Offshore Wind Report

by Richard T. Stuebi

Last week, I traveled to Berlin with a delegation representing Northern Ohio’s Regional Energy Development Task Force to attend the European Offshore Wind Conference and Exhibition, put on by the European Wind Energy Association (EWEA). We visited to learn about the status of offshore wind energy technologies, as part of the Task Force’s assessment of the proposed Great Lakes Wind Energy Center, which is envisioned to accelerate the development and emergence of offshore wind in the United States.

With offshore currently just a tiny niche of the booming wind industry, I expected the audience to be on the order of 500 people. The impressive turnout of an announced 2000 is a clear testament to the vast future potential offered by offshore wind energy. But, we also knew that, at present, offshore wind is still very much an uphill push to accomplish. Indeed, the lack of any booth at the show by GE (NYSE: GE), who had been until relatively recently prominently touting their offshore project at Arklow Ireland, indicates some retrenchment by companies with early experience in the waters. The conference validated the technical – and hence economic – challenges related to offshore wind, and therefore some fruitful directions for further pursuit.

For me, the “a-ha” moment – perhaps it should be described as a “duh” moment – was really seeing that offshore wind is at least as much about offshore technologies as it is about wind technologies. Yes, it is true that significant advancements are necessary for major components (such as blades and gearboxes) as turbines get larger for offshore projects. Also, there are many interesting possibilities for innovative turbine designs that dramatically depart from the standard approach (e.g., two-blade downwind) when one considers offshore deployment.

But the real drama of the maturation of the offshore wind sector is now being, and for the foreseeable future will almost certainly be, played out under or on the water. Note that offshore wind activity to date has been driven by the turbine manufacturers, not highly populated with marine engineers nor hugely capitalized for marine R&D. As a result, the wind turbine companies pushing for offshore wind have leaned heavily upon the one industry in which offshore deployment of above-surface infrastructure has become commonplace: oil/gas exploration/production. Today’s approaches to wind tower erection and turbine installation are thus heavily based on those used for oil/gas platforms, employing massive custom-tailored ships and cranes working on the seas.

Such installation approaches work, for sure. But the problem is cost. Too much of the cost structure of an offshore wind project relates to installation logistics. Note that each oil/gas platform yields huge revenue streams: a platform might produce ten thousand barrels of oil a day, which at today’s prices implies over $300 million per year. In contrast, each wind turbine – even really big ones of 5 megawatts or more – represents a much smaller revenue potential, maybe $2 million per year. The expensive installation techniques of the former just won’t be viable on the latter.

This is reflected in the data. According to a presentation made by the consulting firm Douglas-Westwood, the installed cost of an onshore wind project is projected to increase from an actual cost of Euro 1540/kw in 2003 to a forecasted cost of Euro 2940/kw by 2013. For an improving technology in a growing marketplace, this cost trend is clearly opposite of what should be expected.

Of course, there are many legitimate factors for such cost increases. As explained well in a presentation by the leading wind turbine manufacturer Vestas (Copenhagen: VWS.CO), the input costs of virtually all commodities relevant to wind installation – from steel to shipping – have risen substantially in the past few years, beyond the control of any player in the marketplace. And, given that the wind sector is sizzling hot, all companies up and down the supply chain are in a seller’s market, and are able to charge highly profitable prices – arguably for the first time in the history of the industry.

However, also stated by Vestas was that players in the offshore wind industry have learned from their previous projects that they substantially underestimated actual costs and implementation risks (e.g., bad weather or heavy seas limiting installation productivities), and are now building “more realistic” contingency cushions into the economic projections of upcoming projects.

By my interpretation, the current players in the offshore wind industry are on the one hand admitting that the technical path chosen to date for offshore installation has become much too costly, while on the other hand are nevertheless committing to pursuing that same path with more projects and merely accepting substantially higher costs as an implication.

It is also evident that the offshore industry has largely cleaved into two sets of companies: wind technology developers/manufacturers and marine engineers/contractors. At Berlin, a few exhibitors were tackling the offshore turbine/installation challenges holistically – see Blue H as an example – but none of the major wind turbine players seem to be following suit. Instead, their approach was to extend/refine their onshore turbine products for offshore deployment, and look to marine engineers to solve the installation challenges separately.

