Why capital & maintenance costs of offshore wind energy projects are increasing and the promise of “green” jobs has “never been realised anywhere
An important interview with Gordon Hughes on The Power Hungry Podcast
I cannot recommend highly enough listening to this interview with Gordon Hughes by Robert Bryce. The discussion about the transmission cables required for offshore wind developments is incredibly important.
On the subject of costs, Gordon Hughes also states as follows:
The reality is that the costs are going to be anything from three to five times what was originally thought and that's a phenomenon that's known as optimism bias. In other words, where the proponents of a policy or a project vastly underestimate the costs or overstate the benefits and the people who believe that costs are falling are clearly potentially victims of that kind of bias.
The second element is that the people who believe that costs are falling use a rather artificial measure known as levellised costs. This is a constructed measure of costs which spreads the capital costs over time but is artificial because it relies on a set of assumptions that are never realised in practice and people claim that the operating, the levellised costs have been falling because of two things that lie outside what we think of as costs.
Number one, they've been assuming that the life of wind farms will actually get longer. Historically, very few wind farms have operated for more than 20 years. Now they assume that they'll operate for 30 or 35 years. I find that hard to believe but on the other hand, all of the cost estimates rely on that kind of assumption.
So the reality is that the costs are going to be anything from three to five times what was originally thought and that's a phenomenon that's known as optimism bias. In other words, where the proponents of a policy or a project vastly underestimate the costs or overstate the benefits and the people who believe that costs are falling are clearly potentially victims of that kind of bias.
The second…
Robert Bryce: If I can interrupt because I think you're on something interesting. In looking at some of your reports what you've said over and over is that the actual lifespan of these wind projects is likely 15 years maybe no more, right?
Gordon Hughes: Correct
Robert: and further one of the things that just to me intuitively seems wrong about this idea of a 35 year life span is that you're putting these massive machines out there in salt water which is I mean, salt water is just terrible for everything, right? I mean it just degrades everything.
So if I can repeat what you said, you're saying that these cost assumptions are based on unrealistic timelines in terms of the longevity of the project and further, they're based on this idea that the costs are going to continue because they're going to get better at doing it right? Somehow that there's going to be a learning rate that's going to apply. Is that a fair summary?
Gordon: Yes, that's a fair summary and anybody who has any knowledge of the offshore oil and gas industry is likely to be very skeptical about that because what we have learned is that the marine environment is incredibly harsh and life spans are really very short unless you spend vast amounts of money on essentially protecting the equipment concerned.
But there's a further element in that story as well which is, over the last 10 years interest rates as we all know have fallen and have stayed low. That affects the cost of capital for new projects but they're not going to get any lower. They're as low as they are ever going to be and if they were to rise the cost of capital for what are very capital intensive forms of generation is going to get higher not lower, so the kind of factors that may have underpinned a once-off fall of being translated as being reasons why the costs are going to continue to fall in future. Whereas, neither of those two factors will apply.
But if we look at what we what we actually can see, because the other element of this is well technology is going to solve all problems, in other words somehow there's going to be a technological revolution and the machines are going to get bigger or better or more reliable.
The practicality for offshore wind is that over a period of the last 20 years the capital costs of building new wind farms have increased they've gone up by about double and the reason for that is that they've moved to deeper offshore sites which are more expensive to develop and more expensive to operate and maintain.
I am highlighting these comments about the lifespan of industrial wind installations for many reasons. One of these is that during Bute Energy’s non-statutory ‘public consultation’ which was in fact a marketing exercise for the proposed plans to desecrate the ancient domed hills of the Radnor Forest with 36 x 220m tall industrial wind turbines, vast areas of solar arrays, battery banks and a substation, I asked one of the Bute reps about their stated claim that the proposed Nant Mithil energy park would have a lifespan of 40 years. The response once that this was what the manufacturers had told them. When I asked which manufacturer? I was told that they were in discussions with Siemens and G.E. for the monstrous bird, bat, insect and environment destroying machines. In my lay opinion, the only way that Bute’s proposed “Nant Mithil” (named after a small brook) could possibly ever come close to having a 40 year lifespan is if the wind turbines were repowered and/or replaced as required.
Bute Energy has plans to construct offshore-scale industrial wind turbines onshore in 22 different locations (and counting) across the beautiful rural landscapes of Wales. There would be of course a difference in the wear and tear of wind turbines onshore and offshore in terms of construction and maintenance which will impact their actual lifespan. Irregardless, when you look at the very powerful wind lobby there is a very strong “optimism bias” which provides good reason to be skeptical about what we are being told by those with vested interests.
As we know well, interest rates in the UK went up 11th May which will, as Gordon Hughes explains, add to the cost of any wind or other developments.
The Bank of England raised interest rates in May from 4.25% to 4.50%. The 0.25 percentage point increase marks the 12th rise since December 2021 when Bank rate stood at just 0.1%. It puts Bank rate at its highest level since 2008 and has applied further upward pressure on the cost of borrowing.
The next Bank rate decision will be announced on 22 June 2023. (Forbes)
This is the description for the video published 3 November 2021 which I consider to be a must listen, particularly with regard to the cabling that is required for offshore wind developments. It’s apparently not as simple as just adding more cables to the existing system.
Over the past decade, Gordon Hughes, a professor of economics at University of Edinburgh in Scotland has been studying the costs and performance of wind energy. Hughes, who spent much of his career working on energy access issues at the World Bank, explains why the capital and maintenance costs of offshore wind energy projects are increasing, why the promise of “green” jobs has “never been realised anywhere,” how land-use conflicts are halting the expansion of renewables in Europe, and why it is “profoundly dangerous” to believe we can run the world economy solely on renewables.
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