The Renewables Consulting Group says there is “an unprecedented and rapid transition” underway in the energy system to offshore wind and away from fossil fuels, “requiring trillions of dollars of investment”
RCG chief operating officer Lee Clarke said offshore wind power is continuing to establish itself as a cost-effective alternative to fossil fuel-based energy sources.
Mr Clarke said, “RCG’s Offshore Wind Development Index provides an effective barometer of global hotspots for new offshore wind asset development. The latest rankings, published in our Annual Market Report, which contains a host of other data, reflect the fact that certain markets are maturing, while others power ahead.”
RCG said the UK has cemented its status as the global market leader in offshore wind. The RCG Offshore Wind Development Index, which provides an assessment of the global hotspots for new offshore wind asset development, puts the UK on top, followed by Taiwan and the US.
The European market in particular has seen a dramatic reduction in electricity prices for offshore wind project contracts in the UK, France and the Netherlands. The allocation of 5.5 GW of offshore wind contracts under the UK’s third contract for difference (CfD) round at record low prices show the technology is cost competitive with fossil fuel-based generation. Initiation of the fourth round of seabed leasing in 2019 confirmed the UK’s ambitions to add more offshore wind capacity.
RCG said the wider Asian market has experienced significant growth in 2019, covering various stages of offshore wind project development. Taiwan retained its position at second place in RCG’s index, with continued progress towards its 2030 offshore wind target. The lowering of feed-in tariff (FiT) prices at the beginning of 2019 struck a balance between encouraging cost reductions while still providing a good level of support for new developments. Other markets in the Asia Pacific region made strong progress.
Leasing activity at the federal level in the US may have stalled in 2019, but the combined efforts of individual states continues to move the industry forward, with the award of substantial power purchase agreements and ambitious new targets set for offshore wind procurement through to 2030.
A reduction in costs of offshore wind power generation has been driven by technological advances and increasing efficiency in the global supply chain. The introduction of larger turbines has reduced the levelised cost of energy for prospective projects. The floating wind market also continues to see innovation through the installation of new foundation design prototypes.
Overall, RCG’s outlook, from its Global Offshore Wind: Annual Market Report, is that the global market will hit, and maintain, a 6 GW per annum commissioning rate from 2022 onwards at least.
Just under 20 GW of capacity has been brought online by the industry to date. Europe has been the dominant market to date, accounting for 98% of the global commissioned base.
Commissioning activity is expected to fall slightly in 2020 but is expected to rebound to around 3.5 GW per annum in 2021. RCG sees a significant increase in activity from 2022 onwards, to a rate of over 6 GW per annum, driven by projects in the UK, France, Taiwan, the US and the Netherlands.
RCG said there are five key take aways from its latest report. The first is the average project size continues to increase. There is a strong correlation between the average project size and operational year, with projects in later years seeing much increased installed capacities as the industry matures.
This can be partly attributed to larger lease areas, but developers are also combining projects to deliver economies of scale, maximise operational efficiencies and reduce environmental impacts.
Second is that capital expenditure per MW is falling. The trend of increasing reported project capex per MW, driven by projects moving further from shore (and into deeper waters) and growing in scale and size, peaked around the year 2012. The industry is now more adept at controlling and reducing project capex per MW as the industry truly becomes cost effective. This trend aligns with the lower auction prices that are being seen across the world.
The third take away is that Asia Pacific markets are challenging Europe. With offshore wind development in Taiwan, Japan, and Vietnam accelerating, financial investment activity in Asia Pacific markets eclipsed Europe for the first time during 2019. Taipei’s offshore wind development plan, supported by a feed in tariff, is starting to bear fruit with five projects reaching financial close in 2019. