Westwood Global Energy Group’s Marina Ivanova sheds light on the global offshore wind market.
Source: Westwood Global Energy Group.
Westwood Global Energy Group (Douglas Westwood) has tracked the emergence and development of the offshore wind market for the last 17 years. Over this time, we have seen a niche industry supported by subsidies and delivering near-shore, small-scale projects grow into a multi-billion-dollar industry. As we look to the future, we see several emerging trends that will define the industry over the next decade.
A step-change underway
Increasing project scale has been a major underlying trend in the industry. Early offshore wind farms were in water depths of 10m or less, and were less than 5km from shore. Capacity, water depth, and distance from shore have all been increasing since these early projects. With the development of floating foundations, offshore substructures can now be deployed with efficient connection in 50m-500m water depth, delivering a step change in technology innovation. Some floating projects have emerged in recent years. Statoil’s Hywind Demo, off Norway, is the first floating wind turbine, which started operation in 2009. Interest in floating wind is growing, with a number of pilot and early stage developments investing in floating infrastructure.
Costs efficiency vital
With the surge in offshore wind construction activity, and the reliance on subsidies to encourage construction, targets have also been set to encourage cost efficiency in the sector. This includes the joint UK government and industry target of US$127/MWh (£100/MWh) by 2020, originally set in 2012. Since then, a combination of economies of scale, increased turbine efficiency, standardization of equipment and supply chain consolidation have contributed a great deal to material cost reduction across the sector. Subsequently, the UK has reached its government cost target four years earlier than expected, with the cost of offshore wind in the country falling to $122/MWh (£97/MWh) as of January 2017. Furthermore, with the reduction in installation costs, offshore wind continues to improve its competitiveness over fossil fuels and it could become a competitive business proposition when compared with new combined-cycle gas turbine (CCGT) plants by the end of the decade. As the market is becoming more independent of government support, DONG Energy, the largest offshore wind developer globally, has already committed to constructing two zero-subsidy wind projects off the German North Sea, relying solely on wholesale prices in place of government funding. Both projects are expected to be commissioned in 2024.
Collaboration and clustering
An illustration of Statoil’s Hywind floating wind park concept offshore Scotland. Image from Statoil.
As projects increase in size, offshore wind farms are increasingly being developed by consortia. There are several benefits to this approach; firstly, and most importantly, the project risk is shared. As projects increase in size, the risk associated with investment becomes too large for a single developer to bear.
Secondly, consortia allow developers to specialize and concentrate on a specific element of the development (e.g. one company may specialize in environmental impact assessments, while another may focus on engineering), thus increasing efficiency. One example of this is the UK Round 3 project, Dogger Bank, which is being jointly developed by SSE Renewables, RWE Npower Renewables, Statoil, and Statkraft.
Furthermore, collaboration between countries to enable electricity trading to manage peaks and troughs in demand/supply is expected to continue to develop, as is the need for technology ‘clusters’ to form in the major development hubs. The UK is a prime location for the clustering of supply chain players at strategic ports to serve the rapidly growing offshore wind market. Humber Renewables is a key example, with Hull and Grimsby ports being developed as construction, and operations and maintenance bases, respectively. We have also seen bold proposals for artificial islands in areas such as the Dogger Bank (e.g. the ‘North Sea Wind Power Hub’), which would encapsulate port facilities, accommodation, and logistics (including airstrips/helipads) in addition to hosting wind turbines and photovoltaics solar generation.
Helicopters are increasingly being used as wind farms are installed farther from shore. Helicopters can install turbines via the “heli-hoist” method, which is widely used in Germany. However, the majority of demand for helicopters occurs during the operational phase and offshore this will be important as sites extend beyond the reach of near-shore workboats.
Unmanned Aerial Vehicles (UAVs) are increasingly being used to inspect offshore wind turbines, which reduces both costs and safety concerns, but cannot be used in bad weather. Specialist radars have also been developed to identify aircraft which fly over wind farms.
Reduction of transmission losses as wind farms are installed farther from shore is being addressed by developers utilizing high-voltage, direct current (HVDC) cables. Substations are also now common, whereas historically, wind farms were typically less than 100MW capacity and close to shore, negating the need for a substation. The majority of substations will be AC. However, DC substation demand is set to grow, following the installation of the first DC substation in 2013.
Floating wind turbines look set to finally see commercial deployment, following a number of successful prototype offshore wind turbines installed with floating foundations, including: Hywind (Norway), WindFloat (Portugal), Forward – Fukushima Pilot (Japan), and Seatwirl (Sweden), all of which are currently operational. Industry participants on the whole expect increased uptake of floating wind turbines after the end of the decade. We are expecting investment in floating infrastructure further from shore and in higher wind resource areas to improve revenues for operators. Joint industry projects and consortiums will remain key to successful standardization of floating wind turbines, leading to a further decline in fabrication costs and enhanced project economics. Overall, as of May 2017, 15 floating foundations are forecast to come online between 2017 and 2026 across the UK, Germany, France, Portugal, China, South Korea and the US.
Without doubt, the offshore wind business is here to stay and is becoming self-sustaining. We look forward to a period of remarkable transition for the industry that will no doubt offer significant market opportunity for the supply chain.
Marina Ivanova is an analyst at Westwood Global Energy Group, currently involved in the production of quarterly market updates and is a contributor to Upstream Investment Outlook, Offshore MMO, Downstream Maintenance, Helicopter and Offshore Wind market forecasts. She has a First Class Honours in European economics with econometrics from the University of Kent.