By Jonah Ury, senior associate; and Dan Kyle-Spearman, associate director; The Renewables Consulting Group
Offshore wind has seen a remarkable cost reduction and growth over the last 30 years since the commissioning of Orsted’s 4.95-MW Vindeby Offshore Wind Farm, the first offshore wind project. Floating offshore wind, the next evolution of offshore wind technology, consists of wind turbines installed on floating platforms, held in position with mooring systems attached to the seabed. Floating offshore wind will enable projects to be installed in deeper waters, further offshore.
The offshore wind industry is at an exciting phase, a technology that is now enabling low-cost energy to be supplied at a utility scale anywhere with access to an ocean or lake. Offshore wind is increasingly seen as the powerhouse behind the transition to low-carbon generation and one of the key technologies to replace fossil fuel supply. According to RCG’s Global Renewable Infrastructure Projects (GRIP) database, offshore wind has grown at a CAGR of 35% from 2000 to 2021, therefore doubling in capacity every 30 months.
As the industry looks to increase energy generated from offshore wind, there are few shallow water seabed sites suitable for current offshore wind technology. Currently, nearly all offshore wind turbines are installed on monopiles or jackets that are fixed to the seabed. Fixed-bottom offshore wind requires shallow sites of up to 70 m — going deeper makes the size and weight of the foundation structures uneconomical. In the United States, more than 58% of offshore wind resource is in waters deeper than 60 m; it’s 80% for Europe. Clearly a new approach is required to harvest this energy.
The solution is to install wind turbines on floating platforms with sufficient stability, buoyance and damping of wave motions — called floating offshore wind. Floating offshore wind technology is an evolution of platforms developed four decades ago in the oil and gas industries for their deep-water operations. The platforms have been adapted and re-designed to consider the different loads and stability demands required for wind turbines, as well as a significant focus on cost reduction and serial production. Generally speaking, suitable floating offshore wind sites require depths of at least 60 m, but minimum water depths are driven by local conditions.
The main reasons why large floating offshore wind projects aren’t being built today are that current costs are too high and there is insufficient track record for project developers and financial institutions to be willing to take the risk in developing and investing in these projects.
However, there is good news. Analysis conducted by The Renewables Consulting Group shows that floating offshore wind costs will come down significantly over time. However, the rationale may be somewhat and perhaps counterintuitive.
The analysis shows that the number of turbines installed or deployment is a major, if not the main, cost reduction driver for offshore wind. This same principle also applies to floating offshore wind.
Floating offshore wind is expected to follow similar cost reduction pathways as was seen moving from onshore to fixed-bottom offshore wind — onshore wind created a stepping-stone to support learning, development of supply chain and transferable skills.
Floating costs are currently at a premium compared to fixed-bottom projects at over $200/MWh, however costs are reducing as projects increase in size and lessons are learned. The upcoming 250-MW project in Brittany, France, will have a maximum price of $141/MWh and, considering this will be a competitive auction process, the award price is expected to be well south of $120/MWh. With further deployment, floating wind will become a cost-competitive renewable technology. Floating wind deployment is gradually increasing over time with the largest floating wind project, the 50-MW Kincardine farm, being commissioned this year in Scotland and soon to be overtaken by the 88-MW Hywind Tampen farm currently under construction in Norway. This gradual build-out bolsters confidence in the technology and demonstrates cost reductions.
The move to offshore has had challenges, and similarly, floating will have new challenges that need to be considered. Moving from onshore to offshore required installing turbines offshore from either a floating vessel or a self-elevating platform (jack-up vessel), required marinization to protect turbines from the elements and accessing the turbines for maintenance and repair.
Levelized Cost of Energy (LCoE) – the average net present cost of electricity generation over a plant’s lifetime – enables developers, investors and governments to assess and compare costs of energy from different generation sources. RCG has undertaken analysis utilizing IRENA’s Renewable Power Generation Costs in 2020 to assess the trends of costs against time and deployment. Figure 2 shows the LCoE of fixed-bottom offshore wind against time and Figure 3 against deployment. As the figures outline, there is a clear trend showing deployment as a clearer driver of cost reduction than against time. Note that the trend shows an often-neglected rise before reduction, partly driven by moving to sites further offshore, but does show initial challenges in scaling from small-scale demonstration projects to large commercial-scale projects. However, the deployment figure shows that the hump in costs is much shorter in the deployment scale.
This analysis shows that the expectation that costs fall naturally with time is flawed. If the objective is to reduce costs to compete with mainstream generation, the focus should be on how to facilitate increased deployment. Of course, increasing deployment needs to be combined with ambitious cost reduction pathways together with a considerable effort and investment into R&D and supply chains.
Over the past 20 years, increased deployment has facilitated the following key cost reduction forces for fixed-bottom offshore wind and will again drive costs down for floating wind:
- Learning rate — “learn by doing” in the design, installation and operational phases of projects and applied to future projects, within the project but also learnings from all involved companies.
