Offshore wind: will costs follow Moore’s Law?

Some commentators expect the levelized costs of offshore wind to fall another two-thirds by 2050. The justification is some eolian equivalent of Moore’s Law. Our 16-page report draws five contrasts. Wind costs are most likely to move sideways, even as the industry builds larger turbines. Implications are explored for companies.

Deflating wind costs are explored on pages 2-3. Deflation is important. But consensus forecasts could be dangerously wrong in our opinion.

Our report lays out five reasons why wind looks different to Moore’s Law, which has doubled computing performance every 18-months since 1965.

(1) Offshore wind costs are not following Moore’s Law yet. And after reviewing 50 patents from one of the world’s leading wind developers, we think the industry’s largest focus is not on costs (pages 4-5)

(2) Making turbines ever-larger is “the opposite” of making transistors ever-smaller. We review the physics and a simple issue around extrapolation (pages 5-6)

(3) Larger turbines face larger challenges. Unlike Moore’s Law, physics “work against” the up-scaling of wind turbines (pages 7-9).

(4) Larger turbines are more carbon intensive, using advanced materials that are 10-25x more costly and CO2-emitting, paradoxically requiring more fossil fuels. This looks like “the opposite” of the bootstrapping that helped propel Moore’s Law (pages 10-13)

(5) Wind turbines crowd out wind turbines, as grids ultimately become saturated with highly inter-correlated wind generation. This re-inflates marginal costs. Again, this is the opposite of bootstrapping (pages 14-15).

Our conclusions for companies are drawn out on page 16.

Prevailing wind: new opportunities in grid volatility?

UK wind power has almost trebled since 2016. But its output is volatile, now varying between 0-50% of the total grid. Hence this 14-page note assesses the volatility, using granular, hour-by-hour data from 2020. EV charging and smart energy systems screen as the best new opportunities. Gas-fired backups also remain crucial to ensure grid stability. The outlook for grid-scale batteries has actually worsened. Finally, downside risks are quantified for future realized wind power prices.

This rise of renewables in the UK power grid is profiled on page 2, showing how wind has displaced coal and gas to-date.

But wind is volatile, as is shown on page 3, thus the hourly volatility within the UK grid is 2.5x higher than in 2016.

Power prices have debatably increased due to the scale-up of wind, as shown on page 4.

But price volatility measures are mixed, as presented on pages 5-6. We conclude that the latest data actually challenge the case for grid-scale batteries and green hydrogen.

Downside volatility has increased most, as is quantified on pages 7-8, finding a vast acceleration in negative power pricing, particularly in 2020.

The best opportunities are therefore in absorbing excess wind power. EV charging and smart energy systems are shown to be best-placed to benefit, on pages 9-10.

Upside volatility in power prices has not increased yet, but it will do, if gas plants shutter. The challenge is presented on pages 11-13, including comparisons with Californian solar.

Future power prices realized by wind assets are also likely to be lower than the average power prices across the UK grid, as is quantified on page 14. This may be a risk for unsubsidized wind projects, or when contracts for difference have expired.

Two Majors’ Secret Race for the Future of Offshore Wind?

An exciting aspiration in wind technology is to obviate large, expensive “towers”, and unleash tethered kites into the skies. They can access 2-4x more wind-power at greater altitudes, and at 50-90% lower costs. Intriguingly, we have discovered Exxon and Shell are at the forefront of pursuing this new wind opportunity offshore, based on their patents and filings.

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