Offshore wind: A fresh breeze?

Offshore wind power is one of those things that has always been just around the corner. But for the first time, I think that corner just might be around the corner. Here’s why. First, investment is rising—fast. In 2016, capital investment in offshore wind rose almost 40 percent, to a record $29.9 billion. About 5 gigawatts is likely to be commissioned this year, more than double that of 2016, and five times as much as in 2011.

Second, costs are falling. A recent auction in Denmark saw a winning bid of 49.90 euros per megawatt hour,  half the level of 2014. Another project, a 700-megawatt facility off the Dutch coast, went for a strike price of 54.50 per megawatt hour in a December 2016 auction with 26 bids. The Dutch government estimates that at this price, the facility could be running profitably and without a subsidy in 7.5 years. Scheduled to open in 2020, this will be the biggest offshore project in the world.

The United States has lagged behind Europe, but its first offshore project, five turbines off the coast of Rhode Island, began churning in December 2016. A major effort is in the works off the coast of New York’s Long Island and more than 20 other projects are in the works in some form, mostly in the densely populated northeast. All this betokens the emergence of a global market and competitive supply base; that will drive costs down further, as economies of scale improve. It helps that major industrial players from China, Europe, and the United States are all ramping up investment. China is targeting an additional 19 GW by 2025, Japan 5 GW.

Third, there are technical advantages, chiefly that offshore wind is stronger and steadier than land-based wind. There are other benefits, too. Among them:

People don’t see them. As long as wind projects are far enough offshore, locals cannot complain about the visual intrusion, a factor that has provoked serious opposition. In Vermont, for example, the governor has said he will bar any new wind projects along the state’s ridgelines, and numerous towns have made their opposition to new on-shore wind projects known. Ditto for Massachusetts, South Dakota, Germany, and Britain. For offshore wind to work best, though, that might have to mean really offshore—think at least 10 miles. One of the many reasons that the Cape Wind project for Nantucket Sound failed, to considerable local relief, after many years and something like a zillion meetings, was the resistance of many rich and influential residents to seeing 130 tall turbines as they took the ferry from mainland Massachusetts to their summer homes. The towers would have been only about five miles offshore.

People don’t hear them. In addition, no one can hear the noise that offshore turbines generate—a major issue in many communities, and also a major source of lawsuits. Documented health effects of windfarm-related noise are hard to find, as a long-term Canadian study and another from Australia, found. But that people found it annoying is not, as the same studies noted. Even if there is more fury than sound science to the issue of noise, if it could be avoided, everyone would be much happier. Wind farms miles away from people fit the bill.

They don’t use land. Onshore wind projects are land-intensive; they need a lot of acreage to provide power because, compared to gas, coal, and even solar, the energy density of wind is low (albeit getting a bit better). To give a sense of scale, based on its research of outside sources, McKinsey has estimated that to get all its energy from onshore wind, Germany would have to use 86 percent of its available land area; for Britain, the figure was 47 percent. Now think of the space available in lakes and oceans. Particularly in densely populated areas, there may not be room to spare for land-based wind projects on a large scale.

They don’t kill nearly as many birds. A poorly sited wind farm along a migratory route can become an avian kill zone. The Audubon Society (which supports wind in principle) estimates that turbines kill as many as 328,000 birds a year. And it is not just any birds, either. The US Fish and Wildlife Service says at least 85 golden and bald eagles were killed by wind facilities between 1997 and 2012, and that the figure could be much higher. While the research is still preliminary, offshore wind simply by its location is less dangerous to bird life.

One of the biggest issues to do with offshore sites has to do with logistics. To put it simply, the ocean is a tough environment, and many of the best wind sites (almost 60 percent in the United States) are in deep water, making them impractical. One promising, though still unproven development, then, is to adapt oil-and-gas technology to create floating wind platforms. Norway’s Statoil, which was expertise in the harsh North Sea, is working on what it calls a “floating wind farm,” 20 miles off the northeast Scottish coast (see image). It could be operational by the end of the year; Siemens is building the turbines. Other companies are also looking at platforms; GE is working with a French ship-builder on one. While conventional offshore must be in waters no more than about 50 meters deep, floating ones can go four times lower, anchored to the seabed with mooring lines, markedly increasing the area available for wind development. Japan is also testing a floating wind farm, off the coast of Fukushima and France on one off the southern Mediterranean coast. There are other, related efforts in the works, in various states of undress.

On the other hand …

All of the above is true, and cool. But there is a gaping hole in the narrative: money. Floating wind projects are still experimental, of course, so the economics are speculative. Even so, a report by the Carbon Trust for the Scottish government made a strong case that they would be competitive with anchored offshore wind projects very quickly, because while the capital costs related to floating were higher, those of installation and maintenance were lower.

If we assume that is right, then the relevant question is, “What is the competitive position of offshore wind against everything else?” Well, it is hard to see how it closes the gap with its closest relative, onshore wind. Building offshore is more expensive; consider the costs of transporting people and material, and the difficulties inherent in working underwater. However, offshore resources can also have greater efficiency and capacity, although that cannot be assumed. For example, the power generated by Rhode Island’s offshore project costs almost double the state average, and there are built-in price increases of 3.5 percent a year, well above recent inflation. In the United States as a whole, offshore costs are running twice as high.

Indeed, by 2025, some producers say that offshore could be cost competitive with both other renewables and with fossil fuels, under the right conditions, with the right support. There is reason to believe that costs will come down. For one thing, they are already doing so. For another, my McKinsey colleagues figure that in addition to projects under construction, there are another 122 that have been approved—mostly in Europe, particularly Britain, Denmark, Germany, and the Netherlands, but also China, Japan, and Taiwan.

What that means is that there will likely be lots of experimentation and innovation, and that will help to bring prices down. The Dutch government says that from 2026 on, it will offer no subsidies for tenders for offshore auctions. Even so, analysts at the Energy Information Administration, the National Renewable Energy Laboratory, and similar agencies argue that for the foreseeable future (and I concede that the future is not all that foreseeable), in many markets, offshore wind is still going to be considerably more expensive than other sources of power.

Ultimately, I think of it this way. Offshore wind, both floating and fixed, is no fantasy. The trends are promising, and it is establishing a place for itself in an “all of the above” energy system. But the economics remain a significant headwind, particularly in places like the United States, where power is comparatively cheap. Germany is holding two auctions in April, and these will bear watching to see how costs are evolving. If they continue to plummet, offshore wind could indeed become the next big thing in renewables.