Wind Power Hopes for Sea Change

Private-equity firm Blackstone and German project developer WindMW have invested €1.2 billion in the Meerwind—German for "sea wind"—project, more than 50 miles (about 85 kilometers) off Germany's coast on the North Sea.  Meerwind, which counts 80 massive Siemens turbines, is expected to start delivering electricity late this year—about a year behind schedule.

Technological challenges behind offshore wind may be shrinking, but the economics remain daunting.  One kilowatt-hour of electricity generated offshore costs up to 18 European cents, compared with 11 cents for solar power and 8 cents for onshore wind. Coal and gas plants generate electricity for as little as 4 cents per kwh.

"Long-term subsidy programs need to be in place to cover this gap," said Magnus Dale, senior analyst at consultancy IHS Energy in Paris.

Germany is offering long-term support to the sector, guaranteeing subsidies for offshore wind farms for up to 12 years, despite having slashed its capacity target through 2030 by 40% as part of an effort to curb spiraling costs.

The country still expects total renewables subsidies to rise to around €24 billion this year, a bill that electricity consumers are paying through a surcharge on their power bills.

The industry believes that further industrialization and technological progress will help reduce the cost of offshore wind.

Michael Hannibal, head of Siemens's wind-power division, said the offshore industry aims to cut costs by around 40% by 2020.  This would still be around 35% higher than onshore wind today—and 2.7 times more expensive than coal and gas—but more reductions are expected to follow.  To achieve this, Siemens is looking to develop bigger and more efficient wind turbines.

Siemens's biggest wind generator has a capacity of 6 megawatts but the company needs to begin looking at 8 MWs, said Mr. Hannibal.  Rivals Areva and Vestas already offer 8 MW units.

Wind Power Hopes for Sea Change (WSJ Pay)