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Offshore Wind Costs Greatly Depend on Developer Financing Terms

December 6, 2010

Going back to the September report by NREL mentioned in an October blog entry, the assessment published titled “Large-Scale Offshore Wind Power in the Untied States: assessment of opportunities and barriers” explains that LCOE estimates for offshore wind are highly sensitive to project specific economic factors. This is due to offshore wind energy’s infancy in development, as well as the diverse scenarios offshore wind could be deployed in. The key variables in any cost model for offshore wind are capital costs, discount rates and wind speeds which can greatly vary the final LCOE estimate. The table below shows two different scenarios with differing capital cost and discount rate parameters chosen as the base assumptions and the effect wind speed has on LCOE estimates given those base assumptions.

 

LCOE Sensitivity with Respect to Capital Cost, Discount Rate, and Wind Speed

 

 

A reduction in the cost of capital from 16% to 7% for a project with a capital cost of $4,259/kW and wind speed of 9 m/s will reduce LCOE from $0.23/kWh to $0.16/kWh ($0.07/kWh). For a project with the same characteristics but a 25% lower capital cost, LCOE is reduced from $0.23/kWh to $0.18/kWh ($0.05/kWh).

 

The findings suggest that although higher capital costs are expected to continue in the near future, financing terms greatly influence offshore wind energy production costs for developers.

 

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