Nick Carlin, Senior Associate at Pinsent Masons, shares his views on reducing the cost of offshore wind in this guest blog.
The cost of offshore wind is falling at a tremendous rate in the UK. The pressure is now on developers, the supply chain and those providing finance to deliver and sustain the downward trend. Operational costs are subject to particular scrutiny.
Among the 27 projects awarded contracts for difference (worth a total of £315 million) in February 2015 were the Neart na Gaoithe project in the Firth of Forth and the East Anglia One Project off the coast of Norfolk. These two awards were based on strike prices within the £114 per MWh to £120 per MWh range. Six months prior to the awards the price might have been estimated to be around £140 per MWh. This was a remarkable drop by any standards.
The ways in which these projects realised the savings remains the subject of discussion; as does whether the reduction can be attributed to greater collaboration within the offshore wind industry or a greater degree of competition. Indeed, the nature of the auction process for the contracts for difference may, in itself, have driven at least part of the drop.
What is not open to debate is that future projects applying for contracts for difference will need to maintain that reduction and, in all likelihood, show further savings.
Particular attention is being given to operation and maintenance costs.
Operation costs are estimated to account for 40% of the lifetime costs of an offshore wind project. It is an area where smaller, incremental changes can have a greater, proportional impact on the project. At a very basic level, it is thought that a £1 million reduction in operational expenditure may be of similar benefit to the project as a £10 million reduction in capital expenditure.
The SPARTA Project between ORE Catapult, The Crown Estate and offshore wind owner/operators is one example of this attention. The hope is that sharing operation and performance data will help improve safety, reliability and availability, thus cutting the costs. The data shared should influence future operation and maintenance decisions; optimising the way in which those costs are incurred in order to reduce the cost per MWh.
The appeal of focusing on this area is clear. It should form a key part of the drive to continue the good work done to date and further reduce the cost of offshore wind.