Offshore Wind Energy - Global market, cost to value, and mid-term prediction

Global opportunities and challenges are manifold, but both are faced with the pressure of time and scale in the fight against climate change. Under scenarios outlined by the world’s leading energy institutions, including the International Agency-Energy (IEA) and the International Renewable Energy Agency (IRENA), achieving carbon neutrality by 2050 – a commitment shared by a majority of countries and conglomerates – will call for rapid and tremendous growth in offshore wind installed capacity.

The global market potential for offshore floating wind is significant. Vast wind resources offshore combined with large water depths make floating wind solutions the only realistic option at many locations.

According to recent research by McKinsey global installed offshore wind capacity is expected to reach 630 gigawatts (GW) by 2050, up from 40 GW in 2020, and with an upside potential of 1,000 GW in a 1.5° pathway scenario.

The global offshore wind market size was valued at $31.8 Billion in 2021 and will reach $56.8 billion by 2026, growing at a compound annual rate (CAGR) of 12.3% from 2021 to 2026. Offshore wind turbines are increasingly being installed and are showing robust growth.

Moving from cost to value 

Offshore wind is a scalable, affordable, and commercially available energy technology. With tremendous capacity to produce power, offshore wind has significant potential to rapidly displace fossil fuels, delivering economic growth and bolstering energy security.

 After a decade of cost reductions, offshore wind is at an inflection point with a highly competitive levelised cost of electricity (LCOE) that is $3/ MWh below that of coal and $18/ MWh below that of gas. This means that the rate of price reductions that we have seen is likely to slow. Despite this, the cost profile of electricity generated from wind energy versus electricity generation from fossil fuels remains favorable – it has been for some time and will continue to be. Because the offshore wind supply chain is subjected to the fluctuation of commodity prices globally, fluctuations in the cost of wind have to reflect the underlying cost of capital, commodity costs for steel, copper, and other materials, and logistics costs. 

The past two years have shown the world how volatile the commodity markets are during a global crisis. By embedding market and regulatory imbalances that favor projects with the lowest bids, governments across the world have encouraged a ‘race to the bottom’ on wind pricing. This, combined with inflationary pressures, has exacerbated the squeeze on profitability for the wind industry. Limited profitability has in turn led to underinvestment in manufacturing capacity globally, creating the likelihood of supply chain bottlenecks.

 To meet the increasing offshore wind ambitions globally, massive investments are needed to build up the offshore wind supply chain and deploy offshore wind projects at the pace and scale needed to achieve the 380 GW of cumulative capacity by 2030 projected under IRENA’s 1.5C scenario. To restore and build a healthy offshore wind industry, governments and industry must ensure a balance between the need for affordable energy, delivery of wider socioeconomic benefits, and a sustainable supply chain. Several countries are trying to capture greater socioeconomic value by including non-price criteria (NPC) in project selection.

Mid-Term prediction for offshore wind Reality 

The sector is grappling with the shift from a handful of single turbine demonstrators and the five wind farms that are operating or under construction today: Hywind Scotland & Kincardine (UK); Windfloat Atlantic (Portugal); Hywind Tampen (Norway); and Goto (Japan). Much applied learning needs to come out of the remainder of this decade, though it is likely to be dwarfed by what happens in the 2030s, when the floating offshore wind is expected to really accelerate.

Over the next five years, we expect to see a small number of 100–500 MW projects successfully built. The next phase of installation for floating will shift to France and China, which between them has 300 MW of floating projects in pre-construction and is set for construction later this year or next.

China is also active in floating offshore wind, with the Fujian Nanri Island 4 MW demonstrator and the 16.6 MW Nezzy demonstrator both heading into construction shortly, as well as the two 100 MW phases of Power China International Group’s PFS-1 Southeast Wanning project. Depending on completion times, this project is expected to become the world’s largest floating offshore wind farm, demonstrating China’s commitment to floating offshore wind, alongside its unequivocal leadership in fixed offshore wind deployment. 

With the majority of the global floating wind resource in deeper waters, we can see that confidence in the ability of the wind sector to successfully deploy is prompting governments and leasing bodies to prepare and run auctions for the seabed.

In 2022/2023, we have seen progress in the UK with ScotWind, INTOG, and the Celtic Seas leasing rounds, as well as activity in Korea, the US, Spain, Portugal, and Norway.

The UK has a set of projects in the pipeline, including the TotalEnergies/Simply Blue Erebus project (96 MW), the EdF/TNB Blyth demonstrator (70 MW), and the CIP/ Hexicon Pentland project (100 MW), highlighting the importance of the UK as a place of learning for the global floating market.