Six Things You Didn’t Know About the Offshore Wind Power Sector

The world's offshore wind sector, which has been at near-standstill in the U.S. owing to high costs and technical limitations, is poised to see a fierce developmental gust that can be attributed to several factors.

While much of the enthusiasm at the American Wind Energy Association's (AWEA's) WINDPOWER 2017 annual event in Anaheim, Calif., was focused on onshore wind technology and development, a number of industry experts noted that over the past year, the offshore wind sector has seen a surge that can be pegged on dramatic cost declines, policy initiatives, and a big leap in technical advancements.

1. Costs Have Dropped Dramatically Across Europe

According to the Global Wind Energy Council (GWEC), about 15 GW of offshore wind has been installed to date in 14 markets around the world.

European countries have led the offshore wind charge for nearly three decades. So long, that DONG Energy recently decommissioned the world's very first 4.95-MW wind power facility erected in 1991 about 2.5 kilometers (km) off the Danish coast. Europe's offshore sector has seen exponential growth, particularly over the past 10 years, surging from 1.1 GW in 2007 to 12.6 GW at the end of 2016.

But while a breakthrough has been anticipated for sometime, the past year has been particularly monumental for European offshore wind, said Giles Dickson, CEO of WindEurope, an organization previously known as the European Wind Energy Association, specifically as far as costs are concerned (Figure 1).

1. Costs for offshore wind in Europe have fallen 50% in two years. According to Giles Dickson, CEO of WindEurope, offshore wind costs have fallen dramatically since 2015. The light blue shaded area represents the cost of grid connection, while the dark blue area represents "everything else." The red area represent the most recent tenders, which include the German tender that produced subsidy-free offshore wind bids. Courtesy: Wind Europe

Costs began tumbling in 2015, when the industry celebrated the then-record-low cost of a103/MWh (US$111/MWh) at the Danish wind farm Horns Rev 3. In 2016, DONG Energy won a Dutch tender for the 760-MW Borssele 1 and 2 in June at a72/MWh ($80/MWh), excluding transmission costs, but still well below expectations. A nearshore tender in September was won at a64/MWh ($71.90/MWh), and in November, the winning bid for the Danish Krieger's Flak project came in at a49.90/MWh ($56.17/MWh). In December, notably, Borssele 3 and 4 in the Netherlands came in at a54.50/MWh ($61.23/MWh).

That decline is especially significant if compared to Wind Europe's estimated costs for onshore wind, which ranged between a52/MWh and a110/MWh in 2015.

In a panel discussion about what prompted the dramatic cost declines, speakers from Siemens Gamesa Renewable Energy, Statoil Wind, and MHI Vestas, pointed to a number of factors. Foremost among them are design improvements in wind turbines and innovations in foundation designs. There has also been sizable financing cost decreases. Capital expenditure has also fallen through multi-contracting, purchasing power. This has had the effect of increasing investor confidence, and it has generally increased competitiveness. Moreover, Europe enjoys policy support from various governments that help reduce costs for "preparatory work," many of the panelists noted.

Jan Willem van der Graaf, CEO of offshore contractor Seaway Heavy Lifting, pointing to a recent report by TKI Wind op Zee, added that declines in insurance costs and refined permitting processes had also contributed to falling costs.

Yet, costs could erode further, he said. The panelists agreed that transmission operators could do more to tamp down connectivity costs, noting that the cost of Europe's transmission service has been trending upward, which could be pegged to "monopoly operation." Michael Hannibal, CEO of Siemens Gamesa Renewable Energy's offshore division, said the benefits of competition are palpable, adding that among other things, "Competition will help decrease the connectivity timeframe.

2. Three European Projects Recently Bid Without Subsidies

As significant is that in April 2016, as part of the nation's first auction for grid connections, Germany's federal agency for electricity and gas, Bundesnetzagentur, selected three offshore projects by DONG Energy and one by German utility EnBW-a combined capacity of 1,490 MW-for zero-subsidy bids. It means that for the first time, the projects, all in the North Sea, will be dependent on wholesale market prices, on a merchant basis, instead of on government support.

