The offshore wind industry has a problem with how it forecasts the output of projects, industry leader Ørsted has warned.
On Tuesday, Denmark's Ørsted issued a statement alongside its Q3 results explaining that it was downgrading its anticipated internal rate of return for several projects in Europe and Taiwan, from 7.5 to 8.5 percent down to 7 to 8 percent. The company’s shares fell on the news.
The underlying issue is an underestimation of wake and blockage effects. Ørsted insists the problem is not company-specific, but rather an industrywide issue — adding that its forecasts are usually more conservative than those of third parties.
Asked on an analyst call on Wednesday morning if competing developers might have an advantage over Ørsted if they don’t update their own models, CEO Henrik Poulsen said that would serve nobody’s interests in the long run.
“It's quite clear that anyone can win an offshore wind project if they want to just dial up their expectations on specific assumptions, including production forecast. So this all comes back to being a disciplined and prudent allocator of capital,” he said.
“It goes without saying that if competition has much more optimistic production forecasts than us that will, obviously, in isolation, impact our competitiveness. But when you look at it from a shareholder's perspective…our primary task is to make sure that we only take on projects where we do indeed create value."
"It is not in the interest of any shareholder or us to operate with inflated production forecasts and [win] projects on that basis," Poulsen said.
Ørsted is the world's leading developer and operator of offshore wind farms, with a major presence in Europe, the U.S. and Taiwan. In the U.S., the company is involved in developing projects from Massachusetts down through Virginia.
Bigger turbines, bigger wake effect
The wake effect describes the impact that turbulent air has on the turbines behind it. The blockage effect is the result of airflows slowing down as they approach an obstacle.
The latter issue was the focus of a paper published by DNV GL last summer in which the author, Jim Bleeg, warned that the standard approach was biased, as it does not account for the full extent of the blockage effect. Bleeg refers to an “unspoken assumption” in the industry that wind turbines only impact the units behind them. The models don’t capture the impact a turbine can have on turbines located to the side or even to the front. Bleeg refers to this as the “wakes-only” approach.
However, the blockage effect starts farther out from the obstacle than previously assumed, he said. That means the blockage effect of turbines deeper in the wind farm can even affect those in front it.
In an interview, Bleeg agreed with Poulsen’s assertion that the issue will impact the entire sector’s forecasting methodology.
DNV GL has already abandoned the “wakes-only” approach, with updated modeling in place for the last year.
With an improved approach, Bleeg sees potential for a future upside.
“Since it hasn't been accounted for in the past, it stands to reason that if we [do] account for it, we might be able to design more efficient wind farms. And I have to say, the industry is very interested in that,” he said.
As the industry moves toward larger turbine sizes, like GE’s 12 megawatt Haliade-X, Bleeg sees a risk that the blockage impact could grow.
“As these turbines grow larger, they're reaching up higher into what we call the atmospheric boundary layer, and that could have consequences for the blockage effect,” he said.
The wake effect, however, will decrease with larger turbines, potentially offsetting some of the detrimental impact.