Another “cheap” windfarm turning out expensive

Even though we now know that offshore windfarms are refusing to activate the agreements they have made to sell power to the grid at very low prices, preferring to sell power at the sky-high prices available in the free market, and even though windfarm financial accounts make it patently obvious that they can never be profitable at the agreed prices, most commentators still insist that offshore wind is cheap and that low-priced electricity is just around the corner.

Their refusal to admit that offshore windfarms costs are not coming down is depressing, and a fairly obvious indication that their motivations are religious rather than rational. Still, those of us who do care about facts soldier on. What else can we do?

This post outlines new evidence that windfarms coming on stream in 2025 are going to be just as costly as recent ones. The evidence comes in the shape of the latest financial accounts (to March 2022) of Dogger Bank A. This is a 1.2-GW giant, situated almost 100 miles out in the North Sea, although in comparatively shallow waters. The cost of the project, announced by the developers is £3bn, or £2.8m/MW, which is a bit cheaper than recent offshore units, but not much. However, most windfarms run well over budget, on average by 17%, so there is no cause for excitement.

The 2022 accounts give us an opportunity to assess the project spend to date. We can develop a very rough expectation of the state of completion of the project from information published on the windfarm's website. The notices to mariners published each week by the windfarms are also useful. The notice just before the financial year end is here. In a way, it's rather uninformative, because it shows that the offshore works were then at a very early state of completion. In fact, this was only the second notice to mariners issued. It indicates that offshore survey work has begun, but that's about it. In fact, the most recent notice indicates that nine months on, only 16 of 100 foundations have been installed. The onshore works are rather further on. For example, we can see that the cabling works started in 2020, and are expected to be completed in 2022. The operations base would have been well on at the 2022 financial year end too. The first onshore transformer was not delivered until after the year end though.

So how much might such a windfarm have been expected to have spent by the start of construction operations? We can develop an expectation from the breakdown of a typical windfarm cost published here. Simply scaling up the £2.3bn spend to the £3bn announced for for Dogger Bank A and then applying an estimated state of completion to each element of the cost produces an expected spend of £360m, which gives £2.6bn headroom against budget. You can quibble about the percentages I've used, but it will be difficult to come up with a figure much higher, simply because the offshore works had barely begun at the balance sheet date. The big spend - on the turbines and their foundations - is still to come. (Note that the difference can't be accounted for by prepaid assets. These would be disclosed in the accounts as prepayments rather than as fixed assets.)

Unfortunately, the actual spend to date, according to the published accounts, is £1.4bn. In other words, they have spent nearly half of the announced cost before starting offshore works! We can therefore safely say that this is not a £3billion windfarm. It will cost at least £4 billion, and probably more.

Of course, 100 miles out in the North Sea, there is rather more wind than there is closer to shore, so it's possible that the load factor would be rather good. BEIS seems to think that Dogger Bank will achieve a remarkable 58%. If that was the case, then the overall cost of the project might be around the £120/MWh mark, which is a bit lower than the £140/MWh that is the norm. However, if you look at the trend of load factors of UK offshore windfarms, such a value appears implausible. The yellow trend in the figure below (taken from my report on offshore wind costs) shows how load factors have increased as turbine size has gone up (although some of the effect is due to moving further offshore). Note, however, that these are the figures for the early years of a windfarm's existence; they decline with age.

With all this in mind, we might expect Dogger Bank A (with 13-MW turbines) to start out at a load factor of around 50% and decline from there. That being the case, the overall costs will be around the £140/MWh mark. Just where offshore costs have been for the last ten years.