Renewable energy—or at least one form of it—took a big step forward this week when Denmark’s Dong Energy, the largest offshore wind company on the planet, announced its intention to construct a pair of wind projects off the coast of Germany without any government subsidies. The FT reports:
In an advance for what has been one of the most heavily subsidised types of renewable power, Denmark’s Dong Energy said it would rely on wholesale market prices instead of extra government support for the projects in the German North Sea. […]
“The zero subsidy bid is a breakthrough for the cost competitiveness of offshore wind and it demonstrates the technology’s massive global growth potential as a cornerstone in the economically viable shift to green energy systems,” said Dong’s head of wind power, Samuel Leupold.
The cost of both solar and wind energy has been falling at a steady rate in recent years, but it’s not been something we’ve pinned our hopes on, for a few reasons. First, renewables have been on the cusp of “breaking through” for decades, always being sold as the energy source of the future but showing little progress in becoming the energy source of the present. Much of that has boiled down to cost: these energy sources struggle to compete with fossil fuels on price, and their success thus far has therefore relied on government support. Nowhere has this been more evident than in Germany, where clean energy has been propped up by subsidies called feed-in tariffs, whose costs have been passed along to consumers (German electricity prices are among the highest in Europe).
Renewables also face a number of challenges as their share of energy mixes grows. Lacking cost-effective and scalable power storage options, wind and solar cannot be consistently relied upon to supply a grid—what happens when the sun doesn’t shine and the wind doesn’t blow? That intermittency isn’t just a threat to reliability of supply, it also wreaks havoc on grids that were not constructed with this sort of variability in mind. This problem—and the stress it places on power grids—becomes more pressing the larger renewables’ share of an energy mix becomes, which limits how far wind and solar can go, even if they were capable of competing on price.
Dong’s announcement is an undeniable sign of progress for offshore wind power. If the company can successfully demonstrate that it’s possible to profitably construct and operate a wind farm without subsidies, the cost criticism of renewables will begin to weaken. That said, it should be noted that this is something of a special case. These new farms are in a particularly windy location (smart siting should always be a primary concern for new energy projects), and they’re close to existing projects, which will allow Dong to piggyback on existing infrastructure. Moreover, the projects Dong bid on won’t begin operating until 2024, which allowed the company to project lower operating costs on the expectation that the turbines that will eventually be constructed will be larger and more efficient than those currently available at present. In other words, this is a bet that offshore wind will be a moneymaker seven years from now.
This achievement also does little to address concerns about the security of supply or grid stability issues. Indeed, one of the big reasons why Dong thinks it’s able to snub subsidies is the fact that the company won’t have to pay the cost of connecting its projects to the grid—a cushy deal Germany set up for the company, and one that is a departure from industry practice. There are clearly many more wrinkles to iron out.
With all of those caveats still in mind, let’s give credit where credit is due: given the right set of conditions, offshore wind isn’t far from becoming a viable energy option. As researchers continue to make clean energy technologies cheaper and more efficient, renewables’ reliance on subsidies will wane. If and when that happens, the industry will still have a host of other hurdles to clear, but these energy sources are moving in the right direction, and that’s excellent news for future global energy security.