Wind Energy at Sea: The Economics of Offshore Wind Farms

Wind energy has seen remarkable growth in the past decade, with a significant portion of that occurring on land. However, as land-based wind resources have been increasingly tapped into, there is a growing interest in exploring offshore wind energy. Like any form of power production, offshore wind energy has drawbacks, which have sparked opposition in various countries, including the U.S.

Nevertheless, there is a positive outlook on the global capacity of large-scale offshore wind farms, with predictions indicating a tenfold increase to reach 330 gigawatts (GW) by 2030, compared to the 34 GW recorded in 2020. According to a Wood McKenzie report, this expansion is expected to span from nine countries to 24 countries.

Positioned as a key driver in the race to achieve net-zero emissions and diminish dependence on fossil fuels, the amplification of offshore wind power is anticipated to breathe new life into industries, generate employment opportunities, and spur economic growth in coastal communities. According to the Global Wind Energy Council’s 2021 projections, both offshore and onshore wind are poised to create 3.3 million jobs throughout the entire value chain over the next five years.

Despite these benefits, there is a growing sense that the economic future of onshore wind may not be as favorable. The expense of building transmission lines to connect remote offshore wind farms to the mainland is one factor contributing to this viewpoint.

Advocates of offshore wind energy extol its virtues as a clean and sustainable energy source, citing rapidly declining costs that have catalyzed heightened competition. This, in turn, has emboldened more nations to pursue and attain ambitious targets for reducing greenhouse gas (GHG) emissions. Despite the accolades, questions persist regarding the validity and comprehensiveness of arguments supporting offshore wind energy.

The High Cost of Offshore Wind

For one, offshore wind may not be as cost-effective as it seems, and the forecasts on rapid cost reductions through increasing economies of scale are simply not realistic. A lack of continued subsidies—including state-backed mandates for renewable and offshore energy generation credits that compel electric utility companies to enter long-term agreements with wind energy developers at above-market prices—reduces the likelihood of offshore wind installations being developed. These subsidies, compounded by the requirement for extra transmission infrastructure and backup electricity sources, are set to raise the cost of energy and diminish economic growth.

In connection with this, while it is true that Power Purchase Agreement (PPA) prices and the expenses associated with offshore wind development have seen a notable decline over the past decade, assertions suggesting a substantial reduction in the construction and operational costs of offshore wind facilities may be overly optimistic. This is because the bigger offshore wind projects become, the more the costs will be devoted to supporting infrastructure like cables, foundations, and more, which are all sourced from mature industries. For instance, lowering per-unit costs is unlikely to happen when we increase the size of cement manufacturers, as they have likely captured most economies of scale.

Higher demand for offshore wind facilities will also increase the demand for the underlying materials necessary to complete such projects, like steel and concrete for offshore wind turbine foundations, which will realistically inflate their prices rather than decrease them. And since all these materials require the use of fossil fuels to some extent, ongoing efforts and policies to impose carbon taxes will increase the cost of manufacturing and transporting the materials needed for the turbine sites.

Output Degradation

Moreover, the true costs of offshore wind farm developments borne by taxpayers and electric ratepayers are likely to be higher than expected if we look at the experiences in Europe over the last decade, which demonstrates the rapid performance degradation of offshore wind turbines by 4.5% on average per year. The declining output and increasing maintenance costs result in the growing economic incentive for offshore wind project developers to abandon their projects before they fulfill their contracts.

The levelized costs published in the U.S. Energy Information Administration (EIA) Annual Energy Outlook, along with those from other relevant authorities, all assume a lack of any reduction in the power generation capabilities of an offshore wind farm over time even when it is already known that output tends to decrease as turbines age. This reduction in output carries two significant economic implications: first, an escalation in levelized costs as the project’s output diminishes over time, and second, a decline in the relative benefit of sustained operation due to the associated increase in costs. Eventually, the anticipated expenses for maintaining an offshore wind farm will surpass the projected revenues, prompting project owners to make a rational economic decision to cease operations.


Of course, there is more to the economics of offshore wind farms apart from the two mentioned above. From other hidden costs associated with ensuring bulk power system reliability, project abandonment, future decommissioning endeavors, and so on, there is so much more to the grand and ambitious project of making offshore wind energy economically viable for the long term. But in summary, the combination of lower electricity costs, reduced GHG emissions, thousands of new jobs, and new manufacturing industries makes offshore renewable energy sound like a dream when the current reality is that it will more than likely result in the opposite, causing higher electricity costs, significant adverse environmental impacts, and less economic growth should there be a lack of policy changes that address its many inherent obstacles.

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