(The author is a Reuters market analyst. The views expressed are his own.)
By Gerard Wynn
LONDON, June 14 (Reuters) - Offshore wind costs must fall even faster than the ambitious target of a 30 percent cut by 2020, which the British government and industry executives said on Wednesday was achievable.
Britain is the world leader in offshore wind, betting on the advantage conferred by its long, windy coastline.
Other countries developing offshore wind projects include Belgium, Denmark, France, Germany and China.
The target supported on Wednesday was to bring down the full cost of power generation from wind turbines planted in the sea to 100 pounds ($160) per megawatt hour (MWh) by the end of the decade, compared with about 140 pounds now.
The cost-reduction target is challenging, but the trouble is that even 100 pounds per MWh would still be more than double present wholesale power prices, implying a large continuing subsidy from British energy consumers.
Present day-ahead baseload prices in Britain are 44 pounds per MWh <0#ELBUK-RTR>, based on generation largely from fossil fuel and nuclear power plants.
Perhaps of even more concern for those placing bets on offshore wind is that emerging technologies including solar power also beat the 2020 cost target.
Developers say they can generate solar power at $120 per MWh in sunny locations such as in the Middle East, and costs continue to fall rapidly suggesting a real risk that even in cloudy northwest Europe it will undercut offshore wind power.
Governments including Britain’s are supporting industrial-scale energy projects including offshore wind, coal power with carbon capture and storage and nuclear with one eye on jobs and investment.
The danger is that approach misses an energy technology trend going in the opposite direction, towards smaller, decentralised energy sources like solar and biomass waste, and smarter, two-way, more flexible, responsive and connected grids.
Offshore wind is a challenging technology at the forefront of wind power.
Installed turbines in 2011 were each far bigger than onshore counterparts, at an average 3,700 kilowatts (kW) compared with the 1,700 kW for average wind power, according to Danish consultants BTM Consult.
As well being technically challenging, bigger turbines are squeezing available deployment infrastructure, according to a report by consultants IHS, published on Wednesday.
IHS also pointed to supply chain bottlenecks in the rapidly emerging sector: “Developers continue to seek access to offshore wind plant components amid bottlenecks resulting from the nascent industry’s supply constraints, especially for turbine, vessel, and transmission capacity.”
One key question is how far a cost squeeze caused by such bottlenecks eases after 2015.
On the plus side, offshore wind achieves far higher load factors than rival sources of renewable energy because of its bigger turbines in more reliably windy locations.
Load factor is the proportion of a power plant’s theoretical capacity which it can actually convert into electricity.
However, another suggested advantage of offshore wind, that it reduces landscape blight compared with onshore turbines, is hardly a foundation for a major energy policy.
Offshore wind will certainly represent an increasing slice of total wind installations, particularly in Europe.
The sector globally still hugely lags the onshore wind market, with some 470 megawatts of offshore capacity added last year (70 percent down on the previous year), according to BTM.
That’s a miniscule 1 percent of the global wind market last year. But some 4,000 MW is currently under construction, according to BTM.
Financing will prove a challenge in the near term, and ambitious targets may be overblown.
For example, the UK government is targeting up to 18 gigawatts of offshore wind by 2020 (more than a fifth of the country’s nominal power generating capacity now), assuming it can meet the cost reduction targets.
Encouragingly, it assured on Wednesday that it would support enabling infrastructure including transmission networks, a favourable planning system and financial support mechanisms, all vital to curb costs not only of offshore wind but rival renewable, low-carbon technologies.
Wednesday’s report, written by a group of public and private sector actors, also included much-needed realism.
“We recognise that the years to 2020 present a short timescale to overcome significant challenges to the sector’s costs, and require the industry to cut costs faster than would otherwise occur naturally. Cost reductions need to get underway now.” ($1 = 0.6432 British pounds) (Editing by Alison Birrane and David Goodman)