When I started in the wind sector back in 2004, the imminent offshore wind boom was already announced. All market forecasts agreed that offshore would be comparable to onshore in a few years. But years passed and that moment was always delayed. Pioneer countries grew little and new markets did not arrive. Today the offshore market is limited to 4-5 markets in Europe and China and does not even account for 10% of annual global installations. The EWEA established in 2005 a minimum target of 70GW installed in Europe by 2020 but the reality is that we will reach barely 20GW. What has happened not to meet expectations? Last week WindEurope published a very complete report on the situation of the offshore sector in Europe that can help us to analyze the evolution and prospects of the offshore business.
In Europe, 2500MW were installed in 2018, a figure still lower than those reached in 2015 and 2017. To guess what is going to happen in the next few years, the best thing is to see the financed capacity and we see that it is of the region of 4,000MW in 2018, a level similar to that of 2016 and 2017. This already indicates that the level of installations in the next 3-4 years is going to be very similar to that of 2018. To put it in perspective, offshore in Europe accounted for approximately 4% of total world wind power installations. In addition, all installations are concentrated in 5 markets: UK, Germany, Denmark, Belgium and Holland.
Let’s look at some reasons why this market is not growing as expected:
- Complexity of planning: there is always talk of the complexity of installing turbines in the sea, but it is equally or even more complicated to prepare the site. In order to be able to install a project it is necessary to have evacuation capacity, permits, previous studies, etc. and all that that in onshore is solved in 2-3 years, in offshore it is part of a long term planning of a country. That is why the capacity that can be installed in the next 5-10 years is already limited by the evacuation/distribution infrastructures that are planned. There are countries such as Germany, UK and Holland that launched this planning some time ago and hence their activity. But the majority of countries do not have infrastructure so it is impossible to have offshore projects in the short term.
- LCoE: when we look at the reduction curves of the offshore LCoE in recent years, one might think that it is a factor that will increase demand: the cheaper the offshore is, the more it will be installed. Well, that’s not the case. LCoE levels are given more by pressure from the renewable market than by vocation of the sector. The low levels of remuneration mean that the companies capable of achieving these costs are less. That is to say, the market is limited to the best (or to those who can assume more risks or to those who have more volume…). This is not bad because it makes the sector very professional, but it limits the volume of installations and probably the capacity for innovation.
As can be seen in the previous graphs, it is the large utilities (Orsted, EOn, Vattenfall, Iberdrola, etc.) that dominate the operators’ market. And their share is even greater as developers as they often sell part of the projects to investment funds or pension funds.
- Manufacturers: there is a very relevant graph of the WindEurope report:
It can be seen that the market for offshore manufacturers is currently a duopoly of SGRE and MHI-Vestas. And this is good because we come from many years of quasi-monopoly of Siemens. GE is trying to get back into the market with its new turbine but I’m afraid it is more geared towards being prepared for the future US offshore market than for Europe. The market needs more manufacturers to increase competition and innovation but without volume it is difficult so we are in a vicious circle difficult to break.
- Size: in offshore size does matter (and a lot)
Closely related to the LCoE, the clearest way to reduce costs is to increase the size of both the turbine and the park. This increases the complexity of everything: turbines, logistics, O&M, etc. In the last year there has been a lot of movement of new turbines:
- MHI-Vestas with its V174-9.5MW and V164-10MW
- SGRE with its 0-193
- GE with its impressive Haliade-X of 12MW and 220m of rotor
They look like small details but with 10MW turbines and almost 200m of rotor, there are not many boats that can transport and install them. The large growth of the turbines reduces costs but limits the means available for installation and maintenance.
In conclusion, it is not viable in the short and medium term for the offshore market in Europe to grow significantly. The global offshore market will have to grow in other markets such as the USA, Japan or India (I exclude China as it has its own value chain) and that will be neither fast nor easy. Offshore will be key in the future but we will have to be patient because it will take time.