You are currently viewing our desktop site, do you want to visit our Mobile web app instead?
 Registered users can save articles to their personal articles list. Login here or sign up here

The world’s biggest offshore wind farm will be as cheap as coal

The price of electricity from offshore wind farms is plunging.

The world’s biggest offshore wind park planned off the coast of England will probably in the next decade generate power cheaper than by burning coal.

A number of offshore wind projects won contracts to sell power at guaranteed prices in a UK auction Friday. The price of 39.65 pounds per megawatt-hour ($49.70) was 31% below the level in a similar auction two years ago.

The plunge highlights how offshore wind, which only a few years ago was a niche technology more expensive than nuclear reactors, is changing the economics of energy around the world. Both utilities and, increasingly, energy majors, are planning to spend $448 billion through 2030 on an eightfold capacity increase, according to BloombergNEF.

Projects from developers including SSE, Equinor and Innogy won offshore wind power-purchase contracts that will have the capacity to generate as much as 5.5 gigawatts of power, the government said. That includes a joint SSE-Equinor project off England’s east coast to build the biggest single offshore wind park in the world.

“The auction results today show offshore wind is in line with current power prices – it is already competitive with existing fossil fuel plants, let alone new fossil fuels,” said Deepa Venkateswaran, an analyst at Sanford C. Bernstein & Co. in London. “In the next auction in 2021 we will see costs go well below that of existing fossil fuel plants.”

One of the winning areas, known as Dogger Bank, is off the coast of Yorkshire. Three projects by Equinor and SSE were approved in the zone for a total generation of 3.6 gigawatts. Another 1.4 gigawatt project developed by Innogy was also approved in the same area.

Equinor’s success at the auction is a key step in its transition to becoming a broader energy company than just an oil and gas major. The state-controlled Norwegian company has a target of investing as much as 20% of its capital in new energy solutions by 2030.

“Dogger Bank, together with the recent award for Empire Wind in the US, positions Equinor as an offshore wind major,” said Pal Eitrheim, Equinor’s executive vice president for new energy solutions. “These projects provide economies of scale and synergies, making us an even stronger competitive force in offshore wind globally.”

SSE winning capacity will accelerate its shift away from a traditional utility to an energy company focused on renewable power and grids. The Scottish company has agreed to sell its UK domestic supply business to Ovo Energy.

The agreements give the projects a guaranteed buyer through what’s known as a contracts-for-difference mechanism. If the wholesale rate is lower than the set price, the government pays the developer the difference. If it’s higher, the company pays it back. UK month-ahead power is trading at 42.05 pounds per megawatt-hour, down 34% this year.

Even as wind power moves away from a reliance on government subsidies, the contracts could still play an important role going forward. The guarantee helps developers secure financing and also make the assets more attractive to institutional investors who want reliable returns. The next UK auction round is set to take place in 2021.

The Crown Estate said Thursday it plans to open the first contest in a decade for sites around the British coast that could draw as much as 20 billion pounds of investment in offshore wind.

For sale

The contracts also open up a track for investors to take stakes in some of these projects. Earlier this year, Iberdrola sold a stake in its 714-megawatt East Anglia One project to Macquarie Group for 1.63 billion pounds. Projects that have the backing of government-supported purchase agreements are often more attractive to investors who favor the guaranteed prices.

Innogy will likely sell a stake in it 1.4 gigawatt Sofia Offshore Wind Farm development in the Dogger Bank Area, according to Richard Sandford, the company’s director of offshore investment and asset management. The company hasn’t decided how big of a stake it will sell, but plans to make a final decision sometime next year. SSE also said it will look to sell equity in a 454-megawatt project in Scotland that it won a contract for in the auction.

© 2019 Bloomberg L.P.

Get access to Moneyweb's financial intelligence and support quality journalism for only
R63/month or R630/year.
Sign up here, cancel at any time.

COMMENTS   27

To comment, you must be registered and logged in.

LOGIN HERE

Don't have an account?
Sign up for FREE

The best studies I’ve seen all maintain that renewables cannot power industrial societies.

Can a wind turbine produce enough energy to maintain and replace itself? To mine the metals, to manufacture it’s components, to transport itself into place, and provide all the surplus energy we need to run the rest of society?

