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18 | 22ND - 28TH SEPTEMBER 2017 | UTILITY WEEK Finance & Investment Analysis I n 1991, turbines installed at the world's first offshore wind project off the coast of Denmark had a capacity of 0.45MW. Fast- forward to 2017, and turbines at Triton Knoll, one of the winners of record-breaking low- cost contracts for UK offshore wind energy in the 11 September contracts for difference (CfD) auction, have a capacity of 9.5MW. Improved turbine technology is just one of many innovations that have led to the industry breaking all expectations on cost reduction, arriving close to the price of new gas plant. The sector has been heavily focused on cost for several years. In 2011, the government challenged it to cut the levelised cost of energy (LCOE) at the final investment decision stage for offshore wind projects by a third, to £100/MWh by 2020. At the time, this seemed ambitious, since projects in the pipeline were further out to sea than those that had been built previ- ously, and the cost implications of this were not fully understood. Furthermore, up until around 2012, offshore wind costs had been rising. But last year it was revealed that not only had the target been met early, it had been exceeded. Projects reaching final investment decision in 2015/16 achieved an LCOE of £97/MWh. Technology drives falling costs These factors came into play with a venge- ance in the projects that won contracts in the latest CfD auction. Project developers all cited improvements in technology as a sig- nificant factor in their ability to bid in with lower prices. Turbines, installation equip- ment and foundations are all vastly more efficient than they were. Higher voltage cables (66kV rather than standard 33kV) can accommodate more power and reduce trans- mission losses, while lightweight transform- ers provide lower cost alternatives to larger substations. In addition, the cost of operations and maintenance has been forced down by the downturn in the oil and gas sector. This led to an increased supply of non-specialised installation vessels, which resulted in lower rates for hiring ships, according to trade body Renewable UK. The organisation also points to the growth of the UK supply chain, enabling developers to source competitively priced content locally rather than having to import it. Manufacturer Siemens opened a blade factory in Hull last year, while rival MHI Vestas has a manufac- turing plant on the Isle of Wight. Renewable UK's chief executive, Hugh McNeal, said the fall in costs in the offshore wind industry was "the kind you'd normally associate with consumer electronics goods rather than multi-billion pound infrastruc- ture projects". The larger size of projects and turbines, together with developments in cabling and foundation technology, have all helped developers make savings, he says. And new sources of capital are giving developers a better rate of return on investments, he adds. How low can costs go? The industry is bullish that it can continue to drive down costs further. "The price levels at the latest auction would have been branded impossible just two or three years ago when there were projects that had prices of £150/ MWh," says James Cotter, project director at Triton Knoll. Offshore wind thinks big Improvements in technology and project management have helped drive down the costs of offshore wind projects. But how sustainable is this trend? Catherine Early reports. Further analysis, p20. Project: Hornsea Project 2 CfD strike price: £57.50/MWh Developers: Dong Energy Location: 89km off the Yorkshire coast Capacity: 1,386MW Delivery year: 2022/2023 Matthew Wright, managing director of Dong Energy UK, says the company's large number of offshore wind projects is a significant factor in keeping down the costs of Hornsea 2. Dong Energy's pipeline includes the 659MW exten- sion to the existing Walney project; the 580MW Race Bank; and the 1.2GW Hornsea Project 1, which will be the largest offshore windfarm in the world. This has created economies of scale both in construction, and operations and maintenance, Wright says. "In the case of Hornsea 2, we have Horn- sea 1 in close proximity. It will be the fih pro- ject run out of our operations and maintenance centre in Grimsby. You really get economies of scale that way," he says. In addition, the company has gained significant experience from its other projects. "Hornsea 2 will be our 12th or 13th project in the UK . We've learnt an enormous amount in terms of seabed conditions and how best to build projects." Experience has enabled the company to increase the speed at which it installs turbines, and connect them to cables and substations. "Cost savings have come from every area of the business, and from the experience of doing more and more projects. Like anything else, the more times you do something, the better you get," he adds. Innogy's Gwynt y Mor windfarm