Offshore wind costs fall 22% in six months as EU auctions drive competition

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BNEF report says offshore wind LCOE has fallen to a benchmark estimate of $126/MWh on the back of auction programs in Netherlands, Denmark.

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Offshore wind has become the latest renewable energy technology to benefit from competitive tender process, with auction programs in northern Europe working to push down generation costs by 22 per cent, according to Bloomberg New Energy Finance.

BNEF reports that the levelised cost of electricity (LCOE) from offshore wind has fallen to a benchmark estimate of $126 per megawatt-hour in the second half of 2016 on the back of auction programs in the Netherlands and Denmark, down 22 per cent from H1 2016 and 28 per cent from H2 2015.

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The estimates draw on thousands of data points collected by BNEF analysts and researchers, on capital costs, financing, operations and maintenance expenses and capacity factor – the amount of electricity generated per year from a given capacity in megawatts.

According to Seb Henbest, BNEF’s head of Europe, Middle East and Africa, the data shows that the economics of offshore wind are improving fast, with the best sites coming near to striking distance of more mature technologies.

This has been boosted by the results of recent auction programs, including one in September which saw two offshore wind projects in Danish waters totalling 350MW were awarded to Vattenfall with a record-breaking bid of just €60 ($US67.33) per MWh.

In July, another utility, Dong Energy, won a contract to develop a 700MW Dutch offshore array at €72.70/MWh. Other projects, such as those in deep UK waters, are going ahead at higher cost, and this explains why the global benchmark, while falling rapidly, is well above these recent figures from Denmark and the Netherlands.

According to BNEF offshore wind analyst Tom Harries, these tenders have worked to simplify offshore wind farm development, “by providing transmission and a permitted site, and have led to fierce competition between bidders.”

Further to this, Harries says gains are being made through the use of much bigger turbines, enhanced construction knowhow, and the impact of auction programmes in Europe.

Onshore wind, meanwhile, has reached a global benchmark estimate of $US68/MWh for the second half of 2016, some 16 per cent below the first half of the year – making it cost-competitive with coal and gas-fired generation in many countries.

BNEF’s latest benchmark estimate for the LCOE of crystalline-silicon solar photovoltaic projects reaching financial close in H2 2016 is $100/MWh, with a wide range either side of this.

BNEF’s levelised cost estimates for fossil fuel generation differ greatly by region. In H2 2016, coal-fired power stations have LCOE benchmark estimates of $51 in Asia-Pacific, $55 in the Americas and $88 in Europe, while gas-fired plants average $53 in the Americas, $78 in Europe and $99 in Asia-Pacific.

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