Wind Energy Overview Report 2022

Updated: Apr 11





Introduction


Energy sources from wind use the kinetic energy created by air in motion to produce electricity through the various turbines offered in the market. The amount of energy produced majorly depends on the size of the turbine and the lengths of its blades which is directly associated with the wind speed (IRENA, 2020). Wind and solar energy are currently the fastest-growing renewable technologies globally due to falling costs, targeted policy support, and the wider acceptance of global markets of the competitiveness of renewables compared to traditional fossil fuels (IRENA,2020).


Global wind generation capacity has increased around 75% in the past 20 years with onshore wind projects leading the way with an installed capacity of 698GW in 2020 with offshore following with 34GW and offering tremendous potential for growth in the future (IRENA, 2020). Furthermore, projected values of wind energy are speculated to drop even further as nations will strive to achieve their net-zero goals.


As seen in Figure 1, Figure 2, and Figure 3, onshore has seen a stable improvement of technology due to turbine price drop, turbine technology progresses, and the increase of supply chain competition. A global weighted- average cost of electricity (LCOE) has seen a fall of 56% since 2010 from EUR 0.078/kWh to EUR 0.034/kWh in 2020 with a predicted average reaching EUR 0.035/kWh in 2030 and EUR 0.022/kWh in 2050. Average capacity factors rose from 27% to 36% with steady increasing projections reaching a capacity of 52% by 2050. The total CAPEX had a decline of 31% resulting in a 2020 cost of EUR 1192/kW with projected cost reaching a low EUR 946/kW in 2030 and EUR 726/kW in 2050.


On the other hand, larger turbines, longer blades with higher hub heights, and access to higher winds saw offshore wind farms move further from the shore which resulted in a capacity factor increase of 8% from 2010 to 2020 with projections suggesting a capacity of 47% and 52% for years 2030 and 2050 (IRENA,2020) (IRENA,2019). Also, as seen in Figure 2, a reduction of 48% of LCOE in the years 2010-2020 is evidence suggesting the implementation of more offshore farms around the globe with projections in 2030 and 2050 reaching LCOE of EUR 0.062/kWh and EUR 0.044/kWh respectively.


Figure 1 : Past, current and future Onshore and Offshore CAPEX costs (IRENA,2020) (IRENA,2019)
Figure 1 : Past, current and future Onshore and Offshore CAPEX costs (IRENA,2020) (IRENA,2019)

Figure 2: Past, current and future Onshore and Offshore LCOE costs (IRENA,2020) (IRENA,2019)
Figure 2: Past, current and future Onshore and Offshore LCOE costs (IRENA,2020) (IRENA,2019)

Figure 3: Past, current and future Onshore and Offshore capacity factor (IRENA,2020) (IRENA,2019)
Figure 3: Past, current and future Onshore and Offshore capacity factor (IRENA,2020) (IRENA,2019)

Wind energy technical aspect



Turbine efficiency and manufacturing costs improved immensely over the last decade with the current offshore turbine MIH Vestas having a specific power of 450 W/m2, the most powerful wind turbine of the present (Deutsche WindGuard, 2018). Nevertheless, the choice of turbine suitability depends on the project specifics. For example, high specific power turbines are more suitable for regions with high average wind speeds.


Therefore, to reach the same capacity factor (yearly average power production/rated power production) the appropriate turbine-specific power should be chosen by giving the most focus on average wind speeds (Deutsche WindGuard, 2018). Studies predict that the capacity density of offshore turbines will reach values of 5.36 MW/km2 (Deutsche WindGuard, 2018) with onshore farms in Europe having an average space density of 19.8 (6.2-46.9) MW/km2 (Enevoldsen and Jacobson, 2021).


A variation of offshore foundation types is present mainly depending on the water depth, soil conditions, and the size of the turbine. 77% of offshore wind farms completed in 2016 suggest steel monopiles as the option of choice. The latest technology of floating foundations has the potential to decrease CAPEX cost by 65% in scenarios simulated in 2027 to 2040 (McKinsey, 2016). Moreover, floating substructures have the prospect to explore locations with deep waters that offer a great opportunity on capitalising on wind energy.


