Gigantic Wind Turbines Signal Era of Subsidy-Free Green Power

Offshore wind turbines are about to become higher than the Eiffel Tower, allowing the industry to supply subsidy-free clean power to the grid on a massive scale for the first time.

Manufacturers led by Siemens AG are working to almost double the capacity of the current range of turbines, which already have wing spans that surpass those of the largest jumbo jets. The expectation those machines will be on the market by 2025 was at the heart of contracts won by German and Danish developers last week to supply electricity from offshore wind farms at market prices by 2025.

Just three years ago, offshore wind was a fringe technology more expensive than nuclear reactors and sometimes twice the cost of turbines planted on land. The fact that developers such as Energie Baden-Wuerttemberg AG and Dong Energy A/S are offering to plant giant turbines in stormy seas without government support show the economics of the energy business are shifting quicker than anyone thought possible — and adding competitive pressure on the dominant power generation fuels coal and natural gas.

“Dong and EnBW are banking on turbines that are three to four times bigger than those today,” said Keegan Kruger, analyst at Bloomberg New Energy Finance. “They will be crucial to bringing down the cost of energy.”

“This is a wake up call that the fossil-fuel power industry in Europe is on its way out,” Urs Wahl, manager of public affairs at Germany’s Offshore Wind Industry Allianz, said in a phone interview.

The previous record low price was 49.90 euros a megawatt hour, won by Vattenfall AB in September. Bloomberg New Energy Finance had anticipated bids near 55 euros. The average price in the end was just 4.40 euros per megawatt-hour because one Dong Energy project secured a subsidy of 60 euros per megawatt-hour. The others bid zero, meaning they’ll get paid at market electricity prices.

“This option is opening up now as a subsidy-free production of electricity,” said Magnus Hall, chief executive officer of Vattenfall, in an interview in Brussels on Wednesday. “That really moves offshore into a perspective of continued growth.”

Competition in the German round may have been even tougher than other recent contests because it was the last chance for developers to win contracts for projects they’ve worked on for years, according to Deepa Venkateswaran, analyst at Sanford C. Bernstein & Co.

The “surprise” result highlights that “developers appear to be increasingly banking on scale” including cost cuts expected in the future and perhaps higher wholesale power prices, said analysts at Jefferies Group LLC.

The industry’s relentless focus on efficiency and cost cuts have come at a big price for turbine makers. Vestas, which has installed more turbines than any other company, closed a third of its factories and cut more than 3,000 jobs to deal with three years of losses stemming from declining turbine prices.

South Korea’s CS Wind Corp., a turbine-tower maker, cut 54 jobs at a factory in Scotland on April 18, saying that “extremely low prices requested by developers of projects” created gaps in its order book.

“Clearly, this puts us all under pressure,” Ralf Peters, a spokesman for turbine maker Nordex SE, said in a phone interview from Hamburg. 

His company, which builds only onshore machines, has already seen how ultra-low bids in the onshore wind market in Chile are squeezing the supply chain.

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