The Future of Offshore Wind
As the front runner of Europe’s offshore wind production, the UK is poised for further growth and technological development. Moreover, as demand for renewable energy increases, so does the need for the development of offshore wind farms with greater capacity and output.
Offshore wind is fast becoming the backbone of UK energy production and as one of the lowest cost ways to decarbonise, it’s future is bright. In recent years the unit price of offshore energy has halved with continued improvements in economies of scale set to progress.
So, what is the future for offshore wind and how is it going to affect the UK and wider population?
Historically, government subsidies have helped to get offshore wind development projects off the ground, which has contributed to the growth in Europe’s offshore energy production over the past two decades. However, in recent years, governments across Europe have started to phase out subsidies in part, opening up a complex landscape driven by competitive tenders.
As a result, subsidy free projects lead to unit price pressures on the supply chain and companies can only stay profitable if they are able to negotiate and control costs competitively. With government financial support no longer being required, corporate purchase power agreements are expected to be a major value driver in offshore wind.
The growth of the offshore wind sector is largely reliant on strong project management in order to keep costs down and deliver projects on time. This is becoming increasingly more difficult as new technologies develop and mature. Moreover, despite a global increasing demand for decarbonisation following the Paris climate agreement, the sector faces future challenges as cross cooperation is needed, yet regulatory regimes remain largely national.
Bigger turbines with greater capacity are being deployed, which will lead to significant increases in cost effectiveness but the speed of deployment of new technology raises questions of reliability. In the past decade alone, output has increased more than 100% and this is only expected to continue to rise.
As demand increases, so does the need to build wind farms further offshore in deeper waters. This has led to the development of working floating platform prototypes, yet considerable cost reductions are still required to make this a viable option in the long run.
Outside of Europe, the offshore wind sector is growing in momentum, with China representing the third largest market outside of the UK and Germany. The US has finally stepped up to the plate and envisions 2% of total electrical output to come from offshore wind by 2030, increasing to 7% in 2050. In addition, China has a strong commitment to offshore wind and is an emerging market driven by the increasing need to tackle the country’s severe pollution problem. However, the market is dominated by local players and is difficult for outside investors to enter.
Taiwan has already embarked on a new boom in renewable energy. The current president wants to source 20% of electricity from renewable sources by 2025, representing a 3GW total target. With similar wind conditions to the UK, the pipeline for offshore wind is likely to increase.
South Korea is another emerging market, but faces considerable issues with opposition, economic challenges and regulatory problems.
The future for offshore wind is bright and will be characterised by emerging economies outside of Europe as well as developments in technology and investment. A movement away from government subsidised funding opens the market to institutional investment sources and we anticipate new players entering the market. Moreover, as the complexity of offshore wind projects increases, so will competition throughout the supply chain and bidding process.
For strategic advice and insight into how to navigate the global offshore wind sector successfully, get in touch with us now.