Innovations and technology enhancements (FLOATING turbines)

 floating Offshore Turbine
Floating Offshore Turbine

Ongoing innovations and technology enhancements towards larger, more efficient wind turbine generators (WTG’s), as well as increase of hub height and rotor diameter help, improve the capacity of wind energy conversion to electricity as well as a tab into higher energy-dense locations. Current research and development suggest that in 10-20 years’ time turbines with a capacity of up to 20MW will be efficiently used (IRENA,2019).


Also, the very low onshore and PV prices imply the potential of a low-cost green hydrogen production viable. A study showed that from recent auctions in Saudi Arabia, green hydrogen could cost as little as EUR 1.42/kg H2 making it hypothetically competitive with today’s natural gas steam methane reforming with carbon capture (IRENA,2020).


Current offshore wind turbines are mostly monopile foundations as discussed above which restricts the installation of turbines up to 50m deep. Floating foundations, eliminate the constrain of depth and makes the installation of the turbine substructure easier. This opens a bigger market for large offshore farms at remote locations with deeper water and much stronger winds which means higher energy production. As floating technology improves and standardization of design is promoted, it can provide a lower-cost alternative to fixed-bottom foundation substructures.


Furthermore, floating foundations offer a more environmental solution to fixed-bottom foundations as there are fewer seabed activities during construction (IRENA,2016). The main floating foundation type as illustrated in Figure 4, are spar-buoy, semi-submersible, and tension leg platforms. Industry experts estimate that offshore farms will be operational by 2025 (IRENA,2016) with global capacity reaching 30GW by 2030 (IRENA,2019).


Figure 4: Concept of floating foundations (IRENA,2016)
Figure 4: Concept of floating foundations (IRENA,2016)

However, for floating turbines to have a significant portion of the global renewable energy market in the future, overall costs should decrease. As this is a fairly new technology, the supply chain will have to adapt and learn the advanced operations required which will delay the market to catch up and costs to go down (IRENA,2016). A study carried out comparing 6.1MW floating and fixed base offshore turbine foundations found that floating is still more expensive capping at EUR 4687/kW with fixed base costs being at EUR 3588/kW.


It was found that due to the turbines not being optimized for floating offshore applications, the price is higher. A system loss for the fixed-bottom foundations was found to be 16% whereas floating foundations were 20.9% mostly due to additional electrical cable losses due to deeper waters (catapult.org, 2021).


Wind onshore and offshore farm illustration
Wind onshore and offshore farm illustration

 

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Costs

When developing wind farm projects, the overall project costs are mostly accumulated at the construction phase due to the very expensive turbines, foundations, and transmission assets compared to the relative pre-financial close costs of environmental impact assessment, wind studies, and others (Deloitte, 2014).


As shown in Figure 5, Figure 6, and Figure 7, onshore projects have higher variability in cost per installed MW. On the other hand, offshore projects are generally more complex and around 2-3 times more expensive than onshore turbines due to the bigger size of blades and larger substructures required (Deloitte, 2014) (Blaiklock, M., 2014).


Figure 5 : Cost breakdown (CAPEX) of onshore & offshore wind farms (Blaiklock, M., 2014)
Figure 5 : Cost breakdown (CAPEX) of onshore & offshore wind farms (Blaiklock, M., 2014)


Figure 6 : Total project costs (CAPEX) onshore (Deloitte, 2014)
Figure 6 : Total project costs (CAPEX) onshore (Deloitte, 2014)

Figure 7: Total project costs (CAPEX) offshore (Deloitte, 2014)
Figure 7: Total project costs (CAPEX) offshore (Deloitte, 2014)

Table 1 which includes data from (Deloitte, 2014), (catapult.org, 2021), and (IRENA,2020) summarises recent data of CAPEX, OPEX, LCOE, Capacity factor, and IRR for onshore and offshore projects.


