Setback for Global Offshore Wind Industry

By Nichola Groom and Nina Chestney

(Reuters) – After a year of canceled projects, broken turbines, and abandoned lease sales, the global offshore wind industry no longer has much chance to hit the lofty targets set by governments in the U.S., Europe, and elsewhere, marking a setback for efforts to fight climate change.

The technology forms a big part of government strategies to advance renewable energy and decarbonize the global power industry because it can generate vast amounts of electricity near densely populated coastal regions. Missing targets by a wide margin will leave a gap that could be hard to fill.

Reuters spoke to 12 offshore wind companies, industry researchers, trade associations, and government officials in six countries to come up with a global picture of the state of the industry and its outlook, finding soaring costs, project delays, and limited supply chain investment were hobbling installations.

> "We're pretty far away from these targets," Soren Lassen, head of offshore wind research at energy research firm Wood Mackenzie, said in an interview. He noted offshore wind farms now have a global average cost of $230 per megawatt-hour (MWh) – a surge of 30% to 40% in the past two years, compared to the average of $75/MWh for onshore facilities.

This has forced companies to reconsider their positions. BP (NYSE:BP) last month indicated it was considering selling a stake in its offshore wind business, and Equinor earlier this year dropped investments in Vietnam, Spain, and Portugal. Additionally, GE Vernova, a leading turbine supplier, is not accepting new orders.

> "We do not foresee adding to (our) backlog without substantially different industry economics than what we see in the marketplace today," stated GE Vernova CEO Scott Strazik during a recent investor call.

World governments had previously set a global target last year to triple overall renewable energy use by 2030, a goal that International Renewable Energy Agency (IRENA) said would require offshore wind capacity to surge to 494 GW by the decade's end, up from 73 GW currently.

IRENA Director-General Francesco La Camera informed Reuters that offshore wind is now projected to fall short of this target by a third, with estimates from three other notable research firms indicating that the world will not reach 500 GW of offshore wind installations until after 2035.

TRUMP EFFECT

Governments in Europe, the Americas, and Asia have aimed to support the sector with national targets to attract substantial developers, including major global energy companies such as Equinor, Orsted (CSE:ORSTED), RWE (LON:0HA0), and Iberdrola (OTC:IBDRY).

For instance, the United States had set a 2021 goal for 30 gigawatts of offshore wind by the decade's end but had less than 200 megawatts operational by May of this year, according to the National Renewable Energy Laboratory.

The outgoing Biden administration issued permits for 15 GW of projects and extended tax credits, but U.S. offshore wind has faced turmoil, with projects canceled and contracts suspended, highlighted by a significant construction accident at the country’s first major commercial project.

Industry concerns are rising regarding whether President-elect Donald Trump will fulfill his campaign promise to roll back the industry’s advancements, potentially stalling lease auctions.

> "Given the results of the U.S. elections, we see higher risks than before for the timely implementation of offshore wind projects there," commented Michael Mueller, finance chief of German offshore project developer RWE.

Energy research firm Rystad estimates the U.S. will achieve less than half of its 2030 target.

Representatives from both the Biden administration and Trump’s transition team declined to comment.

Carl Fleming, a partner at McDermott Will & Emery who advises the White House on renewable energy policy, indicated that missing the target would be challenging given current market conditions regardless of the presidential administration.

EUROPE ALSO FALLING SHORT

In Europe, Petra Manuel, an offshore wind analyst at Rystad, anticipates that countries with the most ambitious offshore wind targets, like the UK, Germany, and the Netherlands, will only reach about 60% to 70% of their goals. Even those with less aggressive targets, such as Belgium, Denmark, and Ireland, are expected to underachieve.

WindEurope forecasts the European Union to attain 54 GW of offshore wind capacity by 2030, significantly below the 120 GW committed by North Sea countries.

EU Energy Commissioner Kadri Simson noted delays in meeting targets might not be ruled out, but none have been formally reported by member states.

Britain, the second-biggest offshore wind market after China, is also projected to miss its goal of 60 GW by 2030. As highlighted by Damien Zachlod, managing director of offshore wind developer EnBW Generation UK, although the UK conducted its best-funded auction in September, achieving the goal on time will be very difficult.

> "It will be very, very challenging, and we won’t hit the target by 2030," Zachlod asserted.

A spokesperson for the UK government did not immediately provide a response.

CHINA BUCKS THE TREND

In contrast, China, which became the global leader in offshore wind in 2022, is defying the global trend. Beijing has invigorated its industry with subsidies and low financing costs. Most sector participants are state-owned and have access to domestically produced offshore wind components.

China accounted for over half of 2023 offshore wind installations, with 6.3 GW, and the Global Wind Energy Council anticipates annual installations to reach 11 to 16 GW in the next two to three years.

Cheap equipment sourcing from China could potentially reduce costs for developers in Europe, Japan, and the United States. However, Western governments are promoting local production to decrease dependence on Beijing.

Elsewhere in Asia, nations like Vietnam, Japan, South Korea, and Taiwan are pushing to enhance offshore wind capacity but are impeded by soaring costs and regulatory uncertainties. For instance, Japan aims for up to 45 GW of offshore wind capacity by 2040, soaring from less than 1 GW today, yet its auctions have been limited, and industry operations are hampered by regulations against non-Japanese vessels.

Rebecca Williams, deputy CEO of the Global Wind Energy Council, acknowledged the risk of missing targets but emphasized that meeting them remains achievable with the right policies.

> "Of course, whenever there’s a target, there’s a risk that that target might not be met," Williams stated at the COP29 conference in Baku, adding, "But the target is not the thing that’s going to get the turbines in the water."