OPINION | ‘Capping turbines at 15MW could deepen – not defuse – the crisis in offshore wind’

October 27, 2023
6 min read
Featured Image

Another round of upscaling turbine nameplates is necessary to make sea-based wind projects economically viable again despite higher interest rates, writes Ketil Arvesen

The European offshore wind sector’s success in slashing the cost of power production over the past decade has rightly been lauded as a mark of great industrial progress – and corroboration of the capitalist wisdom of economies of scale. As the size of turbines grew from 3MW to 6MW to 8MW, paused, and then set off to 11MW, 14MW and now 15MW, offshore wind’s levelized cost of energy (LCoE) fell precipitously, with the acronym taking on an almost magical quality, as if bigger nameplates were a solution to any coming choppiness of energy transition waters.

But in the current market malaise, with the western offshore wind supply chain hemorrhaging billions of euros, much of the support for 18-22MW machines – such as OEMs in China [including CSSC Haizhuang (see image above)] have been prototyping – has started to wane. Halt the upscaling and let the turbine-makers and their suppliers catch up, streamline and industrialize today’s top-of-class designs, runs the argument, and so allow profit margins to restabilize and set the stage for the ‘sustainable’ mass delivery and deployment ahead.

Some have even called for the EU to impose a ban on 15MW-plus units for ten years to let developers obtain licenses. On the surface this might appear a good idea. However, it overlooks a fundamental – if somewhat hidden – difference: the ‘right’ size of turbine for the next phase of offshore wind industry’s expansion will hinge heavily not only on technology, but on interest rates. And this could be key to the future of offshore wind.

Interest rates key to offshore wind costs

First, to state the obvious, offshore wind is a very complex and engineering-intensive industry working to harness a multitude of physical forces to generate maximum power production from an assemblage of components that are dangerously large in dimension. That has led to many bright minds being overly focused on technical or supply chain costs – and to encapsulating this as LCoE.

While there is no dismissing the value of cost cutting in further streamlining the supply chain of components and services, the factor decisive to LCoE – though it rarely gets a mention – is interest rate. It’s easier to understand ‘normal’ cost items, but for those who have actually created an LCoE model it is common knowledge that there are four variables that go into the equation: 1/ the capital expenditure figure – made up of hundreds and hundreds of line items, 2/ the operating expenditure figure – few items, but equally important as nobody knows exactly how costly technology will be in the field, 3/ the yearly power production – with site specific assessments and capacity factor brought into play, and 4/ the interest rate and the lifetime period.

Since 2013, interest rates have consistently been falling and this has paved the way for a hugely beneficial environment for renewable energy projects and their developers. This fact has been very positive: we would not have had this level of renewables build-out had it not been for the financial crisis in 2008 and the massive ensuing capital infusion into the markets.


"Signals from the market suggest that 15MW turbines for a fixed-bottom project would give a modest but acceptable return at the low interest level seen up to 2022. Now, when rates have climbed substantially, the projects are no longer economically viable."

Ketil Arvesen
Vice President
Fred Olsen 1848

Early subsidized tariff prices – and later Contracts for Difference – essentially created a long-duration, state-backed bond. Coupled with a meaningful streamlining of the supply chain – larger turbines, industrialized foundation manufacturing, specialized ships reducing marine spread and so on – this allowed for a business model that produced very healthy returns for the developer based on 12%-plus return on total capital at the time of receiving the tariff (on equity return much higher).

This in turn attracted long-term capital from infrastructure and pension funds that were satisfied with much lower yields and so were willing to pay up for a 49% stake, as the ‘bond’ value went up when interest rates dropped. As years went by and developers became better at assessing construction risk with ever-larger turbines, at the same time as the interest rates kept on falling, the bull run gathered speed, and the trend toward lower LCOE became almost self-fulfilling – as exemplified by the – now untenable – auction prices.

That model has reached its natural conclusion with the recent rise of interest rates — and judging by the US’ 30-year treasury rate of 4.5%+, this could be the way things are for a long while.

Signals from the market, including Vattenfall cancelling the 1.4GW Norfolk Boreas at £37.35/MWh in 2012 pounds sterling (€60/MWh today), suggest that 15MW turbines for a fixed-bottom project would give a modest but acceptable return at the low interest level seen up to 2022. Now, when interest rates have climbed substantially, the project(s) are no longer economically viable.

Halting turbine upscaling 'very difficult'

All to say: halting turbine sizes at 15MW at this interest level will prove very difficult from a return on capital angle and likely lead to many more project ‘pauses’. Developers largely recognize that one more ‘round’ of turbine up-scaling – to 20-22MW nameplates – coinciding with the next cycle of (perhaps) lower interest rates is the most efficient way of getting back to acceptable returns.

Streamlining supply chains around a 15MW turbine will not save enough on cost to cancel out the higher interest rate level in the short- to medium-term. And if the EU were to cap nameplates at this size, developers will order larger units elsewhere, namely from Chinese OEMs. Moreover, setting aside geopolitics, real innovation – in turbine powertrain technology, but also in foundations and high voltage export cables – will probably occur and coincide with the next-generation of ultra-large turbine designs.

Of course, a (much) higher LCoE or CfD auction price would fix the current return on capital challenge even more quickly than bigger turbines, but then a different set of discussions would need to take place at the government policy level with an eye on pricing of comparable sources of energy. Most likely a mix of higher prices and larger turbines will occur, at least if per-barrel crude prices are maintained. The bitter pill remains to be swallowed that few companies have the depth of pocket Big Oil does currently, and so renewables – and more widely innovation – will depend on ‘old’ energy to progress.

But as for 15MW offshore wind turbines, yes, they will be key for the sector for some time, but not long. And whatever the negative impact at present on the sector’s stability, that is ultimately a good thing.

  • Ketil Arvesen is Vice President of Fred Olsen 1848. He has held senior executive roles in Fred Olsen Windcarrier, Fred Olsen Ocean and other Fred Olsen companies since joining the group in 2008. The views expressed in this column do not necessarily reflect the official position of the parent company

Every week in Beaufort, Aegir Insights' intelligence newsletter, industry thought leaders write exclusive opinion pieces covering hot-button topics in the offshore energy transition.

Delivered straight to your inbox every Sunday, Beaufort will sharpen your market insight for the week ahead with exclusive commentary, analysis, and in-depth journalism delving into the talking points and technologies shaping offshore wind.

Subscribe here

Tagged: Beaufort · Opinion pieces

Aegir Insights provides industry-leading intelligence powered by data science for offshore wind energy developers, governments and financial institutions.

Aegir Insights ApS

Aegir Insights
Havnegade 27 st,
1058 Copenhagen,


CVR no.: 39104792


Aegir Insights

Aegir Insights
Havnegade 27,
1058 Copenhagen,


CVR no.: 39104792

All rights reserved 2023 © Aegir Insights Aps