- The offshore wind sector’s challenges include a 57% project cost increase since 2021 and concerns about long-term development contracts signed at previous price points.
- Major conference insights highlight the North Sea’s potential as an energy hub, the green skills gap, and the need for cross-sectoral collaboration to sustain the industry.
- Offshore wind’s unparalleled capacity offers a potential energy output multiple times greater than current levels, underlining its importance for global climate goals.
The offshore wind industry is in crisis. Already this year, projects across Europe and the United States have been delayed or shelved thanks to a “perfect storm of supply chain delays, design flaws and higher costs” just when added clean energy capacity is needed the most.
Major Deterrent
The turmoil throughout the industry has certainly given investors pause, and has scared potential investors away from beginning new offshore wind projects in the near term. Just this month, a renewable energy auction in the United Kingdom failed to attract a single bid from offshore wind developers. The major deterrent in both European and U.S. markets is sharply rising costs related to offshore wind development. “The expense associated with a typical US offshore project, before bonus tax credits related to the Inflation Reduction Act, has increased by 57% since 2021,” Bloomberg reported in August, citing figures from BloombergNEF. “Inflation in the cost of components and labor explain about 40% of that and the rest is tied to rising interest rates.” Indeed, offshore wind is currently two to five times more expensive than its onshore counterpart.
Structural Uncertainty
The current crisis plaguing the offshore industry has led to widespread instability, as has been furthermore compounded by other structural issues. According to McKinsey’s Bram Smeets, “the industry must also navigate the transition to renewable energy amidst rising supply chain costs, labor and skills shortages, continued increases in total energy demand, uncertainty over final investment decisions, geopolitical turmoil and shortages of materials critical to renewable technologies.” The offshore wind industry is not only plagued by the aforementioned skyrocketing development costs, it also has to contend with major potential rare Earth mineral shortages and all of the geopolitical difficulties that those supply chains embed.
Cross Value Chain Collaboration
The unprecedented scale of the green energy transition, as well as the climate crisis that we will face without it, require a level of international and cross-sectoral coordination that we’ve never seen before. Offshore wind is an essential piece of any viable pathway to avoiding catastrophic climate change, but course-correcting the industry won’t be easy – and it won’t be possible at all without multifaceted coordination and support. In the words of Adam Davey, Associate Partner at McKinsey said: “The speed and scale of the energy transition will mean all stakeholders need to be partners on the journey and it needs to work for all parties. This could involve streamlining and alignment of project approvals and regulatory consent, harmonization of standards, ‘sector coupling’ such as offshore wind-to-hydrogen and consortia spanning separate industries from oil and gas to wind and power.“
All four of these themes are essential entry points for creating a successful, sustainable and resilient offshore wind sector – and therefore a successful, sustainable and resilient energy sector writ large. The reason that offshore wind is so crucial to global decarbonization pathways is the scale and efficiency of the technology. Offshore wind turbines stand taller than skyscrapers and are exposed to the strength and consistency of ocean wind patterns, making them a much more productive and dependable form of wind energy production than onshore wind farms. Offshore wind-power potential off the coast of the mainland United States alone is estimated at 4.2 terawatts – nearly four times the entire capacity of all types of generation operating today. That’s why getting the sector into shape is absolutely essential – and urgent – for meeting global climate goals.
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Source: Oilprice
