The economics of offshore wind farms are presently less favorable than for onshore wind energy. Consequently there is a strong need for significant cost reductions in order to become competitive. About 70% of the electricity cost of offshore wind farms is determined by the initial investment costs, which mainly consist of the wind turbines, foundations, internal and external grid-connections and installation. Possible cost reductions until 2020 are explored for each of these components. Technological developments and cost reduction trends in both the offshore and onshore wind sector are analyzed. Information is also taken from offshore oil and gas sector and from the experience with high-voltage submarine transmission of electricity. Where possible, cost reduction trends are quantified using the experience curve concept, or otherwise based on expert judgments. Main drivers for cost reduction appear to be (a) design improvements and upscaling of wind turbines, (b) the continuing growth of onshore wind capacity, and (c) the development and high utilization rates of purpose-built installation vessels. Other factors are: reduction of steel prices, technological development of HVDC converter stations and cables, standardization of turbine and foundation design, and economies of scale for the wind turbine production. It is concluded that under different growth scenarios, investment costs of offshore wind farms may decline about 25–39% by 2020. Assuming an identical decline of annual O&M costs, the levelized electricity production costs are reduced from 6.8–7.2 to 4.2–5.4 €ct/kWh.
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