I therefore spy the opportunity for someone to lead the way in developing fundamentally cheaper philosophies and techniques for offshore wind installation, and I suspect that this may (only?) be enabled by integrating the engineering challenges of both the turbine and offshore deployment into new solutions offering substantially lower cost for the overall system of turbine/tower/foundation. There’s simply got to be a better way – and if so, great rewards are for the taking.

Let’s see how the industry intends to make a meaningful dent in reducing installation costs at EWEA’s next biannual offshore wind show in Stockholm in September 2009.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

7 replies
  1. clee
    clee says:

    Clarification. Did you mean to change topics briefly to "on shore", or was it a typo inAccording to a presentation made by the consulting firm Douglas-Westwood, the installed cost of an onshore wind project is projected to increase

  2. Anonymous
    Anonymous says:

    So, what will your recommendations be moving forward with the idea of wind on Lake Erie? Should we wait for the innovations in marine technology and get busy with onshore wind plans? It doesn’t seem to me that NEO has money to throw at solving the issues or spending on something that has such a long ROI. Onshore wind and working on local companies’ ability to supply the components seems more prudent for our region and out mix of manufacturers. Want an innovative “put Cleveland on the map” idea besides wind on the lake? Try this — power the RTA trains with wind and make them wifi corridors while you’re in there to give something back in terms of equity. Here’s the headline in the NY Times: “Bridging the digital and transportation energy divide in Cleveland”. Oh and meeting federal air quality standards… to boot.

  3. Richard T. Stuebi
    Richard T. Stuebi says:

    Cree, yes I apologize for my typo: I meant to say that "offshore" (not offshore) costs were essentially doubling, (although onshore costs are increasing too).And for the anonymous poster questioning the ROI for Cleveland to invest in offshore wind, I have a couple of comments. One, we are taking many steps to increase onshore wind manufacturing and deployment activity in the area, while also investigating offshore opportunities; we have to be able to walk and chew gum at the same time. Two, powering RTA trains with wind and putting in wifi is nice, but it doesn't build an industry. Three, your posting demonstrates a distinct lack of courage — it's really easy to offer criticism under the cloak of anonymity.

  4. wilj
    wilj says:

    A couple of comments to perhaps explain why current offshore players are doing what they're doing. First, there aren't too many manufacturers – Vestas (who is currently not supplying turbines for offshore projects), Siemens, REpower and Multibrid (neither REpower nor Multibrid in commercial production). Existing foundation technologies such as monopile (steel) and gravity (concrete) are limited by water depth and seabed conditions. The waters off the coast of England, for example, are relatively shallow and allow for monopile (steel) or gravity (concrete) foundations. Germany has deeper waters and more varied seabed conditions (North Sea vs. Baltic) but is more or less the same vis a vis foundations. Countries like Spain and Italy have sea bed conditions and water depths that don’t allow for current foundation technologies; they will have to wait for floating turbines or other technologies. Although there are other projects in other countries around the world, the 2 legitimate offshore markets are the UK and Germany, together they make up a 20 GW opportunity (gross estimate of what might get built). If the “current path” means monopile and/or gravity foundations then yes, offshore players are going down that path because it is applicable to the UK and Germany, the two biggest (and only) offshore markets in the world.The second reason for sticking with the chosen path has to do with resources. As you mentioned, it’s a seller’s market. The US onshore market alone is eating up a huge chunk of global turbine supply. Onshore projects are safe and simple compared to offshore. Why invest in a new technology path if you already sell more turbines than you can make? On the offshore installation/logistics side the opportunity cost for most of these assets (jack-up ships, cranes, etc.) is the oil & gas industry – who has more money/better margins – offshore wind energy or oil and gas?So yeah, the current technical path has been chosen, but probably to serve the UK and Germany. To make the most of existing technology I think that turbine, tower and foundation design will have to become integrated – a notion to which you alluded. With so much capital available for projects I think we have a ways to go before cost really becomes the issue.

  5. Offshore Outsourcing
    Offshore Outsourcing says:

    Wind turbines can be sited offshore, where the wind blows harder and larger turbines can be installed. Many offshore wind farms are being proposed and developed today in densely populated Europe, where there is limited space on land and relatively large offshore areas with shallow water.

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