"Subsidy-free" offshore wind is getting a lot of
attention after contracts in Germany and the Netherlands were signed without
direct government incentives. However, experts say these zero-subsidy offshore
wind farms won't become the norm anytime soon.
Swedish developer Vattenfall won a tender to build up to 750
megawatts of offshore wind capacity in the Netherlands over the next five
years, split across two adjacent sites 14 miles from the coast.
This puts commissioning ahead of the world’s first
zero-subsidy offshore wind bids, which were awarded in Germany last year for
projects due from 2024 onward.
While further zero-subsidy bids are likely in Europe, they
will be linked to a very special set of market conditions for now.
“What the Dutch tender results illustrate is that
zero-subsidy bids in offshore wind tenders are possible for some developers in
some markets,” said Andrew Canning, press and communications manager for
WindEurope, the European wind industry association. “This is especially so
where governments take on and manage a share of the project risk.”
This opens the "subsidy free" claim up to
interpretation. In the case of Germany and the Netherlands, it means no
government cash was used to directly support project financing.
In the case of the Hollandse Kust Zuid 1 and 2 projects,
which will be developed through Vattenfall’s Nuon Energy subsidiary, the Dutch
government will take care of providing a grid connection. This is “a
significant factor,” said Canning.
The Dutch government has also put in place a number of other
market-strengthening measures.
It has been transparent about the future offshore wind
capacity volumes that will be offered to developers, for example. It has also
committed to introducing a national carbon floor price as part of moves to
phase out coal. All this is “helping the business case for offshore wind,”
Canning said.
Although there are questions about what constitutes a
subsidy, Vattenfall is calling the latest projects the "first"
subsidy-free offshore wind farms to enter operation in the world, when
completed.
In a press release, Magnus Hall, Vattenfall's president and
CEO, said the company is committed to investing SEK 13 billion kr (USD $1.6
billion) in wind energy this fiscal year. He said the Netherlands is “an
important market for us.”
Gunnar Groebler, Vattenfall’s wind business area senior vice
president, added that the zero-subsidy bid was a result of continuous
cost-reduction efforts across the offshore wind sector.
“Offshore costs are coming down largely due to economies of
scale,” he stated. “The average size of the new offshore turbines last year was
5.9 megawatts, a 23 percent increase over 2016. And the average size of new
offshore wind farms was 493 megawatts, a 34 percent increase.”
Capacity factors are also rising. Anholt 1 in Denmark has a
capacity factor of 54 percent, said Canning, while the U.K.’s Dudgeon project
is at 65 percent. So is Hywind
Scotland. This compares to a capacity factor of 37 percent for onshore wind in the U.S.
The quest for ever-larger, more
efficient turbines means developers will increasingly be able to
operate without subsidies. For this reason, “I am confident that we will see
more subsidy-free bids in future,” said former MAKE Consulting senior research
manager and managing consultant Michael Guldbrandtsen. “However, I would
caution to call it the norm.”
The feasibility of subsidy-free projects depends on the
market, he said. “It is no coincidence that zero-subsidy bids were first
introduced in the Dutch and German markets.”
Support for grid connection, combined with an expected rise
in power prices in the coming decades, makes subsidy-free bidding viable for
projects commissioning in the Netherlands and Germany from 2022 to 2025,
said Guldbrandtsen.
That means more subsidy-free bids could be in the cards in
the coming months, particularly in the Netherlands. MAKE said the country
fast-tracked its zero-subsidy auction after seeing subsidy-free projects emerge
in Germany. The Netherlands has two more auctions planned through 2019. The
country aims to have 3.5 gigawatts of offshore wind capacity by 2023.
Furthermore, Guldbrandtsen said: “I would not be surprised
to see [subsidy-free projects] in Denmark soon, provided that there will be
long-term clarity on offshore wind deployment following a hopefully ambitious
energy agreement.”
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