Offshore Energy: Offshore wind industry needs standardization
Cost reductions are a huge industry focus. I am confident that we can lower the levelized costs of energy by 30 to 40 percent for those projects that will achieve FID in 2020. Of all the possible reductions in CapEx and OpEx, one of the innovations that needs to come forward is standardization of offshore wind.
Column by Thomas Færch Brostrøm, Head of Markets and Pipeline Director Wind Power, DONG Energy
By standardization I do not mean designing customized solutions for every site, but trying to deliver standard designs where possible. For example, common designs for offshore substations.
At DONG Energy we endeavor to standardize processes where we can. We have built a business model on multi-contracting, and we use that approach in all markets in which we operate. In the last five to eight years we have learned a lot about managing multi-contract projects and handling the interfaces, and I think we can include that as one of our strengths. There are obviously local differences between markets, but a common approach can contribute to reducing risk and help in the standardization of offshore wind.
When we look at possible standardization of regulatory frameworks in the various EU member states, we see pros and cons in each one of them. It would be great if we could pick the best parts from each. For example, the ability to take up a site that has planning consent and a grid connection is obviously an advantage in Denmark compared to the UK. This means lower risk and being able to build projects at a lower cost. That said, the market size in the UK has allowed us to develop a strong pipeline, and the distribution of the German offshore wind farm clusters brings advantages during both construction and operation of the sites. Both Germany and the UK have done well in setting out a clear framework toward 2020 and allowing for sufficient sites to be developed. This will help them to allocate a continuous pipeline of projects, which is important to deliver cost reductions. We are also closely following the developments in the Dutch market, where the policy is now put in place to achieve an ambitious target in 2023.
When it comes to financing the planned wind farms of today and tomorrow, we see an increasing interest from institutional investors. As project sizes increase projects require significantly more funding, providing attractive opportunities for existing and new investors. Institutional investors are becoming more educated about the specific characteristics and risk profile of the offshore wind industry. DONG Energy has brought third party financing to its projects, ranging from utilities to pension funds and other institutional investors.
We would like to see more certainty in all markets for offshore wind in the next decade. It is important that EU member states quickly develop stable and long-term conditions for investments that are valid after 2020. For offshore wind projects with a lifecycle of 24 years, it is crucial that the investment climate is transparent and long-term. That alone will afford companies the potential to develop and mature the technologies, reduce the production costs, and make a significant contribution to the energy transformation. The EU made a step toward a new framework with the recent announcement on non-binding renewable targets, and we now look forward to seeing these translated into tangible plans.
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