wind project developers bid and compete for the lowest power purchase agreement (PPA) price at which they are still confidently willing to finance and build a wind project. The latest results of the United Kingdom’s Contracts for Difference (CfD) auction for 15-year contracts are being hailed as a breakthrough on price.

Contracts for Difference Awards

3,196 MW was awarded mid-September, divided to go to three projects. Project and price highlights are as follows:

  • Dong Energy will construct its 1,386 MW Hornsea Project Two with a winning bid at £57.50/MWh ($75.75/MWh). Staged commissioning is planned for years 2022 and 2023.
  • EDP Renovaveis (EDPR) also won its CfD bid at the same £57.50/MWh ($75.75/MWh) price for its 950 MW Moray Offshore Wind Farm East with a similar 2022-2023 completion timeframe.
  • Innogy (formerly RWE Innogy) won its CfD bid at £74.75/MWh ($98.48/MWh) for its 860 MW Triton Knoll offshore project.

Other Offshore Wind Wins

Technically, the lowest prices awarded recently for offshore wind are for the Borssele III and IV wind farms off the Netherlands, amounting to 700 MW at a new record low PPA price of €54.5/MWh ($65.2/MWh). This was awarded in December 2016 to a consortium made up of Shell, Van Oord, Eneco, and Mitsubishi/DGE. The next lowest price seen yet was awarded in September 2016 as part of Denmark’s nearshore tender to Vattenfall for its 350 MW Vesterhav Syd and Vesterhav Nord wind farms at €60/MWh ($71.79/MWh).

However, while both of those projects are nominally the lowest PPA contract price, the Borssele projects in the Netherlands and the Danish nearshore tender do not include the cost of transmission and grid connection. This cost is estimated to add another approximately $15/MWh-$20/MWh, which pushes their real price up to around the price level of the recent UK CfD projects.

Changes in the Past Few Years

These recent prices reflect a rapid drop from offshore PPA prices only a few years ago. Dong’s 1,200 MW Hornsea 1, which will go online in 2020, was guaranteed £140/MWh ($184.2/MWh) in 2014. Three years later, the recently awarded 1,386 MW Hornsea 2 will proceed at less than half the previous Hornsea 1 project’s cost. By comparison, the new low prices are coming in cheaper than the United Kingdom’s nuclear power.

In addition, in the previous CfD auction in 2015, two offshore wind farm projects won subsidies between £114/MWh and £120/MWh ($150/MWh and $157.8/MWh)—Neart na Gaoithe and East Anglia 1, respectively.

Other Auctions and Numbers

Recent April 2017 offshore wind auctions in Germany should also be mentioned. Dong and EnBW won power contracts for offshore wind plants totaling 1,490 MW with zero subsidies.

Large projects and ever growing turbine sizes are major reasons for the price drop. The latest generation Vestas 9.5 MW turbine can provide enough power for over 8,000 average UK homes. Siemens likewise has rapidly uprated its offshore platform to 8 MW, and the company is hinting at a 10 MW plus turbine for coming years. Dong and EDPR did not disclose the turbine nameplate rating expected for their latest wind projects, but size is likely to be between 10 MW and 15 MW per turbine. Larger turbine units generate more power and reduce the total number of offshore foundations needed for a given project size, thereby reducing construction, foundations, and inter-array cable cost.

 

New Wind Turbine Battleground Focused on 4 MW Units

— September 28, 2017

The latest battleground in the ever tightening wind turbine market is with onshore wind turbines in the 4 MW range. Until now, this segment has had few offerings and only minor commercial deployments. No less than four turbine OEMs announced new 4 MW turbine models over the past few months. The overwhelming majority of annual onshore wind turbines installations are in the 2 MW to 3 MW range, and innovation continues to occur rapidly in that nameplate space.

Power Contract Auctions Prevail

However, a number of factors are pushing turbine OEMs to design more turbines with higher nameplate capacities. This includes the steady shift in Europe and other markets from fixed priced contracts for wind to highly competitive power contract auctions. These auctions squeeze power purchase agreement pricing for wind projects as low as developers and investors are willing to go, and taller tower, larger rotor, larger nameplate machines promise higher annual energy production (AEP). Larger turbines also maximize AEP in a geographically limited location. Europe in particular is already a population-dense continent and land availability for wind projects is becoming increasingly constrained.

There are also efficiencies of scale with producing the most megawatt-hours from each single wind turbine foundation and tower. This factor is more quantifiable with offshore wind, where foundations and installation cost is proportionally much higher than it is for onshore. In general, onshore turbines represent around two-thirds of onshore project CAPEX while offshore turbines represent one-third of offshore project CAPEX due to the higher foundation cost. This is why offshore wind turbines may double in size by 2025. The same principle applies (to a lesser degree) that the more AEP per turbine in the onshore realm, the better the project economics.

