Floating away...
More evidence that offshore wind isn't economically viable without subsidies.
It has been a busy past few weeks and I’m catching up on a bit of news that has come though recently.
One of these items was the announcement that BlueFloat will abandon their plans for offshore wind developments in Taranaki and the Waikato.
One of the most sighted reasons for this decision was seabed allocation, specifically incompatibility with seabed mining offshore of South Taranaki.
I am skeptical that this is the primary reason for the New Zealand market exit as the turbines would have been sited about 2km apart, and cabling exclusion zones could easily be established.
The reason I suspect has much more to do with the lack of contracts for difference (CfD’s), or as the wind industry like to refer to it “revenue stabilisation”. I have previously written on CfD’s and revenue stabilisation.
Despite our Prime Minister Chris Luxon’s love affair with intermittent low energy density sources, National has publicly stated that they do not support the introduction of CfD’s to the electricity market. Perhaps it is an over confidence in the virtues of offshore wind leading him to believe that CfD’s are not required? Either way National has no plans to introduce subsidies in the form of CfD’s.
BlueFloat New Zealand General Manager Nathan Turner sighted a lack of CfD’s as one of reasons for the decision to pull out of New Zealand. Additionally, in September while visiting New Zealand, BlueFloat CEO Carlos Martin emphasised how market-based mechanisms like CfD’s can accelerate renewable energy deployment by de-risking investments and speeding up project delivery.
De-risk obviously means transferring risk to someone else’s account.
Venture Taranaki’s Kelvin Wright also cited the lack of CfD’s as one of the industries ongoing challenges
"The withdrawal of BlueFloat Energy highlights several ongoing challenges within the offshore wind sector in New Zealand. These include competition for shallow seabed space, the absence of a clear regulatory regime, the need for revenue stabilisation mechanisms like Contracts for Difference (CFD), and the establishment of a viable national sector size. Additionally, there remains the challenge of securing demand-side contracts and addressing commercial viability. These issues require urgent and strategic attention from policymakers."
The bottom line
What can be established from this is the simple fact that offshore wind is not economically viable in an open market without subsidies.
Why?
Because - physics.
It’s the iron law of energy density
Low energy density = High resource intensity.
Spend a claimed $5.5 billion (it would be much more than that) to install 1000MW of generation capacity in a harsh and not easily accessible environment. The infrastructure has a lifespan of maybe 20 years. Which will on average provide about 400MW of electricity as best, with zero control over when and in what quantity it will be delivered to the market.
That’s a pretty hard sell to anyone with that kind of money to invest if the Govt. is not guaranteeing they will make a return on their investment.
So, the international players leave New Zealand and go to locations where there is a Govt. that is happy to hand over large wads of taxpayers money in perpetuity.
As I have said before there are a lot of really smart talented people busy working on a pathway for offshore wind in New Zealand. To me this represents a huge opportunity cost and the sooner these talented folks are re-directed to higher quality, higher capacity factor, energy sources the better.
