Dong to build an offshore wind project without a subsidy…

Among all the doom and gloom of a quiet offshore summer this struck me as good news:

On Thursday, the Danish company Dong Energy, the largest offshore wind developer, won the right to build two large wind projects in the German North Sea with no government subsidies — a highly symbolic first for the industry.

There are some unique circumstances as this article in the FT makes clear: obviously not having to pay substantial interconnection to the grid, and being close to existing infrastructure makes a difference. Also, the reduction in offshore installation costs will be flowing through into the tender spreadsheets of the contractors for the long-term. It does feel like a milestone, and from a contracting perspective in the North Sea and eon since we picked over the wreckage of Subocean.

But it is also a sign of change at the margin with increased productivity in offshore wind, economies of scale and scope, knowledge development, and all the other factors that contribute to a drop down the long run cost curve.

Day rates in offshore remain at nearing OPEX in the North Sea, given the surplus of oil and gas vessels and the more benign environments of the locations. Clearly, offshore wind will not displace oil and gas, it’s nowhere near as efficient on a calorie output/cost basis, but it is moving down the cost curve quicker than many thought possible. Vessel owners will be hoping day rates move in the opposite direction, but as long as offshore wind sticks to the civil contracting formula and vessel operators need utilisation, I fear that a faint hope.

 

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