Economies of Scale, Learning Curves and Offshore Wind Development Costs Presentation by Greg Upton David Dismukes and Gregory Upton Jr. Louisiana State University Greg Upton (LSU) Offshore Wind July 29, 2013 1 / 22
Introduction The worlds first offshore windfarm (OSW), Vindeby, was completed in 1991 in Ravnsborg, Denmark. Greg Upton (LSU) Offshore Wind July 29, 2013 2 / 22
Introduction The worlds first offshore windfarm (OSW), Vindeby, was completed in 1991 in Ravnsborg, Denmark. Since 1991, over 40 additional OSWs have been constructed, none of which are located in the United States. Greg Upton (LSU) Offshore Wind July 29, 2013 2 / 22
Introduction The worlds first offshore windfarm (OSW), Vindeby, was completed in 1991 in Ravnsborg, Denmark. Since 1991, over 40 additional OSWs have been constructed, none of which are located in the United States. Recently, though, there has been interest in developing offshore wind in the U.S., as there are currently nine OSW projects totaling over 2,300 MW of total capacity in the permitting and development process (USDOE 2011). Greg Upton (LSU) Offshore Wind July 29, 2013 2 / 22
Introduction The worlds first offshore windfarm (OSW), Vindeby, was completed in 1991 in Ravnsborg, Denmark. Since 1991, over 40 additional OSWs have been constructed, none of which are located in the United States. Recently, though, there has been interest in developing offshore wind in the U.S., as there are currently nine OSW projects totaling over 2,300 MW of total capacity in the permitting and development process (USDOE 2011). It is still uncertain if any of these projects will be completed and two reasons are cited for this holdup. (USDOE 2011) Relatively high cost of offshore wind compared to other forms of energy. 1 Difficulty in receiving permitting. 2 Greg Upton (LSU) Offshore Wind July 29, 2013 2 / 22
Introduction These two issues are interrelated, though, as relatively expensive projects are less likely to receive approval than relatively less expensive projects. Greg Upton (LSU) Offshore Wind July 29, 2013 3 / 22
Introduction These two issues are interrelated, though, as relatively expensive projects are less likely to receive approval than relatively less expensive projects. Another potential reason for why projects are having difficulty receiving permitting is because there is currently no consistent methodology available for comparing the cost of a proposed off-shore wind project to other similar off-shore wind projects around the world as this is not straightforward for a variety of reasons. Different areas have different physical characteristics, and these 1 heterogenous conditions can have a potentially large impact on costs. Economic environments in which existing OSWs were built are also 2 heterogeneous. Greg Upton (LSU) Offshore Wind July 29, 2013 3 / 22
Introduction These two issues are interrelated, though, as relatively expensive projects are less likely to receive approval than relatively less expensive projects. Another potential reason for why projects are having difficulty receiving permitting is because there is currently no consistent methodology available for comparing the cost of a proposed off-shore wind project to other similar off-shore wind projects around the world as this is not straightforward for a variety of reasons. Different areas have different physical characteristics, and these 1 heterogenous conditions can have a potentially large impact on costs. Economic environments in which existing OSWs were built are also 2 heterogeneous. The forty-one OSWs examined in this study were built in eight different countries over a twenty one-year period. Greg Upton (LSU) Offshore Wind July 29, 2013 3 / 22
Introduction This paper will combine three different literatures: 1 Economies of Scale 2 Learning Curves 3 Overnight Cost Greg Upton (LSU) Offshore Wind July 29, 2013 4 / 22
Economies of Scale Economies of scale in electric power generation specifically have been studied extensively both in the United States (Christensen & Greene 1976) as well in other countries around the world (Filippini 1996, Franquelli, Piacenza, & Vannoni 2004). Greg Upton (LSU) Offshore Wind July 29, 2013 5 / 22
Economies of Scale Economies of scale in electric power generation specifically have been studied extensively both in the United States (Christensen & Greene 1976) as well in other countries around the world (Filippini 1996, Franquelli, Piacenza, & Vannoni 2004). There has been very little research on economies of scale in either the on-shore or off-shore wind market. Greg Upton (LSU) Offshore Wind July 29, 2013 5 / 22