Competitors Abound

The following are summaries of the most recently announced turbines competing in this new 4 MW battleground:

  • GE Renewable Energy: GE Renewable Energy announced its first turbine offering in the 4 MW range with a new 4.8 MW unit that features a 158-meter rotor enabled by carbon blades. GE has historically avoided carbon fiber for most of its blades, but the demands of longer blades for this oversize turbine may have made carbon use unavoidable. The turbine will have around 30% higher AEP than GE’s previous 3 MW range turbines. Tower heights are 101 meters, 120.9 meters, 149 meters, and 161 meters. GE’s acquisition of Alstom Wind, LM Wind Power, and Blade Dynamics likely played a role in this new 4 MW platform.
  • Vestas: Vestas upgraded and uprated its 3 MW range to now include three models in the 4 MW range. This includes the high wind V117-4.0/4.2MW, which is designed to handle wind gusts up to 80 meters per second that would enable it to handle hurricane and typhoons. V136-4.2MW and the V150-4MW/4.2MW are medium to low wind turbines designed for most areas in Europe and other global markets.
  • Nordex: Nordex is uprating its 3 MW Delta series into a 4 MW-4.5 MW turbine with a 149-meter rotor for medium wind speeds. The turbines are planned for prototype testing in the third quarter of 2018, followed by several pre-series turbines and series production starting in 2019. The company touts the turbine’s wide power range from 4 MW to 4.5 MW, which is ideal for adapting individual installations to a specific grid operator’s requirements and to local wind conditions or noise restraints. Steel towers come in 105- and 125-meter hub heights and concrete-hybrid towers offer hub heights of 145 and 164 meters.
  • Enercon: Germany’s Enercon has been ahead of all other turbine OEMs with 4MW class turbines, having had its EP4 turbines (4-4.2 MW) E-126 and E-141 already commercially available roughly 2 years ahead of Vestas and others. In fact, the newest E-series turbines are downrated from a previous E-126 model that had exceeded 7 MW nameplate capacity as far back as 2012. The E-141 units feature concrete-steel hybrid towers to enable a 159-meter hub height. Enercon is also rapidly evolving its 4 MW class turbines with some radical design departures, which is thoroughly explained by Windpower Monthly.
 

Wind Project Construction Hits Record Pace Mid-Year

— August 31, 2017

The US wind market is in the midst of a wind plant construction boom. As of early August, 25,819 MW of wind projects were in various stages of advanced development or construction, according to the American Wind Energy Association’s (AWEA’s) U.S. Wind Industry Second Quarter 2017 Market Report. This represents a 41% increase in under construction projects over the same quarter in 2016 and the largest amount ever recorded by AWEA. The remarkable increase is the result of the long-term phaseout of the wind industry’s favored incentive, the Production Tax Credit (PTC).

The extension, which was secured by the industry through negotiations with Congress, is structured so that wind plants that began construction by the end of 2016 will receive 100% PTC value. Projects starting construction in 2017 will receive 80% of the PTC value, and the percentage will continue to decline through 2020 (2018: 60%; 2019: 40%; 2020: 0%). Most importantly, revised guidance provided by the IRS in May 2016 changed the construction window from 2 to 4 years. Therefore, projects on the tail end of the PTC window will be finishing construction through 2023.

Most companies seeking the maximum financial return on their wind projects aim to qualify their projects as having started in 2016 or 2017. The bar to qualify for start construction is not very high, which is one reason why so many projects are in various stages of advanced development and construction. To be considered under construction, a wind project developer must have started work of a significant nature on the project site or signed turbine or other equipment supply agreements representing at least 5% of the total expected project cost.

The Big Three

Other key highlights from AWEA’s quarterly report include an update to the installed capacity in 2017: a modest 357 MW during Q2 and 2,357 MW year-to-date. This brings the US total to 84,405 MW, with more than 52,000 turbines operating in over 41 states. The turbine vendor market share represented by installations so far in 2017 reinforces an ongoing trend: the big three turbine OEMs, Vestas, General Electric, and the recently merged Siemens Gamesa Renewable Energy (SGRE), represented 97% of all turbines installed in the first half of 2017.

Intense competition has led some vendors to reduce supply chain and manufacturing commitments in the US market. However, this is not a market that can be competitively sourced via a high proportion of imported supply chain. Massive towers, blades, and the nacelle drivetrain componentry ideally are manufactured within the country. The big three continue to have outsized commitments to domestic manufacturing or sourcing from vendors based in the United States, an approach that secures their substantial market shares.

Power Purchase Agreements

Corporate purchases of wind power and other renewables capacity continue to be a major trend exhibited in AWEA’s quarterly report. Power purchase agreements (PPAs) signed during the first half of 2017 totaled 1,697 MW; 37% of that capacity was through direct corporate purchase where companies like Apple, General Mills, T-Mobile, and others contracted PPAs. Notably, direct utility ownership represented 45% of capacity in advanced development. Direct utility ownership of wind plants has typically represented a low percentage of installed capacity. Yet, utilities are motivated to buy directly into wind when it is on a sale that is eventually going to subside.

Future US quarterly market reports can be found at AWEA’s market report link. Also worth noting is that AWEA recently launched an interactive map that tracks the growing number of wind projects online and the hundreds of manufacturing facilities supported by the wind industry.

 

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