Offshore Wind Set for Long-Term Growth despite Near-Term Headwinds

By Tsvetana Paraskova

The offshore wind industry is poised for exponential growth over the next decade amid expected technology and supply-chain development and policy support that will make offshore wind more accessible in more regions around the world.

Despite current setbacks in installations in wind energy – including onshore and offshore – due to supply chain issues and cost inflation, the wind power sector will be a key driver of global renewable capacity additions, with increased focus on offshore wind, analysts say.

Wind Energy Market To Top 1 TW by Year-End

Global wind energy installations are set to exceed one terawatt (TW) by the end of 2023, Wood Mackenzie said in its latest outlook on the industry in April.

Growth will accelerate significantly this decade. It took wind energy 40 years to reach the first TW, but the next TW of installations will need only eight years, Wood Mackenzie Research Director Luke Lewandowski said.

“The next decade will also see an intensified focus on offshore wind as the sector matures and technology innovation and supply chain development help make offshore development more accessible in different regions,” WoodMac noted.

“The global offshore wind sector will experience sevenfold growth by 2032 and account for a 26% share of total capacity over the ten-year outlook.”

Over the next decade, offshore wind capacity will be added in 30 countries, with Europe and China leading global offshore capacity additions with an 81-percent share, according to WoodMac.

Despite near-term setbacks due to supply chain issues, the long-term outlook for offshore wind installations is bright, the energy consultancy says.

Europe, where countries have boosted capacity targets in the wake of the energy crisis, is expected to add more than 343 GW of offshore and onshore wind capacity over the next ten years. Offshore wind is expected to account for 39 percent of new capacity, although onshore growth in emerging markets in Eastern Europe and Uzbekistan, and the repowering of ageing fleets in more mature markets, including Germany and Spain, will also contribute, WoodMac said.

Short-Term Headwinds

Despite the current headwinds with supply chain and cost inflation, the wind power industry should be optimistic about the longer-term prospects, the consultancy said in a separate analysis this year.

“Despite the recent inflationary pressure, onshore wind remains one of the cheapest energy sources globally, while offshore wind leads the cost reduction race by 2050, due to capex and opex improvements and economies of scale,” Wood Mackenzie noted.

Global commissioning of wind turbines declined by 15 percent to 86 GW in 2022, as supply chain constraints and uncertainty around subsidies hit project development, BloombergNEF said in its Global Wind Turbine Market Shares report earlier this year.

Commissioning of new offshore turbines fell to 9.1 GW, which was down by 46 percent compared with 2021. The drop was partly offset by strong activity in the UK which commissioned more than 3 GW of offshore wind for the first time, BloombergNEF said.

“We expect the drop in offshore wind to be short-lived,” said Oliver Metcalfe, head of wind research at BloombergNEF.

“Germany and the Netherlands will install major projects again in 2023, while the industry will also ramp up in newer markets like France and Taiwan.”

Last year, Europe invested 17 billion euros in the construction of new wind farms, the lowest investment level since 2009, industry association WindEurope said in its Annual Financing and Investment Trends report at the end of March. The investment financed wind farms with a total capacity of 12 GW in all of Europe, including 10 GW in the EU. These wind farms will be built over the next few years and must not be confused with annual installations. In 2022 the EU installed 16 GW and WindEurope estimates that the EU will build on average 20 GW of new wind farms over the next five years, the association says.

Yet, Europe needs to add more capacity each year to reach the targets, WindEurope said.

In 2022, there were no Final Investment Decisions (FIDs) for large-scale offshore wind farms. France was the only country to finance two small floating offshore wind projects with a total capacity of 60 MW, the report found.

At least three commercial-scale offshore wind farms were projected to reach FID in 2022 but delayed the decision, and WindEurope now expects them to reach FID this year.

Permitting delays and emergency measures in some EU electricity markets deterred investors last year, according to the association. In addition, the rising interest rates impacted the economics of wind energy projects in 2022.

“Especially big and CAPEX-heavy offshore wind projects are sensitive to interest rate changes and financing risks,” WindEurope noted.

