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Innovation and cost reduction in offshore wind Kate Freeman
Offshore Wind Journal Conference
February 7 2017
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• Recent trends in offshore wind LCOE
• Time is money – how the speed of installation influences
cost of energy
• Scale versus cost – can we get the balance right?
Contents
Agenda Innovations and cost reduction in offshore wind
Selected clients
BVG Associates
Business advisory
• Analysis and forecasting
• Strategic advice
• Business and supply chain development
Technology
• Engineering services
• Due diligence
• Strategy and R&D support
Economics
• Socioeconomics and local benefits
• Technology and project economic modelling
• Policy and local content assessment
© BVG Associates 2017
4/10
1. Recent trends in offshore wind LCOE Costs are plummeting
• LCOE projection from 2015 already had steep drops
• Auctions in 2016 show significant cost saving
Recent auctions have given very low LCOE
© BVG Associates 2017
0
50
100
150
200
2005 2010 2015 2020 2025 2030
Co
st o
f en
erg
y (£
/MW
h)
Date of Final Investment Decision
Source: BVG Associates
40 60 80 100 120 140
BVGA 2020 FID LCOE range, 500MW site, self-developed, North Sea
BVGA 2020 FID LCOE for 500MW at Borselle site
Transmission cost LCOE saving for 500MW at Borselle site
LCOE savings from increasing scale to 760MW
LCOE savings from NL government paying for development activities
BVGA 2020 FID estimate for 760MW at Borssele as bid, at 8.5% WACC
DONG pipeline effects on LCOE (40% of 1-4GW effects)
LCOE impact of higher net capacity factor (+7% net AEP)
LCOE impact of DONG buying power (2% CAPEX)
LCOE impact of DONG learning faster (5% inst. & service saving)
LCOE impact of DONG WACC reduction (8.5% to 7.75%)
LCOE and CFD for DONG bid at Borssele
€/MWh
LCOE effects Required 15 year CFD premium
Source: BVG Associates
5/10
2. Time is money How speed of installation influences cost
• CAPEX spend and OPEX spend including the finance contribution divided by the energy
• Servicing of finance cost is a large part of this.
What is LCOE?
© BVG Associates 2017
0
2500
5000
7500
10000
12500
0
250,000
500,000
750,000
1,000,000
1,250,000
-4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
AE
P M
Wh
/MW
/yr (i
ndic
ative
)
Co
st €
/MW
/yr (indic
ativ
e)
Year
CAPEX OPEX AEP
CAPEX
OPEX
Finance
Source: BVG Associates
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2. Time is money How speed of installation influences cost
• Move CAPEX closer to time at which you pay off the debt
• Brings servicing of finance cost down (even without cheaper vessel charters)
What does installation speed do to LCOE?
© BVG Associates 2017
0
2500
5000
7500
10000
12500
0
250,000
500,000
750,000
1,000,000
1,250,000
-4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
AE
P M
Wh
/MW
/yr (i
ndic
ative
)
Co
st €
/MW
/yr (indic
ativ
e)
Year
CAPEX OPEX AEP
Source: BVG Associates
CAPEX
OPEX
Finance
Source: BVG Associates
7/10
3. Scale versus cost Can we get the balance right?
• Too many were surprised by the rapid introduction of 8MW turbines
• A lot of investment in turbine installation vessels but the fleet no longer looks fit for purpose
• Upgrades to vessels (legs and cranes) can plug the gap in the short term
• Are there any vessels that can install a 10MW+
• When vessel investments were committed in 2010-12, the forecast market was a lot larger
• Is there a business case for a new vessel?
Collaboration is vital
© BVG Associates 2017
Look at the site-by-site saving of moving
from 8MW to 10MW. If everything else
costs the same, you would have a saving
of 20% in CAPEX and 20% in OPEX.
In AEP, the saving from array interactions
using a similarly MW/km2 density is around
0.2%.
• Fewer sites to build and connect
• Fewer turbines to block the wind flow for the others
• Fewer pieces of equipment to go wrong
BUT
• Need bigger vessels that can handle the large structures
• Move from tried and tested machines to less proven (and first of a kind) technologies
• When a single turbine goes down, a larger fraction of the wind farm energy is being lost
From a simple cost of energy position, bigger is better
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3. Scale versus cost Can we get the balance right?
• 9-11MW machines
Projection of what the industry will be installing five
years from now
© BVG Associates 2017
• 10-13MW machines
Projection of where the industry will be ten years from
now
Source: DONG
200m rotor +
Hub height 130m?
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4. Conclusions So what?
• The recent cost reductions will cause project developers to focus on those areas where they can reduce cost. You are going to see
hard bargaining.
• Speed of installation as well as overall cost of installation can help reduce cost. Anything that you can do to have slicker processes
will help. Anything that you can do to avoid weather downtime will help.
• Turbines are going to get a lot bigger. Project developers are banking on this and are banking on being able to handle them.
Prepare for the future
© BVG Associates 2017
10/10
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info@bvgassociates.com
@bvgassociates
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