Call for Articles for Upcoming Special Issue: Looking Forward to 2021 Predictions and Trends

Re: briefingsforbritain.co.uk/the-costs-offshore-wind-power-blindness-and-insight/          John Constable, Professor Gordon Hughes Sept. 2020

An evil wind is brewing over the pond and it is not Brexit or Covid. The current UK government has recently moved into the breach with a significant offshore wind investment. The media has failed to drown out voices that question the accepted wisdom of falling RE costs. Gordon Hughes former professor of economics at Edinburgh university, has recently completed the largest study on RE costs to date, based on audited accounts of the capital and operating costs of 350 UK onshore and offshore wind farms, covering the majority of the larger wind farms (> 10 MW capacity) built and commissioned between 2002 and 2019. Conclusions are sobering and include:

• Onshore and offshore actual cost of wind generation have not fallen significantly over [PL1] the last two decades and there is little prospect that they will fall in the next five or even ten years.
• The advantages of larger turbines have been offset by higher operating and maintenance costs (O&M).
• Actual capital costs per MW of capacity to build new wind farms increased substantially from 2002 to about 2015 and have, at best, remained constant since then. 
• Operating costs per MW of new capacity have increased significantly for both onshore and offshore wind farms over the last two decades. 
• Operating costs for existing wind farms tend to grow even more rapidly as they age. Factors include: shift to more remote sites, increasing equipment failures and preventive maintenance with age and larger turbines
• Inferior reliability of new turbine generations, leads to a more rapid decline in performance with age, so that the ultimate effect of capacity upsizing on average performance over the lifetime of new turbines, is not clear.
• The combination of increasing operating and maintenance costs with the decline in yields due to ageing means that at current market prices the expected revenues from electricity generation will be less than expected operating costs after the expiry of contracts guaranteeing above-market prices. Contract lengths have been reduced, implying a need to recover capital costs over a shorter economic life which pushes up the effective capital charge.

The current set of offshore projects being constructed and planned in North Western Europe are closely akin to speculative property development. They are high risk projects that will only be able to repay lenders and offer a return to equity investors if the average wholesale market prices of power rise to at least three to four times their current level throughout North West Europe. Once economic reality becomes undeniable, there will be a huge lobby to pass on the full costs of offshore wind to either electricity consumers or taxpayers. This has consequences for financial regulation. Regulators have urged pension fund etc to make more investment in green assets without acknowledging the risks involved! When the merry-go-round stops…

Posted by Paul Lafreniere

paulj.lafreniere@gmail.com

 [PL1]