Still, we’ve probably got to try but the better option would be nuclear where we know that it can.

It’s a pity we may still be barking up the wrong tree; because whatever the average reader on this site seems to believe, our climate is in a crisis.

A single coal plant can also not power an industrial society. We have wind plants in SA with over 4000 hour per year productivity – which is probably higher availability than some of Eskom’s assets unfortunately… Just like you need a fleet of coal you need thousands of turbines in multiple locations. Combine them with solar PV and Concentrating Solar and Hydro and Pumped Storage and you easily power industry.

A 2MW turbine is good for about 140GWh over its life and its energy payback is less than a year. Since a coal plant generates no energy of its own and only converts a portion of the potential energy of its coal input, the energy payback period of a coal plant would be infinity and beyond.

nuclear would be great if it could be built and operated at even 50% above what people say. Unfortunately no nuclear project in the past 20 years has been delivered at less than double its budgeted overnight cost. The Finland one still underway is now over 400% of original budget. If nuclear proponents would sell their energy under PPA they would have many buyers. Problem is they don’t operate as IPP exactly because they know the costs are insane.

This comment hints at a lack of scientific literacy which is common in SA.

If a wind turbine could not pay back its energy cost which is surely built into its capital cost (after all energy for making it is not for free – in fact it is also marked up), then how would it be possible to operate them profitably? The markup on energy that a modest turbine maker is using is probably far higher than the markup on bulk energy sold to the grid. As above, a coal plant can never repay its energy cost. Ever.

There is an elephant in the living room. Nobody mentions the elephant. Sure the price paid for the product may be attractive, but can it be guaranteed? The answer is a resounding “no”. Wind power (currently the apex predator in the avian ecosystem) is notoriously unreliable. South Australia is a case in point. At times it produces 1000MW at other times nothing. Thus one has to pay the CAPITAL cost twice. It’s like buying two cars because the one car only works half the time. Pretty dumb idea.

To give you an idea of jsut how fickle the wind is:

https://s3.amazonaws.com/jo.nova/graph/energy/electricity/sa-blackout/fig-2-wind-farm-output-sa-vic.gif

There is a new impetus when it comes to ISPs. Not only are they being required to lock in prices but also guarantee supply. If the wind stops blowing (as it does routinely) the ISP is then required to buy the energy on the free market to feed into the grid. This is very fair. Energy security is incredible important. Suddenly prices bandied about for wind power are not so cheap. What happens is that the ISP then guarantees a higher price at a lower capacity, typically 20% of nameplate. The rules are such that if nobody wants your surplus, you don’t get to sell it.

yes, nobody mentions energy supply and reliability. NOBODY. Heavy eye roll. If only actual scientists had thought of this!

Has anybody investigated how much state subsidy is given to these wind farms? I remember reading a few years ago that Denmark gives high subsidies to manufacturers of wind turbines. Selling the turbines below cost lowers the cost of electricity generation.

This is but only the start.
CSP is also already cheaper than coal, and it also solves the baseload problem, thermal storage has come a long way in just a few years, you can now easily store more than 18 hours of storage for a true renewable energy powered grid.

The best part of CSP is, it has a LCEO of 50-75USD where there is a DNI (Direct Normal Irradiance) of 2000, and below 50USD if you have a DNI of more than 2600, and the Northern Cape has thousands of square kilometers of land with a DNI over 2800.

Fun fact, if we use the Kathu power station as a reference, you need 800 hectares per 100MW.
So lets say you wanted to generate 40GW (more or less SA’s current usage)
You would need 400 Kathu size plants, so 400 x 800 hectares = 320 000 hectares.
That’s 3200 square kilometers, and the Northern cape has well over 50000 square kilometers with a DNI over 2600.
And of course a total land size of 372 889 square kilometers.
So if you covered 0.85% of the Northern Cape in CSP, you could power the entire SA…
Let that just sink in.

Do you have enough sustainable wind to generate this power?

CSP = Concentrating Solar Power

oh dear. This is bad.