- Supply chain — simply making more items enables companies to supply at a lower cost (economies of scale), and additionally, a strong pipeline of projects enables investment into production, such as automation, making “step changes” in cost reduction.
- Cost of finance — institutional investors are interested in large projects with low risk. This enables more financing options, increased competition and reduced transactional costs.
- Competition — multiple large-scale projects enables competitive bids which challenges project developers and their suppliers to construct projects in the most efficient and cost effective manner.
- Efficiency in scaling — larger-scale projects dilute fixed costs, leading to supply and installation process efficiencies. Further, increasing turbine sizes reduces the number of platforms required for a given project size.
- Serial production — when there is sufficient scale and technology maturity, serial projection will make individual components and processes more routine and commoditized.
Floating wind will utilize the supply chain fixed-bottom offshore wind has created for turbines, towers and vessels, however the approach to installing wind turbines on floating foundations requires some new approaches. The key cost drivers specific for floating wind and beyond those benefiting from offshore wind experience broadly are:
- Fabrication, manufacturability and serial production of floating platforms — Considering the size of the floating foundations, there is a higher cost compared to fixed-bottom foundations. Optimization to consider the efficient fabrication of large structures, while also designing platform solutions for ease of fabrication. Increased deployment (and refinement of designs) will drive supply chains to serial production of foundation fabrications, which may be one of the biggest ways to reduce CapEx.
- Logistics, both onshore and offshore — Logistics solutions will not be driven by single projects but many projects constructed and installed globally and simultaneously. The global supply chain will need to accommodate the cradle to grave of projects with massive and heavy components sourced and shipped from around the world. There will likely be multiple global hubs, but also local staging areas to ensure effective and efficient movement of goods.
- Reducing project risks and improving bankability — There is a strong appetite from investors and project developers for floating wind, however they require a track record of projects to provide competitive financing and to enable the creation of an investor-friendly asset class. This track record will demonstrate actual project availabilities, turbine performance, liabilities and warranties are achieved once in operation.
- Platform consolidation — There are a significant number of floating platform designs being developed. The cost of fully commercializing a platform is significant, therefore the more platforms are being developed independently, the larger the cost to mature floating wind as a whole to 500+ MW-scale projects. Consolidation to a small number of platforms will enable the market, especially the supply chain, to understand the technology design and fabrication requirements and invest themselves in suitable infrastructure.
- Design optimization — Floating wind projects are being designed to reduce fabrication, installation and operational costs. A holistic approach should consider not only the design of the floater, but also all elements required for a floating projects, from the seabed to the top of the turbine blade, including mooring systems and electrical systems. Operational lives are expected to be over 30 years, therefore ensuring and monitoring asset integrity is critical as well as not selecting the lowest cost option in construction and assessing rather the whole life costs.
- Heavy maintenance — Technician access to turbines for routine maintenance is not expected to be significantly different from fixed-bottom projects; however, replacement of large components on floating platforms poses both new risks and opportunities. There are two main options: undertaking the replacement offshore or towing the units for repair in a port or in sheltered waters. The risk is the lack of track record with these operations for floating wind, the upside is not requiring expensive jack-up vessels.
- Contracting strategies — A different approach is required compared to fixed-bottom wind. Contracts must account for the fact that turbine and floater behavior is much more coupled, affecting installation, performance and operations. Additionally, the key installation contracts will be sourced from different supply chains, where jack-up vessels are no longer needed, but fabrication, mooring and handling vessels are required.
In understanding that deployment is a main cost driver, how can cost reduction be further accelerated? Policy makers and industry can provide the necessary levers and shift their focus from R&D to commercialization, enabling larger floating wind projects and faster buildout to drive down costs quickly. The focus should be on offtake markets, supply chain investments and de-risking finance rather than supporting new floater designs. There will be higher costs for first-mover projects, but these should be viewed as investments into the local supply chain and economy, increasing the local content of local projects and reducing the costs for future projects. Direct investments in supply chain are an alternative mechanism to enhance local industry capacity and capability, and ensure projects are built using local companies.
Jonah Ury is a Senior Associate in RCG’s New York Office. He has expertise costing and bench-marking large-scale renewable energy projects, conducting levelised cost of energy (LCoE) modeling for wind farm development in the US and worldwide, and analyzing US energy market opportunities for investor reports. He has significant experience supporting large-scale renewable energy development and investment for governments, developers and investors and has served as a key analyst on high-profile engagements in renewable energy M&A, greenfield site development and market entry strategy. He can be reached at email@example.com.
Dan Kyle-Spearman is an Associate Director in RCG’s London office, leading on floating wind. He is an expert in floating offshore wind and has worked with the leading developers to reduce the cost and risks to enable the future commercialization of floating wind. He has a proven track record of delivering complex projects with multiple stakeholders across a range of topics in both fixed and floating offshore wind. He has a wide range of offshore wind experience, having managed the Floating Wind Joint Industry Programme and the O&M workstream in the world-leading Offshore Wind Accelerator (OWA) research program. He can be reached at firstname.lastname@example.org.
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