The Capital Cost of Offshore Wind: A Further Comment

New data relating to the sale of a 50% share in the Walney Offshore Wind Farm extension project confirms the conclusions of the GWPF’s recent study, Offshore Wind Strike Prices: Behind the Headlines (2017): offshore wind capital costs are not falling, and appear to be rising due to the costs of construction in deeper water.

Ørsted, the new name for the company formerly known as DONG, is developing a 660 MW extension to the Walney Offshore Wind Farm in the Irish Sea, the two existing phases of which already total 367 MW and have been in operation since 2011.

The extension is between 20 and 30 kilometres from the Cumbrian coast, and in water of 20 metres to 40 metres in depth. By any standards this is a very remarkable and ambitious project.

In the last few days, Ørsted has announced the sale for £2 billion of a fifty per cent stake in the Extension to two Danish pension funds, PKA and PFA, which will each take 25 per cent (Financial Times, “Orsted to sell half of the world’s largest wind farm for £2bn”. (This is consistent with DONG’s underlying strategy, which is raise cash for the building of a windfarm by the sale of a large stake in the project. Walney 1 and Walney 2, for example, are part owned with PGGM and Ampère Equity Fund (24.8 per cent) and SSE (25.1 per cent) SSE.)

A price of £2 billion for a 50 per cent stake in the Walney extension implies a capital cost of £6 million per MW. Even allowing for the fact that Ørsted may have factored in some degree of compensation for development risk, the capital cost seems certain to exceed £5 million per MW.

This cost would make it one of the most expensive wind farms for which there is public data, as can be seen by referring to the following chart from Hughes, Aris, and Constable, Offshore Wind Strike Prices: Behind the Headlines (2017). On the assumption that the Walney extension will be completed in 2019, conversion to 2012 prices yields an estimated capital cost range for Walney extension of £4.4 million to £5.3 million per MW.

It is relevant to note that the original Walney projects that completed in 2011 were located in water with a maximum depth of 30m, and cost £3.39 million per MW at 2012 prices. This illustrates the points made by Hughes, Constable and Aris that there was an increase in costs up to 2013, and that subsequent cost reductions are offset by the increased cost of necessarily constructing in deeper water.

via The Global Warming Policy Forum (GWPF)

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November 8, 2017 at 08:04AM

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