This article was about wind not solar but there is nothing wrong with doing a little maths and some investigation. The question is can CSP supply enough power to see Gauteng through a long winter’s night? The answer is almost certainly not. The stored energy does not last. The RSA regime stopped looking at CSP owing to the high cost. Kathu CSP sells energy to Eskom at more than twice the price that Eskom retails it. Therefore it is a wealth destroying exercise for which the taxpayer picks up the tab.

Now for the maths. These CSP monstrosities occupy huge tracts of land. There are 100Ha (hectares) in 1km2. KaXu occupies 1100Ha or about 11km2. Let that sink in, folks. That is a large area. What do we get for this large area? We get a mickey mouse 320 GWh per year. What do we get from a power station like Duvha? We get 30000GWh. Therefore one would need about 100 KaXus to replace JUST ONE large Highveld coal fired power station. What area would this sterilise? Simply 100*11 = 1100km2. This is staggering. It is more than half the Johannesburg municipal area.

An interesting read. South Australia with the worlds highest electricity prices cannot make the birdy barbie work.

http://joannenova.com.au/2019/04/worlds-biggest-solar-thermal-plant-axed-in-state-that-is-gods-gift-to-solar/

You are definitely not in the loop with CSP.
“. The question is can CSP supply enough power to see Gauteng through a long winter’s night?”
Ohh it most definitely can.
ACWA’s CSP plant in Dubia offers 15 hours of storage. (At a LCEO cheaper than Madupi and Khusile)

“Kathu CSP sells energy to Eskom at more than twice the price that Eskom retails it. Therefore it is a wealth destroying exercise for which the taxpayer picks up the tab.”

CSP has fallen dramatically since Kathu has been built, and I am sure a few tenderpreneurs had their cut aswell, the ACWA Dubai CSP project had a LCEO of 74 USD per Mwh Including CSP storage, that is a cost per kWh of R1.08 (Madupi has a LCEO of R1.16, So yeah, like everyone has said, new coal is more expensive)
And that Dubai 74 USD per MWh was with a DNI of 2000, we have a DNI over 2500 in most parts of the Northern Cape.
60-80 USD per MWh is the new normal for baseload CSP.

Your maths and research leaves much to be desired.
I did some research of my own, so Duvha only has a annual production of 22 798 GWh for the past 3 years, so your generation capacity is out by about 40%

“KaXu occupies 1100Ha”
Nice job in picking the CSP plant that I didn’t use in my example.
Kathu uses 800Ha to generate 100MW instead of 1100ha like at KaXu

Kathu generates 390GWh anually so you would need 58 Kathu size plants NOT 100 KaXu size plants.

So that’s 58 x 800Ha = 46 400Ha or 464 Square KM so there you are wrong by a factor of 2.3

And if we look at the Noor solar park in Dubai
http://helioscsp.com/dubai-950-mw-concentrated-solar-power-pv-noor-energy-1-breaks-8-world-records/

They are making 950MW in 4400Ha.
So to generate the same 3600MW of Duvha would take
16 673 Ha, so with new technology are wrong by a factor of 6.5.

So no, it does not the size of Johannesburg municipality to generate the same power as Duvha, it takes something just larger than the size of Centurion, and in case you didn’t miss it, people are not exactly lining up to buy prime property in the Northen Cape, “small” farms there are considered 1000 Ha farms.

Upon further research its even better than my calculations.
The 800Ha number sounded it bit on the high side to me, so I fired up google earth and shot over to the Kathu solar park to make my polygon, and low and behold, it actually only uses 440Ha, the quoted 800Ha is with the possible expansion that they could add later on.

Now for the facts. AWCA CSP power price is US$0.092 per kWh. This equates to US$92 per MWh. This translates to R1.37 per kWh or R1370 per MWh. A massive areas of 44km2 doesn’t even make a 1000MW. Medupi cost per MWh is R1050 and Khusile is R1190 per MWh.

The million dollar question is what do you do when the sun doesn’t shine?

a. Ask the tooth fairy for help
b. Call the IMF/ World Bank.
c. Ask Judge Judy to send power ASAP
d. Import from Zim/ DRC
e. Rely on the base load source thus doubling capital cost.

@Richard.
Now for the real facts.