Table 1: Renewable power generation costs summary
Table 1: Renewable power generation costs summary

The overall cost of offshore wind farms is generally higher than of onshore due to larger turbines and the greater costs accumulated from operating and maintaining turbines. Due to harsh marine environments in the open sea, a higher level of failure to some components is evident as well as the requirement of vessels to access the site.


In general, costs could vary significantly in projects depending on the location, service contract, and land lease deals made. As seen in Figure 8 and Figure 9, the LCOE breakdown of the study carried out by (catapult.org, 2021), shows that onshore farms turbine costs have a higher overall levelised impact compared to offshore. On the other hand, offshore farms have a higher O&M cost for the reasons discussed above.

Figure 8 : Onshore land-based wind farm project LCOE in operation for 25 years (catapult.org, 2021)
Figure 8 : Onshore land-based wind farm project LCOE in operation for 25 years (catapult.org, 2021)


Figure 9 : Offshore fixed-bottom wind farm project LCOE in operation for 25 years (catapult.org, 2021)
Figure 9 : Offshore fixed-bottom wind farm project LCOE in operation for 25 years (catapult.org, 2021)

Wind energy commercial case

The recent trend of European governments and policymakers' vision of transitioning from fossil fuels to renewable energy saw a high increase of onshore and offshore wind investments as they are a proven mature renewable energy technology. A total of EUR 51.8 billion was spent in 2019 with EUR 19 billion being allocated for the financing of new wind energy projects in Europe as seen in Figure 10 (WindEurope, 2019).


Onshore projects dominate the capital of investments as they are at lower risk compared to the larger offshore projects. As found by IRENA, most wind projects have power purchase agreements (PPA) in place for a guaranteed revenue stream. However, data shows a drop in PPA agreed prices, such as since 2010 PPA dropped from EUR 0.078/kWh to EUR0.038/kWh in 2020 (IRENA,2020).


This trend illustrates that energy producers acquire higher revenue risks and squeeze their profit margins. A typical PPA is agreed for 12 years with clients of mostly state-owned utilities or industrial factories (Blaiklock, M., 2014).



Figure 10: European wind energy investments in 2019 per asset class (€bn)
Figure 10: European wind energy investments in 2019 per asset class (€bn)

Sources of finance

As the wind is assumed as a mature technology, naturally more debt capital type of finance is issued for wind projects as banks understand and can price risk more accurately compared to other not proved renewable energies (WindEurope, 2019).


The finance of wind projects is split between corporate and project finance. Since 2016, European onshore projects were financed by 57% from project finance and 43% of corporate, yet, offshore due to the size and higher risks of the projects were 100% dominated by project finance which introduces the project ownership by a Special Purpose Company (SPC).


The debt ratio of wind projects has increased in the latest years to 75-90% suggesting that shareholders and banks find it a safe investment (WindEurope, 2019) (Blaiklock, M., 2014). As seen in Figure 11, global average annual onshore wind power investments will more than double from 2018 until 2030 (EUR 128 billion/year) and more than triple over the years till 2050 (EUR 186 billion/year). Onshore, global average annual investments are projected to increase three-fold from 2018 until 2030 (EUR 54 billion/year) and more than five-fold over the period until 2050 (EUR 88 billion/year) (IRENA,2019).


Figure 11 : Annual Investments of Onshore and Offshore predicted till 2050 (IRENA,2019)
Figure 11 : Annual Investments of Onshore and Offshore predicted till 2050 (IRENA,2019)

Socioeconomic Impacts

The incorporation of wind power has a positive impact on the economy of the region through impacts of the wind farm supply chain which has the potential to additional GDP. Expansion of the transmission infrastructure, constructing the rotor components (blades), building the foundations, and installing the structure could potentially be 0.34 -0.5% of GDP in 10 years (McKinsey, 2016).

