How much will offshore wind cost in the future?

  • 07 Feb 2013, 10:00
  • Robin Webster

The inside page of this week's Sunday Telegraph argues consumers might have to pay £120 billion for new offshore windfarms, based on the assumption that the cost of offshore wind are not going to fall while the windfarms are built. Meanwhile, the government hopes to reduce the cost of the technology by nearly a third by 2020. So what's going to happen?

Telegraph says Round Three will cost £120 billion 

The Telegraph says subsidies amounting to £120 billion will go to pay for "nine giant wind farms" to be constructed in the seas around Britain - and that consumers will foot the bill.  It quotes the Renewable Energy Foundation (REF) - an organisation known for its opposition to windfarms - which originally calculated the figure. 

In 2010 the Crown Estate, which manages the UK seabed, leased nine offshore sites to companies to build wind turbines, under a scheme called Round 3. REF calculates new wind farms being constructed under the programme will receive about £6 billion in subsidies every year for 20 years. 

A key assumption behind this calculation is that the cost of wind will remain steady while the windfarms are built. But not everyone agrees. 

Quoted in the same Telegraph article, the Department of Energy and Climate change (DECC) says the estimate is "pure speculation". It argues: "We are clear that costs [of offshore wind] must come down".

DECC suggested to us that there is a direct relationship between how much it costs to generate electricity from a technology and how much subsidy it gets. If the costs of a technology stay about the same, then it is likely that the subsidies will as well. If they go down, DECC say that the subsidies will go down as well. 

But REF defends its assumption in a response published on its website. A spokesperson for REF told us:

"[I]n our judgment it is extremely speculative of DECC to suggest that the future costs of offshore wind and necessary subsidies will fall. A fall in costs is possible, but so is an increase. [...] We have prudently assumed that the costs of offshore wind remain stable at current levels." 

Offshore wind costs - going down?   

Let's examine DECC's assumption first. Generating electricity from offshore wind is expensive because it requires constructing and maintaining complicated pieces of kit out at sea. In technical terms, offshore wind currently costs about £149 per megawatt hour (MWh) of electricity it produces. This compares, for example, to about £90 per MWh to generate electricity from onshore wind

The government aims to reduce the costs of offshore wind to £100 per MWh by 2020. In a study undertaken for government with the renewable industry, the Crown Estate concluded that that this is possible, and published four pathways showing how it can be done last year. 

Other energy experts think costs will fall, but seem more sceptical about the government's prediction for how fast that will happen. 

Guy Doyle, chief energy economist from Mott McDonald, told us that the government's target of a cost reduction to £100/MWh by 2020 is "a big ask" which assumes that very little goes wrong in the meantime. 

Doyle says the costs of offshore wind will go down as more efficient turbines are developed and economies of scale start make developing wind farms easier. But the more turbines are built, the further out to sea they will be - so building them in deeper water will offset some of the cost reductions by making the process more difficult. Overall, he says Mott McDonald expects "significant cost reductions in the long run", but energy companies may struggle to achieve them over the next five years

A UK Energy Research Council (UKERC) study from 2010 also concludes the cost of offshore wind will fall. It suggests that, at a "best guess", the costs of offshore wind will fall to around £115 per MWh by the mid 2020s. This would be a significant fall, but the government still wouldn't hit its target. 

More recently, one of the UKERC report authors, Rob Gross, published an infographic showing a range of forecasts for future offshore wind costs, drawn from a number of sources - including consultancies Mott MacDonald, Parsons Brinkerhoff and Arup. The various estimates show costs falling over the next few years - but by 2020, they would still be hovering somewhere just below £130 per MWh by 2020. 

REF disagrees with these estimates, basing its critique on a study written for the organisation by Professor Gordon Hughes, an academic at Edinburgh University and an advisor to climate skeptic think tank the Global Warming Policy Foundation. Hughes argues that offshore wind turbines will have around half the lifespan the renewable industry predicts, raising costs.

DECC have told the Financial Times that its expectation that offshore wind turbines will last between 20 and 25 years is "based on rigorous analysis and evidence". 

How much wind by when?

The Telegraph article is based on the assumption that 26 gigawatts (GW) of new offshore wind farms will be constructed under Round Three. This is on top of the 8.5GW already constructed under Rounds One and Two - which would make 33.5GW of offshore wind. 

The Telegraph says that the Round Three windfarms are expected to be "largely operational by 2020". But this is an over-estimate, according to the current level of government ambition. DECC wants 18GW of new offshore wind to exist by 2020, in total, while the Crown Estate has set a target of 25GW of offshore wind "commissioned or under construction" by 2020, in total. 

This doesn't make REF's prediction for the total amount of offshore wind constructed under Round Three wrong - but it does mean it may take a while for it all to be built. 

Greater falls in costs are predicted after 2020, so wind farms constructed in the 2020s may cost less in subsidies. And if the cost of offshore wind falls over time, then the government says the cost of subsidising it will fall as well. 

Falling costs - but still expensive 

Most expert opinion seems to fall somewhere between the government's and the Telegraph/REF predictions. Many experts disagree that the cost of offshore wind will remain steady over the next two to three decades. But they still think the government may struggle to hit its target cost reduction for the technology. 

As ever with future predictions there are clearly many uncertainties - not least with regard to the amount of wind energy the UK can expect to develop over the next couple of decades, as well as the predicted changes in costs. Offshore wind will remain more expensive than onshore wind. But it appears likely that wind farms installed further into the future are likely to be less costly as bigger and more efficient wind turbines are developed. This means that the Telegraph figure is likely to be an overestimate. 

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