The winning bid for a gigantic new offshore wind farm in the Netherlands came in at 2.3 billion euros less than expected. And the oil company Royal Dutch Shell can take at least partial credit for the final cost of construction and operation. Shell has been dipping more of its toes into the renewable energy field lately, and it was among 38 companies to bid on the project last spring. The Dutch Ministry of Economic Affairs credits the hot competition for driving the final cost far below the original estimate.
How to shave billions off the cost of offshore wind
In a press release announcing the winning bid, the Ministry of Economic Affairs also gives itself a pat on the back. The head of the agency, Henk Kamp, explains:
“… The Dutch system in which companies have to compete with each other while the government regulates all conditions for building the wind farm has proved to be very successful. This reduction of cost represents a major breakthrough in the transition to more sustainable energy.”
The winning bid went to Denmark’s Dong Energy. That’s no accident, because the company is known for its soup-to-nuts strategy for reducing the cost of offshore wind farms.
Some areas of focus include larger wind turbines with longer blades, reducing the amount of steel used in foundations, and deploying remote cameras to inspect turbine blades. The company also recently invested in two large workships that serve as “floating hotels.” The ships drop anchor at the worksite and crews live on board rather than shuttling back and forth to land, saving both time and transportation costs.
One key part of the strategy is to focus on projects where conditions are similar to other locations where Dong has successfully constructed offshore wind farms. The selectivity enables Dong to standardize its operations and supply chain, adding to the cost savings.
The strategy paid off for the new Netherlands project. Called the Borssele wind farm, it clocks in at 700 megawatts. That’s significantly larger than the average of just under 338 megawatts for similar projects constructed in Europe in 2015.
It’s also larger than the next-largest offshore wind farm in Europe, the famous 630-megawatt London Array.
Also contributing to the low cost is the high efficiency of Dong’s turbines. The wind farm will be capable of generating 22.5 percent more electricity than originally estimated.
Dong’s winning bid works out to 7.27 euro cents per kilowatt-hour (around 8 cents U.S.). That’s 5.1 euro cents less than the previous estimate, according to the Ministry of Economic Affairs. The difference adds up to a savings of 2.3 billion euros for the life of the 15-year subsidy framework (around US$2.5 billion).
The Netherlands is calling this the world’s cheapest offshore wind farm because the next-lowest cost for constructing and operating a wind farm is 10.3 euro cents per kWh. (That wind farm is located in Denmark.)
One thing not included in the cost is transmission, but costs are continuing to spiral down in that area, too.
Four years ago, Dong set itself a goal of limiting the overall cost of offshore wind to 100 euros per megawatt-hour, including transmission. The target date was 2020, and Dong already reached that goal.
Wind farms and oil companies
With the notable exception of ExxonMobil, oil companies are beginning to shed their petroleum dependency and diversify their energy portfolios.
The London Array, for example, was constructed by an oil-saturated partnership that included Norway’s oil company Statoil and its hydropower company Statkraft. Another key partner was Masdar, the renewable energy subsidiary of Abu Dhabi’s Mubadala investment agency (as a member of the United Arab Emirates, Abu Dhabi occupies one of the top 10 proven oil reserves in the world).
Following in those footsteps, Shell paired itself up with the sustainable energy company Eneco to bid on the Dutch wind farm. The partnership also included Vestas, which is part of an international consortium working on the next generation of ultra-large wind turbines.
Shell has some catching up to do if it wants to keep up with Dong, but we doubt this will be the end of its interest. The company is already ramping up its wind portfolio, leveraging its experience in offshore construction and complex partnerships. According to our friends over at OffshoreWind.biz, Shell has nine wind projects up and running in North America and Europe.
Offshore Wind also noted that Shell is involved in at least two cutting-edge projects:
“Last year, the company became Principle Power’s technology partner for a floating wind energy project off the [coast of] Portugal. Shell is also one of the main shareholders of 2-B Energy, a Dutch developer of a new type of offshore wind turbine which utilizes two instead of three blades,” the publication reported.
So, what now ExxonMobil?
Image (cropped): via Dong Energy.