The cost to build large offshore wind farms, cited by Babcock & Brown when they recently canceled a 40,000 acre project in the Gulf of Mexico, will continue to increase steadily through 2011, according to research by UK energy analysts Douglas-Westwood.

Speaking June 14 at the Pushing Offshore Wind in the European Regions conference in Bremerhaven, Germany, John Westwood, managing director of Douglas-Westwood, said the cost for European offshore windpower projects over the period 2007-2011 are forecast to be 42% higher than projects installed in the previous five-year period. There will be a variety of reasons for the rising prices, Westwood said.

“At present the offshore wind industry lacks the necessary economies of scale, and there is insufficient competition in many parts of the supply chain,” Westwood said. “Installation vessels are a particular case in point, with only one major installation vessel operator currently in the market. Bottlenecks will occur and costs will undoubtedly increase. Turbine costs are also expected to rise with few major suppliers active in the sector and reliability concerns rising.”

In Europe, supply chain development has been stifled by the lack of the continuous stream of projects needed to justify the necessary capital investments, and turbine reliability remains an issue, according to Westwood.

“I believe that the root cause of so many technical difficulties in the sector has been the approach of taking relatively unadapted onshore systems into the marine environment where the costs of site access is much higher due to more restricted weather windows,” Westwood said.

Despite the rising price for offshore windpower, Westwood said there are reasons to be optimistic about the industry.

“The UK’s Energy Review stated the intention to increase the Renewable Obligation Certificate (ROC) allocation for offshore windpower from 1 to 1.5 ROCs, and in Germany there is a new grid connection agreement whereby grid operators will pay for the connection of offshore windfarms. The effect of both will be to lower overall project costs and encourage investment,” Westwood said.

More than 600 MW of offshore wind energy capacity is installed worldwide, all of it in waters less than 30 meters deep. Another 11,000 MW of offshore wind facilities is proposed through 2010, approximately 500 MW of that in the United States and Canada.

The U.S. Department of Energy has estimated that more than 900,000 MW of potential wind energy exists off the coasts of the United States, often near major population centers, where energy costs are relatively high and land-based wind development opportunities are limited. Slightly more than half of the country’s identified offshore wind potential is located off the New England and Mid-Atlantic coasts. Approximately 90% of the U.S. offshore wind resources are in waters more than 30 meters deep. While existing offshore technologies, which have been used in the shallower waters near the European coast for decades, may be applicable in some U.S. waters, new technologies will be needed in order to build wind farms in deeper U.S. waters.

The cost of offshore wind-produced energy remains relatively high. While a May 2006 Minerals Management Service whitepaper on offshore wind found that advanced turbines have helped bring down the cost of onshore wind power over the past 20 years from approximately 40 cents/kWh to between 4 and 6 cents/kWh — comparible with natural gas (4-5 cents/kWh) but more expensive than hydro (3-4 cents/kWh) and coal (2-3 cents/kWh) — the cost for offshore wind power is nearly twice as much, at 8-15 cents/kWh. Those figures were gathered from data collected from European wind farms built in water less than 30 meters deep. Development costs in a majority of U.S. waters are likely to be higher.

Offshore projects cost more than onshore projects because of the submerged foundations and corrosion protection they require, and the expense of transporting and installing the facilities at sea. Power collection and transmission costs may also be higher for offshore projects. Capital investment requirements may be 30-60% higher for offshore projects. With the higher costs come the potential for greater returns: energy yields at offshore wind farms can be up to 30% higher than at onshore facilities.

A spokesman for Babcock & Brown last week told NGI that the Australian-based company has ended plans for a 40,000 acre wind farm in the Gulf of Mexico near Texas because the estimated price tag for the project — somewhere in the billions — would not have been cost effective. The project, which would have been the biggest offshore wind farm ever in U.S. waters, had been an option Babcock & Brown considered since buying Houston-based Superior Renewable Energy LLC (SRE) last year, according to company spokeswoman Kathleen Alderfer. SRE held the lease prior to the acquisition. The project was effectively canceled last month, when Babcock & Brown allowed its lease on the offshore acreage off the coast of Padre Island to lapse.

“We did a feasibility study and it turns out it would be very expensive to do it,” Alderfer said. “There are other ways to produce energy that will be much more cost effective.” Higher electricity prices on the East Coast may make it a more likely market for wind-generated power projects, Alderfer said.

Babcock & Brown is moving forward with plans for a $700 million onshore wind farm in Kenedy County in southern Texas.

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