By Keshav Rastogi

Offshore Wind Turbines Have Rapidly Grown in Size

In my thesis, I explore the drivers of capital expenditure (CAPEX) reductions in the offshore wind energy sector. Identifying key drivers is important because of how quickly the international and domestic offshore wind industries are projected to grow. By the end of 2018, nearly 23 gigawatts (GW) of offshore wind capacity were installed globally, with 154 to 193 GW projected by 2030.[1]

Specifically, I investigate two hypotheses. One is whether there has been significant learning-by-doing among companies developing (planning and assembling) offshore wind farms and those manufacturing turbines. The other is whether technological innovations among turbine original equipment manufacturers (OEMs) have been primarily responsible for recent reductions in CAPEX. The primary technological advancement has been in the size of turbines, as offshore turbines have become continually larger than their onshore counterparts since the early 2010s. Learning-by-doing is the idea that productivity increases due to accumulated experience.

In order to understand whether there exists learning-by-doing in the offshore wind sector, I model the typical developer’s project design problem, which includes, among others, the variables of interest measuring developer experience, OEM experience, and turbine size. By exploiting the fact that developers frequently have limited agency over deciding the size of their projects, I solve for the developer’s profit maximizing decision and manipulate the resulting equation such that it can be empirically estimated by an OLS regression with fixed effects. I conduct the analysis using data from offshore energy consultancy 4C Offshore covering all fully commissioned, or completed, offshore wind farms. The preferred set of specifications, which control for market selection of low-cost firms, show no statistically significant evidence of learning-by-doing among either developers or turbine OEMs.

In contrast, the empirical results suggest that a doubling in average turbine rating, or size, is robustly associated with a 19 percent decrease in total costs, which corroborates the broad academic and industry-based consensus that larger turbines have been a key driver of CAPEX reductions. In my discussion of the results, I demonstrate how the cost-reducing effects of turbine rating nest within the developer’s decision regarding turbine size at a particular site. I then use these estimates to make projections for the costs of offshore wind farms currently under development globally. With regards to policy, the lack of significant learning-by-doing may make it more difficult to justify demand-based policies such as future installation targets, while the cost-reducing impact of larger turbines may rationalize expanded government-funded research and development efforts.

[1] Musial, Walter, Philipp Beiter, Paul Spitsen, Jake Nunemaker, and Vahan Gevorgian. 2019. “2018 Offshore Wind Technologies Market Report.” U.S. Department of Energy.  https://www.energy.gov/eere/wind/downloads/2018-offshore-wind-market-report