European countries with programmes to develop off-shore wind farms include, UK, Germany, Denmark, France, Spain, Belgium, Netherlands. As of early 2014 the EU had 6.6 GW of off-shore wind. By end-2015 there will be around 9.9 GW connected. In terms of a pipeline of projects, EWEA identified 22 GW of consented offshore wind farms in Europe out to 2025. Germany (30%), the UK (22%) and The Netherlands (13%) account for 65% of consented farms. In terms of location, North Sea (68%) and Baltic (16%) are the main locations.

The following should help explain why Denmark’s championing of offshore wind will ultimately benefit the country’s citizens, by contrast with the decisions made by other member states such as the UK, who have opted to go with nuclear power.

Capacity Factors

Capacity Factors (CF) for on-shore wind turbines in Germany are around 20% (depending on location). In a good location in the UK, one would expect a CF of 25%. By contrast Alpha Ventus (60MW) in the German North Sea has a CF of around 50%. Horns Rev 2 (209MW) in the Danish sector of the North Sea over the period 2010 to 2013 had similar CFs. This is due to good average winds speeds, typically around 10mtrs/second. This data suggests that, at least for the Danish and German North sea sectors, off-shore wind is more than twice as productive as on-shore.

Offshore wind turbine

Data Availability (or not)

Although the UK has the largest fleet of off-shore wind turbines it does not provide data on the production from individual farms. It is not known why this is the case, given that these farms receive extensive public support. By contrast, Denmark publishes data on the monthly output of every single wind turbine, on and off-shore in Denmark. It also provides hourly data on the output of the off-shore farms (in aggregate). This data facilitates a financial analysis of existing and future wind farms, at least for Denmark and by extension for developments in the German sector of the North Sea.

Denmark & Off-shore

Denmark went through two phases of off-shore construction. The first in the early 2000s which featured small WTs (2MW) and low CFs typically 25%.  The second phase of construction started in the late 2000s, Farms, such as Horns Rev 2 using larger and more modern WTs (3.6MW) have much higher capacity factors (see above). The most recent off-shore WF to be commissioned in Denmark was the 400MW Anholt farm developed by Dong. This had its first full year of operation in 2014. It is located on the East cost of Jutland in the Kattegat – the body of water which connects the North Sea to the Baltic Sea. The Danish side of the Kattegat is shallow (20mtrs max) and Anholt is located no more than 15kms off-shore.

Average wind speeds in the Kattegat are around 14mtrs/second i.e. 40% stronger than the Danish sector of the North Sea. 2014 was a low-wind year for Denmark. This is known because the average CF for Horns Rev 2 was 35.8% compared to a more normal 50%. In 2014, Anholt managed 55.6%. Thus in a normal year, Anholt should reach a CF of around 77%, i.e. 3x what would be expected from a land-based WF. For the sake of being conservative a CF of 65% has been assumed for the Kattegat for calculating IRRs and NPVs..


Name (Size)

Capacity factor %


NPV (Euro millions)

Bid (Euro/MWh)

Lifetime MWh (Euro)

Project Value




21 – 25

762 – 1180


71 (est)

Euro 1.355bn

Horns Rev 3






55 (est)

Euro 1.16bn?






(not yet known)

42 (est)




Discounted cash flows were developed based on the above numbers. For the he first 10 years Anholt will receive Euro140/MWh.  Thereafter it will get market rates. Key assumptions (all projects): discount rate 5% (cost of capital/debt – based on cost to Dong to raise bonds). Other assumptions were made with respect to operation and maintenance and the average price for electricity sold, after the first ten years have elapsed (Euro25). By year 6 the project will go (cumulative discounted) cash positive. By year ten when the Euro140/MWh finishes it will be Euro1bn cash positive. Dropping the average value of electricity by 20% (to Euro20/MWh) changes the IRR by 1% and the NPV marginally.

Horns Rev 3.

Denmark currently has two rounds of bidding for a new set of off-shore farms in the North Sea and the Baltic. It just awarded the Horns Rev 3 (HR3) farm (400MW) to Vattenfall. The company bid Euro103/MWh for 10 years. The average cost of a MW at the Anholt farm was Euro3.355m. Apart from wind speed (10mts/sec vs 14mts/sec) the main difference between HR3 and Anholt will be the use of WTs with a much higher output – probably the new Vestas 8MW units. These can be expected to reduce costs and possibly increase CF. Thus the financial assumptions for HR3 is that there will be a 15% reduction in costs (to Euro2.9m). Based on this, in year 9 the project goes cash positive and by year 10 is cumulative cash positive at Euro125m. The change in capacity factor (55% vs 65%) and the drop from Euro140 to Euro100/MWh has made a difference. Despite these changes the project still looks to be attractive.


Denmark aims to install a further 1GW of off-shore wind by 2020. It will soon be tendering for a 200MW off-shore WF in the Kattegat near Saeby, just north of Anholt. Cash positive year 7 and cumulative discounted cash of Euro238m by year 10. Project costs should be around Euro580m, possibly less. Other projects are planned for the South Kattegat.

Last Words

Recent reports such as one by Ernst & Young on European wind imply that off-shore wind is still expensive. However, it is clear that in some locations it is low cost.Offshore wind turbine

Indeed, the energy-only component in a Danish electricity bill for 2013 is around Euro48/MWh. As can be seen for the Saeby project, long run MWh costs are lower than the energy-only component. This does not mean that some support could not be given to off-shore wind to build a given project. The Danish auctioning process seems to be driving costs down (30% reduction over 5 years Anholt vs Horns Rev 3). A guaranteed payment for the first 10 years of operation provides some certainty for investors, after that it is down to the operator to maximise the return from the asset.

It is also worth noting, based on the Prognos report for the Bavarian government (published Nov’ 2014), that LCOEs for CCGTs are around Euro90/MWh. The E&Y report thus needs updating since it implies that off-shore wind power has a price similar to that of CCGTs – in fact off-shore wind is around 50 per cent cheaper than CCGT power . If the EU ETS was functioning then the differential would be even greater.

In the case of nuclear and the proposed Hinkley Point project: Anholt delivers electricity that is 46 per cent cheaper, HR3 will deliver electricity that is 58 per cent cheaper and Saeby 68 per cent cheaper. Other Danish wind farms are likely to provide off-shore electricity that is in the range 46-68 per cent cheaper than Hinckley. The only uncertainties in this are how wholesale prices in Denmark evolve in the next 25 – 30 years.

What is certain is that once 10 years have elapsed, the owners of Danish wind farms will be at the mercy of the markets and the wind. By contrast, owners of UK nuclear plants seem to have been gifted certainty on both price and market access. Whilst the UK talks about energy markets, the socialist Danes seem to have implemented them.

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