The construction operation and management of wind farms have the potential to employ a variety of skilled workers. It is estimated that by 2032, UK offshore jobs will reach 21,000 (KPMG, 2019).


Furthermore, as seen in Figure 12 a study conducted by KPMG estimates that a total of 34,480 person-day will be required to install and connect a 50 MW wind farm with 77% of the skills required being of construction workers and technical personnel. Also, a variety of engineers, crane managers, health and safety experts, environmental experts, and logistic experts will be required for the completion of the project (KPMG, 2019).


After construction, a study by McKinsey, 2016 found that during the Operations and Management (O&M) phase, 70 to 100 people are employed per wind farm which is required for day-to-day operations (McKinsey, 2016).


Overall, reducing GHG emitted into the atmosphere due to the energy production of wind will improve the welfare and health of people surrounding the area of the farms. It is predicted by IRENA, that wind energy (onshore and offshore) will be employing over 3 million people by 2030 and double that (6 million) in 2050.


Figure 12 Distribution of human resources required to install and connect a 50 MW wind farm, by occupation (KPMG, 2019)
Figure 12 Distribution of human resources required to install and connect a 50 MW wind farm, by occupation (KPMG, 2019)

Environmental Impacts

Wind power life cycle emissions are resulting from the manufacture, construction, maintenance, and decommissioning processes of wind turbines. A typical turbine contains 89.1% of steel, 5.8% fiberglass, 1.6% copper, 1.3% concrete, and other main materials making it a high carbon emission intense product (Mello, Ferreira Dias, and Robaina, 2020). Due to the large quantity of steel required, tower manufacturing responds to around 51% of the emissions of gCO2/kWh of all components produced (Mello, Ferreira Dias, and Robaina, 2020) (Climatexchange, 2015).


It is found that around 90% of the total life cycle emissions of onshore and offshore wind farms are due to manufacturing/extraction of raw material and installation stages (Mello, Ferreira Dias, and Robaina, 2020) (Climatexchange, 2015), with 5.6% of carbon emissions account for transport activities and 3.5% for maintenance. This percentage may vary for offshore due to the higher maintenance requirements and access to the construction site.


Studies estimated carbon emissions of 15 and 12 gCO2e/kWh for onshore and offshore wind farms respectively (Climatexchange, 2015). Further studies by (Wang et. al, 2019), found that an annual life cycle GHG emissions of a 2MW turbine for a 20-year lifetime offshore and onshore is 75904.84tCO2e and 33278.19tCO2e respectively.


As seen in Figure 13, carbon emissions per kWh of wind compared to fossil fuel (coal) and gas are relatively lower. Moreover, it is estimated that wind energy could result in global annual CO2e emissions savings of more than 3.2 billion tCO2e in 2030 (GWEC, 2021) with potential reaching 5.6 billion tCO2e reductions in 2050 (KPMG, 2019) which approximately are can achieve a 90% reduction of energy-related CO2e emissions reductions by 2050 (IRENA,2019).


Figure 13 : Comparison of carbon emissions of wind with other types of energy sources (Climatexchange, 2015)
Figure 13 : Comparison of carbon emissions of wind with other types of energy sources (Climatexchange, 2015)


 

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References

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Deutsche WindGuard, (2018). CAPACITY DENSITIES OF EUROPEAN OFFSHORE WIND FARMS. [online] Vasab.org. Available at: <https://vasab.org/wp-content/uploads/2018/06/BalticLINes_CapacityDensityStudy_June2018-1.pdf> [Accessed 21 December 2021].

McKinsey, (2016). Developing offshore wind power in Poland. [online] Available at: <https://www.mckinsey.com/pl/~/media/McKinsey/Locations/Europe%20and%20Middle%20East/Polska/Raporty/Rozwoj%20morskiej%20energetyki%20wiatrowej%20w%20Polsce/Developing%20offshore%20wind%20power%20in%20Poland%20-%20report%20in%20English.pdf> [Accessed 21 December 2021].

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