Birds, sharks and unexploded bombs from World War II are being blamed for holding up offshore wind farms, raising doubts about the costs of the technology.
Three utilities yesterday scrapped an expansion of the world’s biggest offshore wind farm in the Thames estuary, east of London. That capped three months when each of the six largest U.K. utilities retreated from marine energy projects.
While developer EON SE highlighted concerns about disrupting the wintering grounds of the red-throated diver, the broader threat to the industry is its failure to bring down costs quickly enough in nations that are increasingly concerned about the price of electricity.
“It’s either the cost because of the technical challenges or the environmental issues” that’s thwarting projects, Keith Anderson, chief executive officer of Iberdrola SA’s ScottishPower Renewables unit, said in an interview. “There’s a bit of realism that unless we can deliver these projects for a lower price, then it’s unrealistic to expect to continue to get political and government support.”
The U.K. market is crucial to the industry because it’s the biggest source of new projects and accounts for more than half the global installed capacity. Prime Minister David Cameron’s government has set incentives for offshore wind through 2019, hoping to stimulate clean-energy jobs.
Those ambitions are being chipped away as developers better understand the costs of the projects. Utilities have canceled as much as 5,760 megawatts of planned capacity since Nov. 26, when RWE AG dropped its 1,200 megawatt Atlantic Array.
“Big German companies have lost their cash-cows, because Angela Merkel said they have to close down their nuclear power stations,” Stamer said. “That’s where they earned their money that they could then go off and invest in offshore wind.” He said even reaching 6.5 gigawatts will “take a lot of work.”
New projects tend to be further from shore and in deeper waters. That means costs are rising, and utilities can no longer afford to shoulder the cost of projects themselves, said Ben Warren, an environmental finance partner at Ernst & Young.
“The utilities’ balance sheets haven’t substantially improved in the last couple of years to enable them to afford to do billion-dollar projects,” he said.
The British government has set the industry a goal of reducing its costs to 100 pounds ($167) a megawatt-hour by 2020. New Energy Finance estimates it’s currently as high as $246, or 147 pounds, and is unlikely to meet the target.
“It’s probably not manageable,” said Sophia von Waldow, a BNEF analyst. A cost of just under 110 pounds may be possible by then, she said.
Dong, the biggest offshore wind developer, may be able to cut costs to 100 euros ($137) a megawatt-hour in 2020, according to Benj Sykes, who heads the Danish utility’s U.K. wind unit.