China’s Offshore Wind Achieves Remarkable Power Price Parity with Coal Prices

China’s rapidly expanding offshore wind industry has defied the global norm by successfully driving down power prices to match those of coal, according to a recent report by BloombergNEF. While other regions continue to face upward pressure on energy costs, China’s offshore wind sector has experienced a significant reduction in prices, presenting a promising development for the renewable energy industry.

The report highlights that the declining price trend in offshore wind stands in contrast to the relatively stable costs of solar and onshore wind energy during the first half of 2023, which have been largely unaffected year-on-year. The absence of cost declines can be attributed to the impact of rising interest rates, offsetting any potential reductions.

BloombergNEF’s 1H 2023 LCOE (Levelized Cost of Energy) update reveals that capital costs for solar are currently at their highest since 2014, while wind costs have not reached this level since 2017. Consequently, this has established a minimum threshold for the LCOE in these sectors. The report suggests that the maturing of these technologies and the slower rate of decline in onshore wind and solar costs contribute to this phenomenon. Furthermore, the report highlights that the expected 28.5% cost decline driven by the doubling of module capacity is taking longer to achieve.

However, despite the aforementioned challenges, the report emphasizes that onshore wind and solar power continue to maintain their position as the most cost-effective options for new electricity generation, a status they have held since 2018. Globally, the average LCOE for onshore wind and solar ranges from $42 to $48 per megawatt-hour (MWh), in stark contrast to the $92/MWh associated with natural gas-fired power, as reported by BloombergNEF.

The China effect

The global costs of offshore wind and coal-fired power have reached a significant convergence, largely influenced by China’s dominant market share of 57 per cent and its extensive manufacturing capacity. This trend has resulted in weighted averages being driven down. Notably, China’s offshore wind Levelized Cost of Energy (LCOE) has plummeted to $65.7 per megawatt-hour (MWh), standing $21 below the rest of the world, according to a report by BloombergNEF.

In contrast, the LCOE for coal-fired power has risen due to the stranded asset risk caused by stronger climate ambition worldwide, as highlighted by BNEF. Both offshore wind and coal-fired power now share a common LCOE of $74/MWh.

However, it is important to acknowledge that the global LCOE for offshore wind is distorted by China’s dominance. In reality, costs in Europe and North America have witnessed an increase. The American Clean Power Association (ACP), a renewable energy advocacy group, estimates the LCOE for offshore wind in the United States at $98/MWh.

China has also experienced similar cost declines in onshore wind, with its LCOE dropping to $34/MWh. This represents a 21 per cent reduction compared to other markets. The driving factors behind these declines include increased pricing pressure from developers, a transition to larger 4-5 MW platforms, and intense competition among manufacturers. As a result, turbine prices in China have reached a remarkable 61 per cent below the global benchmark of $930,000 per megawatt (MW).

BNEF projects that despite recent challenges, the costs of solar and wind energy will continue their downward trajectories. By 2050, these costs are expected to plunge by 50 per cent due to ongoing technological advancements, greater economies of scale, and reduced financing costs. The research firm forecasts that wind and solar energy will average $20/MWh across major markets by 2050, while offshore wind will significantly decrease to an average of $37/MWh.

India and Other Regions

The China-induced fall of offshore wind power prices sets a significant example for India, which has set a target of installing 30 GW of offshore wind projects by 2030. However, the country is still majorly dependent on coal-fired power plants for its energy needs and shies away from offshore wind energy mostly due to the high initial cost compared to solar and onshore wind. Several offshore projects have been in the pipeline for many years, but none are operational. India has a long coastline of about 7,600 km and good prospects for harnessing offshore wind energy.

The global coal prices have been highly volatile in recent times. Apart from gas shortages and low hydro storage levels, thermal power plant closures across Europe, due to ageing, also aggravated the European power crisis in 2022. The apparent fall in offshore energy is considerable considering the recent uncertainty in the geopolitical conditions.