“AWCA CSP power price is US$0.092 per kWh”
For what CSP plant is that? The Noor 1 plant in question has a cost per kWh of US$0.073 cents
https://www.acwapower.com/en/projects/noor-energy-1/

Please provide me with a link your 0.092 figure.
AT 0.073 x R14.9 = R1087 per MWh

Your Madupi and Khusile cost per kWh probably comes from here:
https://www.ee.co.za/article/understanding-cost-electricity-medupi-kusile-ipps.html

Fun fact, that article is 3 years old, and the assumptions made in them are now null and void, the assumed cost for Madupi was R193B currently its sitting closer to R210B and it still not complete.
So I would wager that R1050 per MWh is closer to R1150 per MWh.
Also it assumed a cost of fuel of R0.24kWh this is also now closer to R0.32 per kWh

“A massive areas of 44km2 doesn’t even make a 1000MW.”
So what? SA isn’t exactly the size of Monnoco.
To build 40GW (Much more than our current demand) worth of solar would take around 1760 square KM, the Northern Cape has 372 889 square KM available!
It would take up 0.471% of the surface area of the Northern Cape to power the entire SA! (Actually I think it would use less because we have a higher DNI than the Noor 1 site Noor 1 has 2300, we have potential sites over 3000)

To put that in perspective, Randburg represents 0.8% of Gauteng’s surface area, so to the Northen Cape it would be the same as half of Randburg to Gauteng.

“The million dollar question is what do you do when the sun doesn’t shine?”
You just add more storage, nothing stops you from storing thermal energy for months on end, sure it would affect the cost per mWh, but currently some CSP plants can already give you full capacity for more than 12 hours after the sun has set, and usually after those 12, surprise it comes back up again.

@Richard
Ok, so lets rack up your inaccuries here for a momment.

1-Solar power can’t power Guateng through the night -Wrong 15 hour+ storage is already possible.
2-Duvha generation capacity – this you overestimated by 40%
3-Land use, here you did 2 tricks, one was to use a CSP plant that better fit your narritive and also you compared the land use of 10GW worth of CSP to your overestimated Duvha plant
4-I now see how you got to your 0.092 cents price per MWh, by cherrypicking.
You took the price of the Noor 1 plant on night time consumption of 9.2cents only.
As if its night time 24 hours of the day… quite deceptive.
That is why I used the levelized cost of 7.4, I could also have cherrypicked the 2.4cents in daytime, but you would have been the first to tell me that I am cherrypicking.

Wind and solar energy are not available 24/7. In combination the probability of grid failure can probably be reduced to acceptable levels.

This has to be driven by the private sector. We cannot afford a new Eskom.

Can someone set my mind at ease about reliable storage? I am not convinced that batteries are the answer.

At $50/MWh or in local currency 75c/kWh, wind is not “as cheap” it is MUCH cheaper than coal. New coal is over 110c/kWh now.

I wrote a big response that is still in moderation?
CSP in the Northern Cape with DNI over 2600 will cost around 50USD per MWh.

Not cheaper than existing coal, yet.
But much cheaper than new coal, and also since its CSP, you solve the baseload problem.

If the wind blows! Bring that into the calc

Wind has annual output productivity of about 35-40 % of annual hours. That is sadly not far off Eskom fleet utilization given maintenance and coal supply and boilers and and and

Bear in mind that at 3AM the country also does not need 40GW and you would not be running coal at nameplate capacity.

Drive through Witbank area, take a look at the direct pollution and the coal mining and tell me that looks like a good idea…

Johan,

By the logic SA is doing spectacular when compared to Zim..no man.

The focus is so one track minded. there are many options that are sidelined by fanatics/ideologists punting some agendas, usually for money.

Why not diversify into Zero emission tech ??

There are a few promising ideas, an idea from NZ that seem to have potential is being implemented in SA https://www.lanzatech.com/

Covert wind energy into potential energy and you will have a winner.

Boots you just got your first up vote from me 😛
Exactly, Wind has the lowest LCEO (The cost per MWh over its lifetime) but it needs storage, so solve storage and you have the answer.

That’s why I am leaning towards CSP, it is designed around thermal storage, and thermal storage also happens to be the cheapest form of storage.

Load All 27 Comments
End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

SHOP NEWSLETTERS TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: