In focus: Road to net zero has become much bumpier

Weening the world off fossil fuels and developing clean alternatives was bound to be hard even in perfect circumstances, but the latest global developments are bringing into question if any of the current efforts to decarbonize and reach net zero are even achievable in the given time-frames.

Long hailed as one of the major pillars supporting the road to net zero and a prime example of one industry’s efforts to reduce costs through technological innovation, offshore wind is now facing serious headwinds, with one of the major reasons being the industry’s rush to reduce the Levelised Cost of Energy (LCOE).

In perfect conditions, this would have been a recipe for success, and this has been the case up until recently.

What the industry did not count on was external, unpredictable factors such as the COVID-19 pandemic and Russia’s war of aggression against Ukraine.

These factors had a ripple effect on the offshore wind industry, as well as every other industry, in the form of higher inflation, increased interest rates, and supply chain issues, to name a few.

The extent of the crisis is such that developers are willing to pay hefty sums to get out of their existing Power Purchase Agreements (PPAs) with utilities and try to rebid the projects in the coming auctions, such is the case on the US East Coast.

• Avangrid Terminates Long-Fought PPAs in Massachusetts at Cost of Almost USD 50 Million
• BP and Equinor Could Cancel US Offshore Wind Projects

Another indicator of just how deep the crisis is in the offshore wind sector is the lack of interest in the recent auctions.

The Gulf of Mexico auction in the US saw only one out of the three areas attract any kind of interest, with the bidding ending in just two rounds.

• RWE Secures Wind Area Lease Offshore Louisiana, Texas Sites Attract Zero Bids

For comparison, last year’s auction for acreage off New York lasted for three days and 64 rounds, with developers committing to pay $4.37 billion for the rights to develop wind farms.

Not to be outdone, the latest Contracts for Difference (CfD) auction round in the UK managed to attract zero interest from offshore wind developers.

• Offshore wind developers take a pass on UK’s fifth CfD round as maximum bid price was too low

The auction round offered strike prices of £ 44/MWh for fixed, and £ 114/MWh for floating wind, which were deemed insufficient by the industry from the moment they were announced.

The industry has warned that the government’s refusal to take the challenges offshore wind is currently facing into consideration and adjust accordingly might jeopardise the UK’s goal of having 50 GW of offshore wind and 5 GW of floating wind by 2030.

”The CfD scheme has been a hugely successful mechanism for deploying renewable energy, but going forward, changes to the framework for offshore wind are required to ensure the UK can enhance its energy security whilst keeping costs low. Even at higher strike prices than AR5, wind power will still be far cheaper than other technologies while also delivering highly skilled green jobs and associated inward investment,” Stephen Wheeler, Managing Director for SSE Renewables, said.

”The good news is that we now have a window of opportunity to ensure that the next auction round can bring forward the significant volumes of both onshore and offshore wind we need to achieve our energy security targets, unlock billions of pounds of investment, and enable the UK to retain its global leadership position in renewables. We stand ready to make these investments and look forward to working constructively with the Government to build on our past successes.”

The latest setback comes shortly after the calls by Britain’s representative body for the offshore energy industry, Offshore Energies UK (OEUK), to ”supercharge homegrown offshore energy” to deliver its growth and net-zero targets.

• UK’s oil & gas, offshore wind, CCS, and hydrogen investments to hit whopping £200 billion by 2030

On a more positive note, the marine energy industry has had quite a positive week, with the latest bit of good news coming from the very CfD Round 5 in the UK we discussed above.

Namely, 11 tidal energy projects with a combined capacity of around 53 MW have secured CfDs with a strike price of £198.00/MWh (€230.5/MWh).

• UK supports 11 tidal energy projects with record capacity of over 50MW in latest CfD auction round

The projects are scheduled to come online from 2027 onward.

Earlier in the week, the EuropeWave project selected the three finalists – CETO Wave Energy Ireland, IDOM Consulting, and Mocean Energy – to fabricate, deploy, and demonstrate their prototype designs in the third and final phase of the collaborative wave energy project.

• EuropeWave unveils top 3 wave energy finalists

Efforts to decarbonise hard-to-abate sectors such as shipping might be further hindered by a lack of clean fuels, DNV has warned in its latest Maritime Forecast to 2050, as the industry will have to compete with other sectors to secure the sufficient supply.

• DNV: Shipping faces uphill battle in securing carbon-neutral fuels

Increasing regulatory pressure to decarbonize, including stricter targets set by the International Maritime Organization (IMO) this July, means the shipping industry now needs to achieve a 20% reduction in emissions by 2030 and net-zero emissions by or around 2050.

To meet the anticipated demand of 17 million tonnes of oil equivalent (Mtoe) annually by 2030, the maritime sector needs to access a staggering 30-40% of the projected worldwide carbon-neutral fuel supply. Shipowners must therefore focus beyond fuels, in particular on what can be done now to achieve energy efficiencies and carbon emission reductions, DNV said.

The industry, on the other hand, is making an effort to meet the expected surge in demand for clean fuels by placing orders for large carriers and further investing in developing the technologies needed to convert the global shipping fleet to alternative fuels.

• Eastern Pacific pens deal for world’s largest ammonia carrier pair, orders up to 10 more ships from different yards
• EPS inks several MoUs on development of ammonia dual-fuel vessels
• SHI’s 200K cbm ultra-large ammonia carrier wins KR’s clearance
• WinGD, Samsung Heavy Industries join forces on ammonia-powered ships

As the starting point in the energy transition, the fossil fuel industry can be seen as a sort of barometer of how well the efforts to reach net zero are going.

Returning to the UK, the North Sea Transition Authority (NSTA) has outlined in its new report that the oil and gas industry is making progress on curbing emissions with the reduction in 2022 achieved for the third year in a row despite the increase in production. However, more action will be required to halve emissions by 2030, as agreed in the North Sea Transition Deal (NSTD).

• ‘Bold measures’ still needed for 2030 target but UK North Sea oil & gas emissions down for third consecutive year

The UK has also set ambitious carbon capture, usage, and storage (CCUS) targets. But the country will struggle to meet those targets unless the government and private investments come to the aid in this endeavour and turn the promising policy into a success.

• With UK’s 2030 CCUS targets being ‘very challenging,’ three measures can save the day

To help expedite the decarbonisation efforts in the fossil fuel industry, Offshore Energies UK (OEUK) has urged for more investment and an energy policy that will support the activities and solutions needed to bring the emissions reduction targets to life.

• With UK’s oil & gas industry on decarbonisation quest, more investment needed to tackle challenges ahead

In conclusion, it will take a massive joint effort by both the industry and the governments to right this net zero ship that seems to be veering off its course. A good first step would be taking into consideration the rising inflation and higher interest rates when settling on future auction strike prices, and further investments to help alleviate the disruption in the global supply chains.