Global potential for offshore wind

In February, Wood Mackenzie sent out a press release stating that the global offshore wind demand will increase nearly six fold over the next ten years. With such huge global potential, We spoke to newly founded World Forum on their outlook.

By the end of 2017, offshore wind had only been deployed commercially across seven markets, with UK and Germany accounting for 68% of the grid-connected capacity. Wood Mackenzie’s press release showed. 101 gigawatts of offshore wind capacity will be installed across 18 different countries between 2018 and 2027, representing a nearly six-fold increase.

“Yes”, agrees Gunner Herzig, managing director of WFO. “The time is the right for offshore wind globally and everyone around the world acknowledges this fact. Given the developments, we have seen and if you look at where we are today. I don’t think anyone expected this manner of growth and it is really amazing what has happened globally.”

The global momentum is increasing to push renewables. Offshore wind specifically has the record of accomplishment to prove its readiness. Herzig: “The decommissioning of Vindeby in 2017 showcased how successful a wind farm can be in development, build, operation and removal. Offshore wind has become mature in the market and importantly among investors it is seen as a stable technology”

“A more sophisticated approach”

WFO is a non-profit organization set up at the end of last year. With ten founding members hailing from international companies ranging from utilities, suppliers, and advisory firms. Herzig: “Our goal is to promote offshore wind globally. We feel that a global perspective is necessary right now. There has been tremendous progress even in 2017-2018 with unique auction results related to zero subsidy bids and dropping prices in combination with the expansion we have seen globally.” In a nutshell, WFO wants to provide information, hold events and to support governments in realizing offshore wind ambitions. Which when you say it quickly enough sounds easy enough. Yet, there are still some hurdles to overcome.

One of these challenges is the financial aspect. Herzig: “If we are looking at steep growth, the industry will require a more sophisticated approach to raise funding. I think in the future with the mass roll out of offshore wind, it looks more likely that companies will invest in different wind farms and or projects. Perhaps even investing in different sites around the world. This diversification could make it easier to attract funding, which is troublesome, especially in new markets. It also decreases the risks, as an investor would receive a package of projects. Diminishing the wind risk at one location and any issues with regulatory agreements.” Herzig sees the WFO as a platform for round table discussions with various stakeholders to develop these kinds of ideas that will further offshore wind innovation.

Another challenge Herzig elaborates on is how emerging markets such as United States and Asia could take full advantage of the European learning curve. Though he believes that each country will need to go through their own local learning curve, it would be wise to take the European experience and to translate this to their own market. “You need your own local industry and, for instance, train people in operations and maintenance. This takes time and you cannot expect it to happen overnight. Not everything can be done in or be produced in Europe. It is something all countries will need to go through and with that it cannot be expected the cost level of offshore wind will be similar to what we are now seeing in Europe“, says Herzig. In any case, Herzig is keen to find out how European companies will position themselves within the global playing field.

On this, Wood Mackenzie states that Offshore LCOE across Europe is also projected to go down at a fast pace with the average LCOE across Europe for grid-connected projects expected to reach 53.6 EUR/MWh by 2027, dropping from approximately 107 EUR/MWh in 2018. In addition, as the pool of offshore markets is expanding beyond a handful markets in Europe, local content policies in different forms are becoming an increasingly important topic for developers and suppliers as governments look to bolster their local industry and create more job opportunities for local labour forces.

When looking at the mentioned emerging markets we clearly refer to United States and Asia. Recently Taiwan has been the hot topic, not in the least based on feed-in tariff. Taiwan awarded a total of 5.5GW of offshore wind capacity in two separate tendering rounds in April and June of 2018.  Just before the magazine went to press it was announced that Taipower had signed power purchase agreements (PPAs) with China Steel Corp (CSC) and Copenhagen Infrastructure Partners (CIP) for three offshore wind projects (according to the local media). The PPAs were signed for the 300MW Chong Neng project, developed jointly by CIP and CSC, as well as for CIP’s 552MW ChangFang and 48MW Xidao, all located offshore the Changhua County.

Under the 20-year agreements, a tiered feed-in tariff (FIT) has been set to buy the energy at a higher price in the first ten years before it is reduced in the second decade, the Taiwanese Central News Agency said. The agreed rate for the first decade is TWD 6.2795kW/h set to later be lowered to TWD 4.1422kW/h, Taipei Times reported Taipower as saying. Taiwan’s Ministry of Economic Affairs (MOEA) awarded grid capacity to the three projects back in April last year. Shortly after, CIP and CSC signed preferred supplier agreements with MHI Vestas.

Herzig notes that the Japanese market is also getting more exciting: “Given the strength of the Japanese economy and their large manufacturing industry and sophisticated investors. I am convinced Asia will remain a major topic for this year.

In relation to US, Herzig says the progress there is spectacular: “I believe more US companies will embrace offshore wind, perhaps even oil and gas companies. We have already seen companies like shell delving into offshore wind. Moreover, if some of the US oil and gas giants would enter the offshore wind market: That could be a game changer. Some of these giants have very deep pockets and very specific offshore expertise that could prove advantageous. I expect the US market to really take off. The US west coast shows great potential for floating wind. In addition to Asia, the industry is looking at how the US develops.”

On the US development Liz Burdock, the Executive Director of the Business Network for Offshore Wind, also a member of WFO, told Offshore WIND in an Expertise Hub interview: “As California goes, so does the rest of the country.” Burdock is referring to the fierce competition between the U.S. states related to renewable energy portfolio. As there is no federal outline for renewable energy, each state decides on their own renewable energy policy. The U.S. has two demonstration projects coming up in 2020, the two-turbine 12MW Coastal Virginia Offshore Wind project and the Icebreaker Wind project in the Great Lakes in Ohio. With a potential third demonstration project planned plus the move to commercialization, things are picking up state-side. “As the Business Network, we see ourselves as the gateway for European companies to get involved in the United States. With the offshore wind pipeline increasing in the United States, there are supply chain capacity issues. So we need European companies to partner with US companies.”

“As California goes, so does the rest of the country”

Not just cost reduction and new markets will be a hot topic for the global offshore wind industry, innovation still remains key. One such an element is the steady development of floating wind turbines.  Herzig comments: “Floating will be key for Japan, Norway, Spain, Portugal, the US West Coast and Hawaii. It could potentially revolutionize offshore wind. I see so many promising technological solutions out there and it is just a matter of time until we see the first commercial-scale floating offshore wind project. Equinor’s Hywind has made huge strides and shows companies that it can be done. Looking at a large scale and commercial role out – floating wind could well be the single most interesting technological development.

This article was previously published in the Offshore WIND magazine, issue 1, 2019.