Markets in Europe that don’t currently have support plans for offshore wind but have a commitment to greater use of renewable energy could add a significant capacity by 2030, analysis by BNEF has found.
Speaking at the 2020 Offshore Wind Journal Conference in London on 4 February 2020, BNEF analyst Imogen Brown said numerous European and Nordic countries that plan to boost renewable energy capacity that also have fast-growing demand for energy, could turn to offshore wind as recognition of its role in energy markets grows.
She included countries such as Sweden, Portugal, Spain, Croatia, Greece, Slovenia, Lithuania, Finland and Turkey in a list of countries where offshore wind could form part of the solution by 2030, with Spain, Italy, Greece and Lithuania among the front runners.
“The capacity additions we anticipate in 2029-30 do not represent known projects, they are placeholders for future offshore wind developments,” she explained, noting that they could amount to as much as 3 GW of capacity.
Ms Brown said the 3 GW of potential capacity by 2030 adds 4% to its H2 2019 European offshore wind forecast of 72.8 GW in 2019-30. In general, BNEF expects offshore wind capacity to be allocated through auctions. Some countries that score high in its rankings have already made announcements around offshore wind development.
The study conducted by the BNEF asked, ‘what is the offshore opportunity’ for countries such as these? It matched potential opportunity against demand, capacity factors off the countries in question, and the ability to finance projects. It also addressed facilitators that could boost the attractiveness of offshore wind development.
“High power prices are a good signal for offshore wind,” Ms Brown said. “Peak pricing over the winter period is also a good signal. In some countries, such as Turkey, demand is set to grow rapidly, but financial risk is higher.”
Italy, Greece and Portugal show the highest power prices in a three-year around-the-clock average. Italy’s high price stems from a high share of natural gas, which makes up almost 50% of its generation and tends to set an expensive marginal price. Greece and Portugal still rely on coal assets and burn some oil, which can hike the price when demand is high.
Large amounts of hydropower, with low marginal cost of generation in the ‘Nordpool’ depresses prices in Finland and Sweden, contributing to the lowest power prices across Europe. Assuming prices stay flat in real terms from 2018, BNEF expects that offshore wind in the Nordpool will require some form up subsidy top up, even out to 2050. This could potentially change as the Nordpool market becomes more interconnected.
Looking at the period 2016-18, seasonal peaks in Greece, Italy and Portugal followed a similar trend. Cold weather induced power price spikes in January 2017 and November 2017. Significant hydro capacity – which can smooth demand price peaks – means steadier pricing in the Nordpool countries and a deeper market for long-term hedges.
In Europe, offshore windfarms generate much more power in the winter months due to higher wind speeds. “Being able to realise peak prices when demand is high puts offshore wind at an advantage to other renewable energy systems,” said Ms Brown.
BNEF also compared onshore wind ‘saturation’ in potential new markets, which it also regards as a ‘good signal,’ with several European countries facing ‘push back’ against further development of wind energy onshore.
Island economies which are forced to import fossil fuel-based energy – which therefore also have high costs – are another potential market, BNEF said.
According to BNEF’s scoring matrix, the most promising new market for offshore wind development is Spain, driven by its ambitious decarbonisation plans and large-scale power demand.
Italy also features highly in the matrix: its latest energy plan calls for 900 MW of offshore wind capacity by 2030.
By 2030, BNEF also expects 500 MW of offshore wind installations in Greece. “High renewables targets, large coastal demand and high power prices make Greece a convincing candidate for the technology,” said BNEF, assuming that this capacity will be split into two 250 MW of floating wind projects.
Combined, BNEF estimates that the Baltic countries it looked at have 365 GW of technical potential available for constructing offshore wind. The most promising of these is Lithuania, which it expects will support 700 MW of offshore wind capacity by 2030.
BNEF estimates 800 MW of the 3 GW will be floating wind, split between Greece and Spain. A steep continental shelf in the Mediterranean and deep waters throughout the Aegean make these markets ideal candidates for floating wind technology.
Lithuania plans a 700-MW offshore wind auction in 2023, targeting commissioning by 2029. Italy has set out a target for 900 MW of offshore wind in its 2030 national energy and climate plan (NECP).
“Spain has a significant amount of bottom-fixed capacity,” said BNEF. “We expect Spain to follow a similar model to Lithuania and neighbouring France, holding one 600-MW offshore wind auction. Any auctions will be held after 2021, once maritime spatial plans are finalised.
“Assuming a couple of years for site selection and pre-development, we do not expect auctions in Spain before 2024. Applying a typical development timeframe for projects puts any capacity auctioned in 2024 online in 2030.
“Spain has no specific target at country-level, but the Canary Islands have their own regional offshore wind target of 310 MW by 2025. We expect a couple of pre-commercial scale floating wind projects will be built to decarbonise these islands, which rely heavily on fossil fuels. We expect to see the first floating installation in Spanish waters by 2028.”
The EU is adopting a new set of targets for renewable energy and emissions reductions in the 2021-30 period. Member states have submitted draft NECPs which outline their strategy in achieving their decarbonisation targets.
Ambitious targets and aggressive coal phase-out policies could open the door for new technology such as offshore wind, BNEF believes, because it generates large amounts of renewable energy at high load factors. This could help countries to bridge the gap between current levels of renewable generation and their 2030 goals.
Smaller countries such as Lithuania, Estonia, Slovenia and Finland have much lower targets (below 50%) and many are already a fair way along the line to reaching them. Non-EU members Turkey and Albania, as well as Latvia, have not submitted NECPs, but Turkey has its own set of targets out to 2023.
Greece is planning to increase the target originally proposed in its draft NECP from 55% to 65% and has announced plans to phase out 4.8 GW of lignite by 2028.
Turkey is the standout leader when it comes to demand growth. By 2030, BNEF expects demand to grow by 40%, driven up by economic activity and population growth. Albania also shows steep demand growth but starting from a low base means its 2030 absolute value is still small. Many of the other smaller nations show almost flat-lined demand over the next 10 years. Italy, Spain and Turkey will be the largest consumers of power in 2030.
In established offshore wind markets, project development timelines vary from four to 10 years from announcement to commercial operation – depending on the project scope and how much pre-development work is completed prior to an auction. For new markets, BNEF assumes a six-year development timeframe from auction to commissioning, where auction winners must gain environmental permits before commencing construction.