Why Offshore Wind Costs Are Still Increasing

Offshore wind costs are in a unique situation compared to other forms of renewable electricity. Generally, renewable electricity levelized costs of generation (LCOE) have stabilized or started to decrease after the 2022-23 supply chain crisis, according to Energy Intelligence data. While average LCOEs for wind and solar photovoltaic (PV) are still around 10% higher than precrisis levels, they have decreased by 2% and 5%, respectively, since early 2024. In contrast, offshore wind is still — slightly — on the rise, now 1% higher than in January.

Why the difference? A key issue for offshore wind is the lack of standardization. The technology's investment costs have fallen dramatically from around $5,000 per kilowatt in 2015 when new projects started to flourish in the North Sea, to $3,200/kW in 2019-20. Many in the sector thought costs would continue that trend and follow the huge reductions seen in PV — or minus 80%-90% in just 15 years. But solar panels are produced in the millions and benefit from the same scale and learning effects as other mass-manufactured products, for example, TVs and computers.

The Trouble With Turbines

While not produced in millions, wind turbine components such as blades, gearboxes and tower sections are manufactured in large amounts. But offshore is just a small sub-market of the overall wind industry, with a lot of specific products — in terms, for example, of size and need for corrosion protection. This makes economies of scale more difficult to achieve. Global Wind Energy Council statistics show that onshore wind added 5,000 gigawatts of new capacity during 2015-22, or 20 times offshore's 250 GW.

While less complex than nuclear power plants or carbon capture facilities, which require lengthy and huge on-site construction, and often struggle to even keep costs stable, offshore wind, nonetheless, shares similarities with both. Transporting turbines and erecting them offshore is especially tricky and requires bespoke or specialized equipment, from ships to cranes to port facilities. Likewise, offshore maintenance is much more complex. Enel Green Power's boss, Salvatore Bernabei, has explained his company's lack of interest in offshore wind by noting that other alternatives have a lower LCOE, a shorter time to build and are, in his view, less risky.

Another obstacle holding back offshore wind is a race to the top for bigger projects using bigger turbines. This is preventing supply chains from properly growing and maturing, making standardization and cost reductions difficult, the Energy Transitions Commission's Shane O'Connor recently told Energy Intelligence. Turbines need standardization to achieve deployment at scale in the triple-digit gigawatt range, he insisted, so all aspects of the supply chain — from turbine makers to installation vessels and port and transport infrastructure — can mature together before moving onto bigger machines.

While big turbines offer more output, more efficient use of space, fewer machines per project to maintain and the potential to harness lower wind speeds, they also have a major drawback. When a bigger turbine is brought to market, almost everything else — from larger gearboxes, towers and nacelles to bigger transportation and installation vessels — has to be built from scratch, and this makes cost reduction difficult due to the lack of standardization and industrialization.

Offshore wind investment cost reductions markedly decelerated after 2019. An all-time low was reached in 2021-22 at around $3,150/kW, followed by a rebound and a peak of $3,523/kW in early 2024. The current $3,475/kW is 1% lower than that peak, but still 11% higher than $3,143/kW in the first half of 2021. Onshore wind and PV have been following similar trajectories. PV now costs $1,044/kW, according to Energy Intelligence data. This is 4% lower than the peak at $1,085/kW in mid-2023, but 8% higher than the all-time low at $966/kW in the second half of 2021. Likewise, onshore wind is now at 1,585/kW, 8% lower than $1,716/kW in mid-2023, but 8% higher than $1,473/kW in the first half of 2022.

Besides investment costs, LCOEs depend on parameters such as financing costs and technical factors, including load factors and operation and maintenance costs, but those only play a secondary role. PV's current cost of generation is, for example, 11% higher than the September 2021 minimum. Of this 11%, eight percentage points are attributable to higher investment costs, only two percentage points to higher financing costs and one percentage point to other factors.

Philippe Roos is a senior reporter and senior analyst at Energy Intelligence, and Jason Eden is a reporter at Energy Intelligence specializing in the energy transition. A version of this article originally ran in EI New Energy.