Offshore wind's potential: what will it take to succeed?
Following two decades of development, construction and operation, pioneers in Europe have shown that offshore wind has a significant part to play in the transition to net zero. With climate change concerns at the top of national agendas around the world, ambitious targets for this energy source are being set, driving technological and geographic change.
As an abundant resource with steadily improving competitiveness, wind power is proving itself a key climate solution and strong business proposition. While the industry can take advantage of technology and cost improvements to date, it does not mean the journey to expand the industry to its full potential is straightforward.
To put the scale of opportunity into perspective, offshore wind, currently provides just 0.3 percent of global power generation, but it has the potential to generate 18 times current electricity demand. What will it take to succeed in this rapidly evolving market, and how can offshore wind developers position for success?
Support by Governments is set to underpin the continued growth of offshore wind project pipelines in mature European markets. At the same time, activity is ramping up in emerging markets including Taiwan, South Korea, Japan, Australia, the USA, Brazil, Ireland and Poland.
With so many new markets opening up simultaneously, the challenge for investors and developers is how best to build the appropriate capability to serve interests of each market from their established European hubs.
The industry’s global expansion presents opportunities in abundant scale, yet few organisations will be able to operate successfully simply by deploying the strategies that have delivered success in parts of Europe. Developers will need to establish global operating models with clear responsibilities for effective working across continents, cultures and time zones.
While key capabilities, such as engineering, might be deployed effectively from a centralised location, others will require local teams, with deep understanding of the individual markets and project and commercial management capabilities. This includes permitting and land acquisition, local content regulation, contract terms and conditions, legal codes, supply chains and trade protection measures.
The successful firms will be those that plan and execute growth strategies to optimise the balance of central and local capability for each new jurisdiction, with local partnerships likely to play a major role.
While developers have their part to play, Governments in these emerging markets have their work cut out too. Investment will need to consider the full value chain, from component manufacturing to development of enabling infrastructure such as ports and harbours, as well as improvements to the transmission network.
Only this way can the viability of wind power be understood, modelled and proven to attract investors, be they integrated suppliers, independent power producers or sovereign wealth funds.
Maintaining cost advantage
In established markets, offshore winds relentless march has gone hand-in-hand with impressive project cost reduction. This has been driven by competitive auctions for offshore wind offtake price support (for example the UK’s Contracts for Difference scheme) and achieved by a combination of larger and more efficient turbines, improved manufacturing and installation techniques, and a price squeeze across the supply chain.
Sustaining low-cost offshore wind in the growing European market, together with significant international market expansion, will test the robustness of supply chains.
With offshore wind set to go global, it is clear that pricing will need to support and sustain that growth, with no-one benefiting from a race to the bottom.
To address these challenges, developers will need to engage with new supply chain partners in the emerging markets to develop the levels of excellent performance enjoyed in Europe.
Capitalising on local presence and a deep understanding of local supply chains including competence, capability and capacity will not only support an effective contracting strategy, but ultimately the drive towards net zero.
Commercialising floating foundations
To date, commercialised offshore wind has been deployed using a variety of fixed foundation technologies. These, however, can only be built in maximum water depths of 60m, usually situated in sight of the coastline, limiting the sector’s long-term potential.
The emergence of floating foundation technology, with pilot projects in semi-submersible and spar designs already operating, provides a route to opening the eighty percent of the world’s offshore wind resources currently out of the reach.
However, while having access to better wind resource, projects in these more challenging areas will incur higher capital costs compared to fixed foundation projects, with a new set of design, cost and deployment challenges.
Although the turbine technology is the same, most offshore floating costs can be attributed to non-turbine equipment or ‘balance of plant (BoP)’. This will be where most of the opportunities to optimise cost will lie.
This optimisation process will inevitably follow the pathway that fixed foundation offshore wind has followed. The overlap with subsea oil and gas skills and experience of technologies including dynamic cable systems and foundation moorings will contribute to the optimisation of floating wind BoP, across both the developer and supply chain.
The next challenge for offshore wind
Responding to these challenges is key to success for the offshore wind industry over the coming decade. Supply chain, cost and schedule performance combined with the existence of well-established financing arrangements, including sovereign export credit guarantees and debt facilities will underpin success.
For flexible industrial scale investors looking to diversify into low-carbon energy, or those looking to consolidate their existing presence in the renewables arena, offshore wind presents immense opportunities
Yet, to create sustainable development, construction and operations capability, it is essential for organisations to develop strategies and growth models that optimise the application of their people, process and business systems as they move towards new horizons. With these plans in place, decisive action can be taken, offering the best chance of replicating the successes from offshore winds European proving ground.