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Policy

Will offshore wind turbines close in Germany before 20 years are up?

In the last few years of eligibility, feed-in tariffs for offshore wind power dropped to 3.9 cents. Today, guest author Philipp Schmagold explains that the rising cost of O&M at the end of the second decade will make these turbines unprofitable.

In Germany, feed-in tariffs for offshore wind are elevated in the first 8 to 12 years. As the German Economics Ministry puts it (PDF in German), “In the Basic Model, operators receive 15.4 cents per kilowatt-hour for the first 12 years. This eligibility can be extended if the wind turbines are in waters deeper than 20 meters and more than 12 nautical miles from the coast.… Alternatively, operators of offshore wind turbines can opt for the Foreshortened Model. Then, they receive 19.4 cents for eight years rather than 15.4 cents for 12.”

 Afterwards, however, compensation drops considerably to a mere 3.9 cents.

Example for extended high compensation

We therefore have the following possible options:

Assuming 20 years of operation, compensation then looks as follows:

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Schmagold

Short elevated compensation

If the wind farm is not far from shore or in deep water, the operator can choose to have foreshortened elevated compensation:

 

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Schmagold

The problem is that 3.9 cents is not always enough to cover O amp;M; in the offshore sector in particular (source), the cost of maintenance, repairs, and insurance is much higher than onshore.

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BET

An offshore wind farm will be closed once its operating costs approach this income. The potential resale value of these systems is much higher after eight or 10 years than it is after 20. The 3.9 cents offered in those late years may not be enough to cover O amp;M costs. They tend to be high in the beginning and at the end, producing the “bathtub curve” shown below.

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Schmagold

Operating costs are high at the beginning and end. If we put the bathtub curve over the tables for feed-in tariffs, we see what the problem is.

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Schmagold

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Schmagold

Even offshore wind farms with the foreshortened feed-in tariffs face this problem. By year 17/18, losses are incurred, and the situation can even become dangerous starting in the ninth year. These systems would then be dismantled and repowered.

Policymakers need to be prepared for such a trend towards repowering well within the 20 years of feed-in tariffs in the offshore wind sector or find ways to redesign the policy that make sense both microeconomically and macroeconomically.

Philipp Schmagold is a project developer for onshore wind farms at Ebert Erneuerbare Energien. He also teaches renewable energy at FH Kiel and is a fan of wind power onshore and off. (Craig Morris, @PPchef)