OPINION: Offshore wind power production in Europe has achieved impressive cost reductions over the past decade.
According to a study published in Nature in 2021, the levelised cost of energy (LCOE) used to compare different methods of electricity generation fell by as much as 49% between 2014 and 2019 for the offshore wind sector.
Researchers expect future onshore and offshore wind costs to decline by a further 37% to 49% by 2050.
Price reductions are often a sign of healthy competition, but it may not be a good sign for Europe’s offshore wind sector, which is feeling the strain from high commodity prices and supply-chain issues that have been compounded by the Covid-19 pandemic and Russia’s invasion of Ukraine.
Researchers have also questioned whether the LCOE could fall that much in an economically sound environment and predicted a punishing reduction in the rate of return for project developers.
Profit margins for offshore wind acreage and developments are dropping as oil and gas companies — including major players such as BP and Eni — bid aggressively for assets, striving to boost their green credentials and ease pressure from investors to demonstrate that they have a viable energy transition strategy.
Offshore wind industry observers speak of a race to the bottom as too many cash-rich bidders chase too little available acreage.
One key indicator of caution in the sector has come from Norway’s Equinor, as an early mover in the sector with several projects to develop.
The company now stresses that its aim of achieving an offshore wind equity capacity of 12 to 16 gigawatts by 2030 was not a goal, but an ambition — a move that will help ease shareholder concerns about its position on pursuing unprofitable renewables projects.
Offshore wind has a legitimate place in Europe’s energy transition, but industry and governments —and the public — need to acknowledge that profitability is essential for its success.
(This is an Upstream opinion article.)
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