"Those projects will be completed by 2025, which is a way off, and they will use technology that is not currently on the market today. That is really significant," Dickson noted.

For Dickson, however, this is in line with a trend the sector has been seeing (Figure 2).

2. Weaning Europe's offshore wind market. Ratio of revenue between market and support by year of tender award. Courtesy: Wind Europe

3. Game-Changing Offshore Wind Technologies Are Emerging

Every major player in Europe's offshore wind industry highlighted scale as a factor that has helped to reduce costs and boost capacity. This includes larger wind farms, but also larger turbines that could increase energy capture and tackle supply chain challenges.

At the start of this year, Siemens and MHI Vestas-a joint venture between Vestas Wind Systems and Mitsubishi Heavy Industries-separately unveiled prototypes of 8-MW turbines. And at WINDPOWER 2017, German wind turbine maker Senvion confirmed that it plans to launch the first-of-its-kind 10-MW-plus offshore wind turbine. Immo von Fallois, Senvion's vice president of corporate communications and marketing, declined to give reporters more details, though he said that the model was in the planning phase and the company would unveil more information in London next month.

In one interesting poster presentation, meanwhile, Ramon Lopez, energy director of Spanish civil engineering firm Esteyco, described a process to fully assemble an offshore wind turbine at harbor using a gravity-based foundation outfitted with a self-lift concrete telescopic tower. The turbine, which is configured to act as a self-stable floating barge, is then conventionally towed to site and installed without the need for heavy lift vessels, which are in high demand (Video).

VIDEO. No heavy lifting. Spanish firm Esteyco will soon demonstrate an integrated substructure system for deep offshore wind energy that promises to eliminate the need for heavy-lift vessels. The concept includes an onshore turbine construction process. It is then floated out to sea, where the telescopic tower is lifted with hydraulic lift jacks on a single working platform. Courtesy: ELISA PROJECT from Esteyco SAP on Vimeo.

With funding from the European Union, Esteyco is looking to demonstrate the substructure system and plans to install a full-scale operational prototype at Gran Canaria, Canary Islands, before ultimately making it available for commercial use.

4. Floating Offshore Wind Soon to Be a Commercial Offering

The drop in prices, meanwhile, has opened new avenues for offshore wind developers. Norwegian energy firm Statoil in early 2016, for example, made a final investment decision to build the world's first commercial floating wind farm 25 km offshore Peterhead in Aberdeenshire, Scotland, and earlier this year, it recruited Abu Dhabi firm Masdar to share 25% of the previous and future costs.

The 30-MW Hywind Scotland pilot's structures have already been built in Spain and are expected to be shipped off to Peterhead later this summer. The wind farm will use Siemens turbines in North Sea waters at depths of around 95 meters (m) to 120 m-much deeper than the 20 m to 50 m at which conventional offshore wind turbines are installed in Europe today. Not only will this enable an expansion of offshore wind in new deep water areas around the world, it is expected to demonstrate cost efficiency and low-risk solutions for future installment, said Knut Aanstad, president of Statoil Wind US.

Aanstad noted that the cost of floating offshore wind has dropped dramatically from a250/MWh five or six years ago. With Hywind, the company wants to get below a150/MWh, and in another five years, to below a100/MWh, he said.

5. New Markets Are Emerging Across the World

According to GWEC, a total of 2, 219 MW of new offshore wind power was installed across seven markets globally in 2016. At the end of 2016, about 88% of all offshore wind installations were located in waters off the coast of 10 European countries, while the remaining 12% was located largely in China, followed by Japan, South Korea, and, finally, in the U.S.

But while installations fell by nearly a third compared to 2015, new markets notably emerged. China surpassed Denmark in 2016 (Figure 3), snagging third place in global offshore rankings (behind the UK and Germany). And according to industry experts, China's potential market is poised to grow even more dramatically owing to a renewed push and an ambitious program in Taiwan. Amisha Patel of the Energy Industries Council noted that China's 13th Five-Year Plan seeks to deliver 10 GW by 2020.

