What Next For Offshore Wind Energy?
By Shashank Krishna
October 1, 2021
The energy sector is responsible for nearly 75% of the global greenhouse gas (GHG) emissions. It is a critical focus area for climate change mitigation.
The International Energy Agency (IEA) and the International Renewable Energy Agency (IRENA) estimate that the world requires 2,000GW of offshore wind by 2050 to ensure that the global temperature does not rise above 1.5C of pre-industrial levels as contemplated by the Paris Agreement and meet the various net zero and other climate targets.
The offshore wind industry has a critical role if the world has any chance of averting catastrophic climate change.
The offshore wind juggernaut continues its impressive run in response, becoming a significant source for hitting the clean energy and climate goals. Bloomberg New Energy Finance (BNEF) estimates that the global offshore wind installed capacity will reach approx. 206GW by 2030 – growing at an impressive rate from the current level of approx. 35GW.
Such an astronomical growth will significantly benefit the global marine industry and the wider industry supply chain. In particular, the submarine cable making and laying business is expected to be one of the biggest beneficiaries of the offshore wind boom as demand for undersea high voltage cables grow. Prysmian estimates that in a typical offshore wind project, approx. 25% of the cost is spent on cables. Credit Suisse estimates that the offshore wind cable market in Europe and the US will expand from €1.5bn in 2019 to about €5.9bn in 2035.
As is well known, the cable projects typically with the highest margins involve offshore wind cables and undersea interconnectors. Offshore wind projects are becoming more complex. They are increasingly moving to the deeper waters – further stimulating demand for products and services in the submarine cable and the wider marine industry.
Here are five key trends to watch out for offshore wind in this decade.
Significant reduction in the levelised cost of offshore wind energy
Offshore wind is more expensive to build and operate than onshore wind. Shipping, logistics, higher upfront equipment costs all add to the costs. However, as the turbines are getting bigger and more efficient, the levelised cost of offshore wind on a per-MW basis has fallen significantly. Bigger turbines mean fewer turbines (and associated reduction in Capex and Opex costs) for an offshore wind project of the same capacity.
The scale, efficiency and technology gains are further leading to the cost reductions.
In addition, interest rates are at historic lows. This reduces the overall cost of capital for offshore wind, where upfront Capex costs are high and require leverage for the overall economics to work.