Offshore Wind Power Generation Cost Analysis

Interesting new Fraunhofer IWES study shows significant cost saving potential of European wind offshore cooperation 📜 𝐁𝐚𝐜𝐤𝐠𝐫𝐨𝐮𝐧𝐝 German waters, particularly in the North Sea, get increasingly crowded – with substantial wake effects leading to low wind generation and thus high Levelised Cost of Electricity (LCOE). In this context, the idea emerged to reduce the targets for wind offshore buildout in the German Exclusive Economic Zone (EEZ), and instead build more in the EEZs of neighbouring countries with more space and wind, but connect these with electricity subsea cables to Germany (“radial connection”). 💡𝐒𝐭𝐮𝐝𝐲 𝐫𝐞𝐬𝐮𝐥𝐭𝐬 A new study by Fraunhofer-Institut für Windenergiesysteme, commissioned by BDEW Bundesverband der Energie- und Wasserwirtschaft e.V. and BWO - Bundesverband Windenergie Offshore e.V., analysed the effects of such international cooperation on wind output and cost. Key insights: Moving up to 20 GW to Danish & Swedish seas (Scenario 2) leads to 👉 up to 13% higher wind yield 👉 up to 11% lower system cost (incl. grid connection cost) 👉 stronger security of supply 🔗Study available here: https://lnkd.in/eAXZzKfV Interestingly, the German government had already anchored this approach in their coalition agreement. Talks with neighbouring countries are starting. ⏭️ 𝐅𝐨𝐥𝐥𝐨𝐰-𝐮𝐩 𝐰𝐨𝐫𝐤 𝐛𝐲 𝐅𝐫𝐨𝐧𝐭𝐢𝐞𝐫 BDEW & BWO asked us (Frontier Economics) to use the Fraunhofer results as input to analyse how to most cost-effectively connect these offshore wind parks, with a particular view on how much ‘overplanting’ is sensible. Watch the space.

⚡Key learnings from the French AO5 floating offshore wind tender ⚡ Reminder: AO5 tendered 250 MW of floating offshore wind south of Britanny. Six auction participants bid for a 20 years CfD 💡 Lowest bid was 69.9 EUR / MWh but eventually didn't secure financing. Second lowest bid was 86.45 EUR / MWh, a massive 24% delta 💡 Average bid was 101.74 EUR / MWh. Average of bidders 3 to 6 was therefore 113 EUR/MWh (62% above lowest and 31% above awarded) 💡 Turbines size ranged from 20 MW to 23.3 MW 💡 Investment costs per MW averaged 3.5m€, ranging from 2.8m€ to 4.1m€ 💡 OPEX per MW averaged 61k€, ranging from 35k€ to 85k€ 💡 P50 estimates ranged from 40.9% to 46.8%, in line with Aurora Energy Research Amun Wind Software estimates 💡 Lifetime assumptions ranged from 30 to 33 years 💡 Conservative leverage assumptions ranged from 55% to 70%, for maturities of 18 to 20 years and all-in debt rates ranging from 4.4% to 4.91% 💡 After-tax equity IRR targets ranged from 7.6% to 10.95% Mateusz Wronski Shaun Claridge Matthieu Stephant Amy Crisp Source in comments

Why offshore wind is struggling (and what it means for the energy transition) Some people have asked me: If offshore wind is so promising, why is it facing so many problems? And where are all the jobs? I come from a technical background, but over the time developed strong affinity towards numbers and have learned that if the financial numbers don't add up, you need to start asking hard questions. My "wait a minute" moment came around 2020, when I saw offshore wind LCOE figures dropping below 60 €/MWh. For those less familiar: LCOE (Levelized Cost of Energy) lets us compare what different power sources really cost over their lifetime, accounting for upfront investment, fuel, operations, and financing costs. Something that makes offshore wind different: It's extraordinarily capital intensive (Just like any other energy infrastructure). You spend billions before generating a single kilowatt-hour, and that capital carries interest for years and this is true for all large infrastructure, nuclear, coal, gas but offshore wind's ratio of upfront cost to eventual revenue feels extreme. Financial models assume the asset pays itself back earlier than its physical lifetime. Small changes in assumptions, interest rates, construction timelines, supply chain costs can swing projects from profitable to underwater. What actually went wrong: Between 2020 and 2023, the world changed faster than anyone's models could predict: 🔸Interest rates jumped from near-zero to 4-5% 🔸Steel and commodity prices spiked 40-60% 🔸Supply chains broke down 🔸Installation vessel costs doubled Were the projections before 2020 too optimistic? Partly. But they also reflected a world that no longer exists. We modeled infrastructure on the assumption of cheap capital and stable supply chains, assumptions that evaporated overnight. What this means: Offshore wind remains one of our best tools for large-scale clean electricity. But we need to stop pretending massive infrastructure can be "dirt cheap." It can't, and it never will be. The current shakeout isn't failure, it's reality reasserting itself. Projects that penciled out at 2% interest rates don't work at 5%. That's not the technology failing; it's the financial structure catching up and auctions must also catch up soon.. What comes next? More realistic pricing, longer-term contracts that account for genuine risk, and probably slower deployment than the most optimistic scenarios promised. That's not defeat, it's building a sustainable industry instead of a speculative bubble (Like the AI financial world unfolding right now in front of us). The question isn't whether offshore wind works. It's whether we are willing to pay what it actually costs. And the right people know that offshore wind, serve as a "best hedge" against the volatility and "boom and bust cycles" of oil and gas prices. #OffshoreWind #EnergyTransition #Infrastructure #LCOE

How do European offshore wind site economics stack up? Last week I shared a benchmark comparing European offshore wind site conditions above and below 60 metres water depth, and several people asked: “What do the economics look like?” Here’s a snapshot: a breakeven price (y-axis) vs. capacity (x-axis) benchmark for all European & UK offshore wind sites, delivered by our #AegirQuant model. This is simulated based on site conditions, wind resource, technology forecasts, grid connection, port constraints, financial assumptions, and more. A few interesting takeaways: - Europe & the UK offer uniquely large GW volumes at relatively small incremental cost—a remarkably flat resource curve. - The expensive tail isn’t always what it seems—many of these projects sit in markets with structurally higher power prices (e.g. Italy). - In total, the region represents a highly scalable ~250 GW opportunity, if the offshore wind sector can regain momentum. If you're an Aegir Insights client and want to explore individual projects, success likelihood, or timing, you can access the dashboard here: https://lnkd.in/dHNzApht A few important footnotes: - This merit-order benchmark includes full transmission costs up to each project’s onshore grid connection. - Permitting introduces a natural degree of project mortality. - And as always, there are many valid modelling approaches and assumptions; always happy to compare notes. #offshorewind #AegirQuant #floating #fixedbottom