The Economics of Offshore Wind Energy

The global community is yearning for a solution to climate change. Research has shown one cause of climate change could be emissions from electricity production by fossil fuel sources. Deepwater offshore wind energy is being looked into as a potential solution, and with every new endeavor a cost analysis is necessary. To conduct this study I reviewed reports, articles, and papers by economists, potential developers, and by research institutions and universities. I took this information and applied it to my own calculations on the cost of hypothetical deepwater offshore wind development in the Gulf of Maine. I found it important to consider two types of costs, both social and private. Learning curve effects play a major role in a decreasing cost over time. External costs can be added to private costs by applying a government tax on carbon, done through pricing carbon. I used three different pricing schemes. When compared to natural gas by a means of levelizing the costs of energy (LCOE), the most aggressive carbon tax caused the LCOE of offshore wind to be competitive by 2030. Offshore wind will not be viable in the coming years without a carbon tax and a potential government subsidy. If no developers invest in a farm, learning curve effects will be stunted and not be able to take the course of action predicted. The effect of learning-by-doing over time is crucial to decreasing costs. If an aggressive pricing scheme on carbon is adopted, it is possible deepwater offshore wind energy could become competitive in less than two decades