TNO: offshore wind is not profitable in all cases

Offshore wind is not profitable in all cases. Electrification of the industry is a major determinant of this. If electrification is low, offshore wind will not be profitable in 2030 under unchanged policies. Solar heating can simultaneously make an important contribution to making heat supply in the Netherlands more sustainable.

This is TNO's assessment based on a new study on the commercial feasibility of offshore wind power in 2030. The results are collected in the white paper 'Offshore wind business feasibility in a flexible and electrified Dutch energy market by 2030'. TNO researchers share insights and recommendations in the whitepaper to achieve a profitable offshore wind business case by 2030.

The study used models to develop two scenarios for the Dutch electricity system. Here, the economic risks were identified. In one scenario, TNO assumes low electrification of industry, while in the other scenario high electrification is the starting point. The analysis shows that in the low electrification scenario, offshore wind will not be profitable in 2030 under an unchanged policy.

Offshore wind energy is an important source of green electricity in the Netherlands. It thus makes an important contribution to achieving a CO2-free electricity system in 2050. The aim is to increase offshore capacity sevenfold to 21.5 GW by 2030.

However, TNO points to the volatility of the current energy market. Several market trends contribute to this, including the expansion of renewable energy generation capacity, electrification of industry, rising gas and CO2 prices and growing need for grid reinforcements. Combined with the phasing out of subsidies, these trends are increasing the risks for the offshore wind sector.

In a scenario where Dutch industry electrification is low, offshore wind energy will not be profitable in 2030 reports TNO. Oversupply on the electricity market - even with exports - then causes 13% curtailment of offshore wind power production. As a result, not all wind power capacity will be used. TNO calculates that the business case is positive for offshore wind operators only 30% of the time.

TNO also provides advice on how to achieve a profitable model in this scenario. For instance, TNO advises the offshore wind sector to also look at other types of business models by partnering with industry. Combining investments and making direct power supply agreements through Power Purchase Agreements (PPA) can increase effective returns by 5 to 33%.

In the second scenario, TNO assumes high electrification of Dutch industry. This assumes intended European policy (Renewable Energy Directive (RED) and the Fit for 55 package), including clear targets for industrial electrification. TNO judges that offshore wind is profitable in this scenario. Full generation capacity is utilised and the market price is financially attractive 80% of the time. Natural gas, incidentally, remains necessary if demand increases at a time when no renewable sources are available.

Also in this scenario, TNO incidentally recommends entering into PPAs for an integrated business model that benefits both the offshore wind sector and industrial end-users. Among other things, a PPA can help achieve CO2 reduction targets. It also helps to hedge fluctuating energy prices and thus reduce the strong fluctuations in the energy market.

In a stand-alone study, TNO looks at the business case for using solar heat for homes. Both technically and financially, solar heat appears to be an interesting source of renewable energy. Rooftop photovoltaic-thermal (pvt) systems, combined with a heat pump, can provide homes with both heat and hot water.

Corry de Keizer, programme coordinator at TNO: "Earlier, we investigated the potential of solar heat in our country and concluded that this source could meet about ten per cent of the total heat demand. But the business case was still a bottleneck. Solar heat should be able to contribute cost-effectively to making the energy supply more sustainable and natural gas-free neighbourhoods. It turns out it can."

TNO specifically looks at two applications in the study: solar heating systems for a standard intermediate house and for heat networks, whether or not combined with heat storage. For homes, TNO focuses specifically on three systems: solar boilers, solar combi systems and pv thermal (pvt) systems, in all cases as a source for a heat pump. The former system generates only part of the domestic hot water. The other two systems also contribute to space heating, with this being as much as 100% in the case of pvt. TNO compared these heat sources with heat supply for a high-efficiency combi boiler, hybrid heat pump and an all-electric heat pump.

The comparison shows that replacing natural gas with solar heat gives a favourable business case in all cases. With a 20-year lifetime, the total cost of the solar heating system is lower than that of a high-efficiency combi boiler or a hybrid heat pump. All three systems reduce CO2 emissions. The combination with a pvt heat pump scores best here.

"By the way, these are solar heating systems that serve as an addition to the heat demand of home or heat grid, not a complete replacement," says Corry de Keizer. "We looked at whether solar heating as an addition to a heat pump, for example, makes sense for domestic hot water. You can make combinations of solar collectors or PV thermal with solar panels (PV) that generate electricity. Solar water heaters are a good choice in many cases to provide domestic hot water. It is a good first step towards making the home more sustainable. You then combine the solar heating system with a high-efficiency combi boiler or hybrid heat pump for the rest of the heat. That already provides a positive business case. And in times where electricity and gas prices are very uncertain, solar heating offers added value."

Combining solar heat with heat networks is also interesting. Here, TNO assumes a large field with solar collectors and day-night storage, delivering directly to a city's heat grid. The combination can supply up to about 20 per cent of the heat demand of connected homes. The exact percentage depends on summer heat demand.

TNO also points to a variant: a field where solar energy is not only generated but also partly stored. The business case appears to be more complex in this case. In the long term, however, the researchers foresee potential. In particular, TNO mentions the relief of the electricity grid as an advantage of storage.

Corry de Keizer: "In conclusion, almost all applications of solar heating in the home mean less CO2 emissions while reducing the resident's energy costs. As a supplement, it is already a good option when you have a high-efficiency boiler now. If you need to replace your gas boiler in a few years' time, the combination of solar heating with a hybrid heat pump is especially promising. For a good business case, however, it is important that the government continues to financially support the use of solar heat for the time being. If the industry also continues to innovate and the costs of the systems come down further, there are great opportunities for the roll-out of solar heat."

Further information on TNO’s research into offshore wind is available here. You can also read more here about the business case for solar thermal heating in homes.

Author: Wouter Hoeffnagel
Photo: Pixabay / Steppinstars