Industry Calls for Acceleration of Offshore Wind Installations

At the WindEurope Annual Event 2023, the industry called for acceleration of the permitting process, support and expansion of the supply chain, acceleration of grid build-out, and optimisation of the use of the electricity grid.

Sven Utermöhlen, CEO Offshore Wind at RWE, said,

“It’s time to ramp up the European offshore wind supply chain on a large scale. What we need is a targeted action plan and cost-reflective offshore wind auction designs. Only with the right investment framework can offshore wind create valuable jobs in the future and deliver long-term low-price electricity.”

Rasmus Errboe, Executive Vice President and CEO Europe at Ørsted, commented, “It’s time for a new societal contract in offshore wind and renewable energy.”

“The complexity we face should not stop us from taking the next step forward. Together, let’s open the path to progress,” Errboe added.

The supply chain needs to rapidly expand for Europe to meet its wind energy capacity targets by 2030, Rystad Energy said in a recent report produced in cooperation with WindEurope.

“While the energy crisis and postCovid-19 recovery spurred renewable energy commissioning, materials and components price inflation has put the wind energy supply chain under severe financial pressure,” according to the report published in April.

The estimated supply-demand balance shows that for wind energy capacity targets to be met by 2030, there would be a need to rapidly expand capacities across the supply chain unique to wind, including turbines, towers, foundations, and wind turbine installation vessels (WTIVs), among others, the authors of the report wrote.

UK Offshore Wind Generation Sets Record

Offshore wind farms in UK waters generated enough power to meet the electricity needs of 41 percent, or 11.5 million, of the nation’s homes in a new record year in 2022, the latest Offshore Wind Report from The Crown Estate showed at the end of April.

Offshore wind generated 45 TWh of electricity last year, up from 37 TWh in 2021 and a six-fold increase over the past 10 years. Offshore wind is estimated to generate enough electricity to meet the needs of nearly half (47 percent) of UK homes by the end of this year.

The new record in 2022 was achieved despite wind speeds coming in lower than the long-term average. In 2022, Hornsea 2, the world’s largest offshore wind farm with capacity to power 1.1 million homes, became fully operational, as did Moray East off the North East coast of Scotland.

There are now 50 wind farms in UK waters which are either operating or under construction, with another seven that have secured a Contract for Difference (CfD), The Crown Estate said. The average size of an operating wind farm stands at 0.3 GW, while the average size of a wind farm under construction is 1.1 GW, according to the report.

Last year, UK offshore wind capacity accounted for 24 percent of global capacity, second only to China, with continued progress to push hard to meet the Government’s target of 50 GW of offshore wind capacity by 2030.

“With more demands than ever on the nation’s invaluable seabed, we must work across sectors to carefully plan how to unlock its full potential whilst supporting a thriving natural world for the benefit of the nation,” said Gus Jaspert, Managing Director for Marine, The Crown Estate.

US Offshore Wind Market Grows Rapidly

In the US, the offshore wind market is rapidly growing, with projects across 32 leases totalling 51,377 MW of expected capacity, which would be enough electricity to power the equivalent of more than 20 million US homes, the American Clean Power Association (ACP) said in a report in early May.

Currently, just 42 MW of offshore wind capacity is online in the US.

The East Coast dominates the projects, with 84 percent of the project pipeline, accounting for 43,115 MW.

The US domestic supply chain for offshore wind is also expected to see significant growth, with 14 facilities announced or under construction. Investment announcements for major offshore wind components have exceeded $1.7 billion, and with three state solicitations pending, more supply chain investments are anticipated, bolstering the sector’s expansion, ACP said.

Still, project costs are rising, due to disruptions in the current supply chains, increases in commodity prices, inflation, and higher interest rates, the association noted. These near-term challenges add to the currently lengthy and unclear permitting and regulatory timelines.

“A strong, collaborative approach between industry stakeholders and government bodies will help us tackle obstacles – like clarifying permitting processes – and realize the full potential of offshore wind as a key component of our clean energy future,” said John Hensley, ACP’s VP of Research & Analytics.

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