How can offshore renewable energies best compete against more established onshore renewables in the long term?
Onshore renewable energies, especially wind and solar, have a long head start over offshore renewables, and have already achieved very impressive cost reductions through scale. Fixed offshore wind is now following a similar trajectory.
Other offshore renewables, such as floating wind, tidal and wave energy, have the potential to deliver similar cost decline if they can achieve sufficient installed capacity.
Initially, these new offshore renewable products will rely on subsidies to become established and proven, and will likely find their first commercial applications in niche locations where fixed wind and solar are technically challenged. The most successful products will be those best suited to industrialisation, which can achieve the steepest cost decline against scale.
The “Doubling Theory”, which states that the unit cost will decline by a certain factor each time the production volume is doubled, implies that the biggest reductions will be made early in product life. For renewable energies, the Doubling factor is typically between 10% and 20%, which implies that a 50% cost reduction will require respectively between 100 and 10 units to be installed. Hence, if only a relatively small number of units can be installed under subsidised schemes, the cost premium over more established technologies can be quickly reduced.
There may also be other drivers that favour offshore or near-shore locations. Complex industrial plants (such as large-scale hydrogen production from renewable power) may be more cost-effective when built on a barge in a modern shipyard than on a greenfield site in a remote or hostile location. NIMBY pressure also favours locating a hazardous plant away from populated areas, and offshore can be a convenient solution.
OpenWater Energy has the expertise to help clients effectively structure and deliver offshore renewable energy projects.