It's a good article, with some good data tables and sources. At least click so the guy knows to keep writing
http://www.energypost.eu/myth-expensive ... d-nuclear/
Offshore wind is routinely criticized for being too expensive. It is true that some offshore wind farms are getting large subsidies. But that does not mean they are expensive. It rather means that their operators are making a lot of money. In fact subsidies can go down considerably and probably will, as I will show in this article.
In a previous article for Energy Post, I profiled developments in the Danish sectors of the North Sea and the Kattegat. In these two locations there are two modern wind farms: Dong Energy’s Horns Rev 2 (2011) in the North Sea and Anholt (2013), another Dong project, in the Kattegat. I showed that the Kattegat in particular represents a great opportunity for offshore wind, with very high capacity factors.
Just after finishing this article, the Danish Energy Agency announced that Dong’s Swedish rival Vattenfall had won the competition to build Horns Rev 3 (400MW) in the North Sea with a bid price of €103/MWh for 10 years. This is the amount that Vattenfall will get from the Danish government for that period. Furthermore there are plans for more farms both in the Kattegat (Saeby – 200MW) and the Baltic proper (Kriegers Flak – 600MW). The Danish offshore wind target is 1350MW by 2020.
Denmark publishes data on the monthly output of every single wind turbine onshore and offshore in the country. It also provides hourly data on the aggregate output of the offshore farms. This data facilitates a financial analysis of existing and future wind farms for Denmark and by extension for developments in the German sector of the North Sea. Note that the UK, which has the largest fleet of offshore wind turbines, does not provide any data on the production of individual wind farms, despite the extensive public support they receive.
Financial (R)Evolutions?
When we analyse the available data, we can draw some interesting conclusions about the evolution of costs in offshore wind. Offshore wind turbines already appear to be cheaper than combined-cycle gas turbines (CCGT’s), although this is not yet reflected in the subsidies that the operators get.
Horns Rev 2 the platform (photo: Danish Wind Energy Industry Assocation)Horns Rev 2 the platform (photo: Danish Wind Energy Industry Assocation)
The table below shows the main results of my analysis. Note that Anholt has been built, Horns Rev 2 is in planning and Saeby will soon be out for tender. The estimate for the capacity factor (CF) for Anholt in a normal year is around 77%, as I have explained in my previous article, but to be conservative I have assumed a CF of 65%. Horns Rev 3 will be built near Horns Rev 2 which has a known CF of 50%. Saeby will “enjoy” a CF similar to Anholt because of its location in the Kattegat.
Note that the bid price is what the operators get from the government for 10 years. These are guaranteed payments. After that, they can sell the electricity on the wholesale market. I have assumed a wholesale price of €25/MWh for a period of 15 years after the 10-year period is over. This is obviously an estimate, since nobody knows what the market price will be 10 years from now.
I have also assumed a discount rate of 5% (cost of capital/debt) for all projects. This is based on the cost for Dong to raise bonds. Investment costs of the projects are based on statements from the companies. I have made some other assumptions with respect to operation and maintenance costs. The net present value (NPV) represents the total revenues over the 25-year period minus the costs, with a discount factor of 5%. In other words, this is the profit the project makes recalculated as net present value.
Recent reports such as this one by Ernst & Young on wind in Europe, while positive about offshore wind, still imply that offshore wind is expensive. According to this report, offshore wind power has a price similar to that of CCGTs. Based on the Prognos report for the Bavarian government (published in November 2014) this is around €90/MWh (levellised cost of electricity or LCOE). Anholt turns out to be 14% cheaper and Horns Rev3 around 37% cheaper than CCGT power. If the EU ETS was functioning then the differential would be even greater.
Note that the energy-only component in a Danish electricity bill for 2013 is around €48/MWh. This is close to the €51/MWh from Saeby over 25 years. Furthermore, as more projects are built costs are likely to come down further.If we compare the offshore wind farms to the cost of the nuclear power project proposed at Hinkley Point, which will get £92.50 (about €125) per MWh for 35 years, Anholt delivers electricity that is 40% cheaper, Horns Rev3 will deliver electricity that is 58% cheaper and Saeby 60% cheaper. Of course the authorities should ensure that they will get competitive bids.
The only uncertainty in this is how wholesale prices in Denmark will evolve in the next 25 – 30 years. What is certain is that once 10 years have elapsed, the owners of Danish wind farms will be at the mercy of the markets and the wind. By contrast, owners of UK nuclear plants seem to have been granted certainty on both price and market access. Whilst the UK talks about energy markets, the socialist Danes seem to have implemented them. Funny that.
