Offshore wind is poised to become one of the key technologies powering the decarbonisation of the global economy. Wood Mackenzie projects that almost US$1 trillion will flow into the offshore wind industry over the next decade. By 2030, we expect 24 countries to have large-scale offshore wind farms, up from nine today, with total capacity likely to reach 330 GW, up from 34 GW in 2020.
There is further upside potential, too, such as Europe’s accelerated push to capitalise on offshore wind and other renewable technologies to reduce its dependence on Russian gas and coal. Similarly, competitively priced offshore wind is likely to play an important role in powering electrolysers to produce hydrogen, so some of its growth will be tied to the scaling up of the green hydrogen industry.
The opportunity in offshore wind has not gone unnoticed and is attracting a growing number of competitors. We’re seeing a new set of factors beyond the bidding price emerging, which will determine winners and losers in offshore wind. They also offer an opportunity to improve margins by shifting the focus away from just price and offering new avenues for innovation and differentiation. These four factors – increasingly cropping up as criteria in the tender and auction process – will necessitate a strategic shift for competitors in the offshore wind industry.
We expect the trend to accelerate in the coming decade and to include elements not prominent in today’s tenders. These new factors are as follows.
Local content:
Of the four new factors, local content policy, is already in many tenders and auctions. Local content is the value a project can bring to a local, regional or national economy. We estimate that almost 80% of capacity connected between 2021 and 2031 will be influenced by local content policies, more than double the share of capacity influenced by them to date.
The focus on local content has been particularly strong in new offshore wind markets in Asia and, more recently, the US, where commitments on economic contributions to local workforce and infrastructure investments are already exceeding US$1 billion, although the first commercial project has yet to be installed.
The COVID-19 pandemic has placed stronger emphasis on jobs everywhere, however. Each market will have its own flavour of local content rules and require different strategies as countries work to ensure compliance with World Trade Organization regulations that restrict local content policies.
The size of the economy compared with the size of the offshore wind opportunity will also influence local content rules. For offshore wind-industry participants, the ability to establish and mobilise local workforces and industries will be needed to compete effectively on local content.
Systems integration:
Systems integration involves combining offshore wind projects with other technologies and capabilities that help economies decarbonise and produce greater value from the offshore wind project. It can include, for instance, pairing offshore wind with electrolysers to produce hydrogen, energy storage, interconnections to multiple regions, providing ancillary services and floating solar projects.
Systems integration will be most important in markets where the share of renewable resources is high, providing reliable supply is increasingly challenging and where governments are committed to reaching net-zero targets and will, therefore, support green hydrogen development. The three wind-energy islands proposed in Denmark and Belgium that pair together in different combinations offshore wind, interconnections to multiple markets, storage and hydrogen production are the most prominent and ambitious examples of systems integration to date.
Wood Mackenzie expects more markets to adopt systems integration requirements as the share of renewables increases. Systems integration presents significant challenges to some offshore wind players, as the capital and range of capabilities needed spill over into additional technologies, power-market wholesale marketing and trading capabilities, and developing markets for green hydrogen.
Ecological mitigation:
Addressing environmental impact and coexistence with fishing and aquaculture will be critical to quelling stakeholder opposition to offshore wind projects. Most offshore wind projects are closed off to other users of the sea, which impacts commercial fishing, in particular. With offshore wind acreage set to grow rapidly in the coming years, finding ways to enable coexistence with other uses will improve the chances of success for developers.
Optimised use of the sea is most important in areas such as continental Europe, where space is more limited. This is pushing developers to use larger turbines to enable greater MW per square kilometre. However, increasing MW/km2 can also have a detrimental impact on capacity factors.
Successfully addressing ecological mitigation requires an understanding of and willingness to collaborate with other users of the sea early in the project lifecycle. Technological innovation will be required to diminish the environmental impact during installation and optimise the output of the turbines, which will, in turn, reduce the acreage required per GWh and, ultimately, not only reduce the environmental impact but possibly leave it improved.
Sustainability:
One final factor that is just starting to enter tenders, but which will soon become another frequent parameter, is sustainability. Sustainability will primarily take two forms in offshore wind – reducing the lifecycle emissions of offshore wind projects and the recyclability of the projects. Offshore wind is one of the lowest CO2-emitting renewable technologies per KWh. Still, there are opportunities to reduce emissions intensity such as procuring green steel, reducing the length of supply chains to cut emissions from transport, and purchasing parts produced in countries with greener electricity supplies.
With 85% to 95% of offshore wind turbines already recyclable, the challenge has been turbine blades, which are made of composite materials such as glass or carbon fibre. Innovations over the past year have created a path for the blades to be recycled, paving the way for policymakers to use recyclability as a bidding criterion in tenders. Indeed, recyclability is already lined up to be part of three upcoming tenders.