3. Offshore wind is changing the world and the world is changing offshore wind. Courtesy: GWEC

Patel noted that other Asian countries with surging offshore wind interests include: Vietnam, which has a target to install 800 MW by 2020; South Korea, which installed its first commercial offshore wind farm in 2016; and Japan, which has established an ambitious target of 37 GW by 2050.

6. U.S. Offshore Efforts to Take Sail

The advent in December 2016 of commercial operations at Deepwater Wind's Block Island Wind Farm-America's first offshore wind farm (Figure 4)-was much talked about at WINDPOWER, mostly in the context of discussions about what North America's offshore wind industry should expect next.

4. The first of its kind. Block Island's five turbines are 170-m tall and have blades that are 150 m in diameter, covering a surface area of 17,860 square meters. Courtesy: Deepwater Wind

Hopes are high. One much-cited benchmark is the Department of Energy's highest growth scenario issued in the 2011 National Offshore Wind Strategy, which reflects the potential for 54 GW of capacity to be installed by 2030.

For now, only a handful of major offshore wind farms look like they're making progress. That includes Statoil's winning bid for an 80,000-acre wind farm off the coast of Long Island, N.Y. Several other companies have submitted proposals. Seattle-based Trident Winds, a company founded in 2015, for example, submitted an unsolicited proposal to the Bureau of Ocean Energy Management (BOEM) to put up 100 floating wind turbines in the Pacific Ocean off the coast of Morro Bay, Calif. According to Trident Winds founder Alla Weinstein, the initiative was fueled by California's ambitious 50% renewable portfolio standard.

Turbine manufacturers are also watching developments carefully. GE Renewable Energy manufactured the five 6-MW Haliade 150 turbines that power the Block Island wind farm offshore Rhode Island, and according to company officials, it is looking to invest in more offshore wind, despite the production tax credit phase out in 2020.

Prospects are particularly appealing in Rhode Island, New York, Massachusetts, and Maine, said David Nason, president of GE's financial services business, but companies must consider long-term scenarios to "rationalize the business."

States, meanwhile, are gearing up for an offshore wind expansion despite weak signals from the Trump administration. Massachusetts will soon set the terms of a mandate that requires utilities to solicit contracts for 1.6 GW of offshore wind, as New York also develops policies to support offshore wind. Earlier in May, the Maryland Public Service Commission awarded offshore renewable energy credits to two wind projects off the coast of Maryland being developed by Deepwater subsidiary Skipjack Offshore Energy and US. Wind, a subsidiary of Italian firm Toto Holdings. US. Wind has proposed a 248-MW wind farm, while Skipjack's proposal includes a 120-MW offshore project.

According to Adam Thomsen, head of MHI Vestas Offshore Wind's U.S. growth implementation arm, the U.S. is a "sleeping giant" that is about to wake up and could even evolve into the world's largest offshore market after Europe.

However, Trident Winds' founder Weinstein and a number of industry experts at WINDPOWER say developmental progress will depend on cooperation among states. They also noted a number of barriers that could, in the short term, limit deployment along North American coastlines. These include the integration of offshore wind energy into existing grid infrastructures, taking into account market dynamics. Many experts also pointed to siting issues, including environmental concerns about how offshore turbines interact with avian and aquatic life. Infrastructure was a third and relevant barrier: Some experts weren't convinced that the U.S. has the port bandwidth yet to host an offshore wind buildout through 2030, noting that new port facilities may need to be built. The U.S. will also need vessels to support offshore wind farm construction, as well as a full-fledged supply chain infrastructure.

Stewart Millin, director of public affairs, communications, and marketing at MHI Vestas Offshore Wind, remarked in one panel session that the U.S. can learn volumes from Europe and has the benefit of "picking and choosing what model it wants to see."

Van der Graaf, CEO of offshore contractor Seaway Heavy Lifting, said the biggest lesson that U.S. developers could learn from Europe is to design "something that can be built," taking into account the full picture, including installation, capability, and contractors, with few surprises.

-Sonal Patel is a POWER associate editor (@sonalcpatel, @POWERmagazine)

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