With costs for electricity generated from solar and onshore wind farms plunging, institutional investors are beginning to eye the next frontier for clean energy returns: mega-arrays of giant wind turbines located offshore.
Declaring offshore wind increasingly “mainstream”, the New York Times notes its “several advantages over land-based renewable energy, whether wind or solar. Turbines can be deployed at sea with fewer complaints than on land, where they are often condemned as eyesores.” They can also be larger, which contributes to their efficiency. And in the current financial environment of low interest rates, they generate predictable returns over many years.
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As a result, the paper observes, “offshore wind, once a fringe investment, with limited scope and reliant on government subsidies, is moving into the mainstream.” Offshore wind still represents only a tenth of new generation in the sector, says the Times. “But investment in the industry nearly tripled in the five years to 2015.”
PensionDanmark, an institutional investor for Danes’ retirement savings, has put more than €1.6 billion into wind, expecting returns of up to 9%, according to its chief executive. New York’s Goldman Sachs has also moved heavily into the industry, as have “wealthy individuals like the owner of the Danish toymaker Lego,” and industrial giants like Mitsubishi Heavy Industries and General Electric.
Long dependent on government subsidies, offshore wind has more recently seen costs follow the same downward trajectory as its land-based counterpart. British offshore developers have slashed their costs by nearly a third in the last four years.
“Turbines today are bigger, produce much more electricity, and are deployed on much larger sites than in the past,” the Times reports. “The result is more clean power and extra revenue.” Moreover, advancing experience and capacity have led to the development of “specialized vessels and improving installation techniques (taking a cue from the oil industry), cutting construction timetables.”
Danish wind developer Dong, for example, has halved its cost for generation from wind farms off the Dutch coast, from €156 per megawatt-hour to €78. As costs keep falling, predicted its vice president for wind, Samuel Leupold, offshore is “on the cusp of a new world.”
