Offshore wind investments – Realism about cost developments is necessary

•We review offshore wind power investments.•Contrary to expectations costs increase.•It is unlikely to see a turn in the near future as complexity is growing.•We deploy an empirically based real option model.•Investments are not profitable across a large parameter range.

Data available from the recent boom in European offshore wind investments contradict widely held expectations about a decline in costs per kW. Our review shows that scenario projections for investment costs are systematically flawed by over-optimistic assumptions. Contrasting offshore wind technology with onshore wind and nuclear power, we argue that offshore wind could be a candidate for negative learning since a trend towards more complex OWP (offshore wind parks) exists and uncertainty remains high. We estimate technical uncertainty and input cost uncertainty to calculate whether investments in offshore wind technology are profitable today. Applying a real option model to two reference plants using empirically derived parameter values, we allow for sunk cost and the possibility to abandon the investment. We find that for a large parameter range, investments are not profitable, even with substantial support such as feed-in tariffs under the German Energy Act. Therefore, policy incentives for building larger and more complex offshore wind parks bear a high risk to fail in their aim of bringing down investment costs. Policies that instead incentivize the optimization of offshore wind technology – in particular by increasing the load factor and material efficiency and bringing down decommissioning costs – are more sustainable.