Economies of Scale Economies of scale in electric power generation specifically have been studied extensively both in the United States (Christensen & Greene 1976) as well in other countries around the world (Filippini 1996, Franquelli, Piacenza, & Vannoni 2004). There has been very little research on economies of scale in either the on-shore or off-shore wind market. ◮ USDOE (2011) finds evidence of economies of scale in relatively small on-shore windfarms (less than 20MW). Greg Upton (LSU) Offshore Wind July 29, 2013 5 / 22
Economies of Scale Economies of scale in electric power generation specifically have been studied extensively both in the United States (Christensen & Greene 1976) as well in other countries around the world (Filippini 1996, Franquelli, Piacenza, & Vannoni 2004). There has been very little research on economies of scale in either the on-shore or off-shore wind market. ◮ USDOE (2011) finds evidence of economies of scale in relatively small on-shore windfarms (less than 20MW). ◮ Junginger & Turkenburg (2005) find that for orders of over 100 turbines, there is approximately a 30-percent reduction in the list price. Greg Upton (LSU) Offshore Wind July 29, 2013 5 / 22
Economies of Scale Economies of scale in electric power generation specifically have been studied extensively both in the United States (Christensen & Greene 1976) as well in other countries around the world (Filippini 1996, Franquelli, Piacenza, & Vannoni 2004). There has been very little research on economies of scale in either the on-shore or off-shore wind market. ◮ USDOE (2011) finds evidence of economies of scale in relatively small on-shore windfarms (less than 20MW). ◮ Junginger & Turkenburg (2005) find that for orders of over 100 turbines, there is approximately a 30-percent reduction in the list price. ◮ Snyder & Kaiser (2009) find a positive relationship between total cost and total capacity, but do not empirically test for the presence of economies of scale in their specification. Greg Upton (LSU) Offshore Wind July 29, 2013 5 / 22
Learning Curves Learning curves have been empirically estimated for electricity generation (Jamsab 2007; Zimmerman 1982), but very little research on the presence of learning curves in offshore wind has been conducted. Greg Upton (LSU) Offshore Wind July 29, 2013 6 / 22
Learning Curves Learning curves have been empirically estimated for electricity generation (Jamsab 2007; Zimmerman 1982), but very little research on the presence of learning curves in offshore wind has been conducted. Junginger & Turkenburg (2005) empirically analyze experience curves in wind farms worldwide and find significant learning effects, but limit their analysis to on-shore wind. Greg Upton (LSU) Offshore Wind July 29, 2013 6 / 22
Learning Curves Learning curves have been empirically estimated for electricity generation (Jamsab 2007; Zimmerman 1982), but very little research on the presence of learning curves in offshore wind has been conducted. Junginger & Turkenburg (2005) empirically analyze experience curves in wind farms worldwide and find significant learning effects, but limit their analysis to on-shore wind. USDOE (2011), on the other hand, finds no evidence of a learning curve in on-shore wind in the United States. Greg Upton (LSU) Offshore Wind July 29, 2013 6 / 22
Learning Curves Learning curves have been empirically estimated for electricity generation (Jamsab 2007; Zimmerman 1982), but very little research on the presence of learning curves in offshore wind has been conducted. Junginger & Turkenburg (2005) empirically analyze experience curves in wind farms worldwide and find significant learning effects, but limit their analysis to on-shore wind. USDOE (2011), on the other hand, finds no evidence of a learning curve in on-shore wind in the United States. Snyder & Kaiser (2009) test for the change in cost of off-shore windfarms over time holding other factors such as distance to shore, turbine size, capacity, and water depth constant, but do not find a decline in cost over time. Greg Upton (LSU) Offshore Wind July 29, 2013 6 / 22
Overnight Costs In order to test for economies of scale and learning by doing, it is imperative to get an “apples-to-apples” comparison of costs. ◮ The forty-one off-shore windfarms analyzed in this paper were built over a twenty one year period in eight countries that have different exchange rates, interest rates, and inflation rates over time. ◮ Some of these wind farms were constructed in just a few months while other projects took multiple years to complete. Greg Upton (LSU) Offshore Wind July 29, 2013 7 / 22
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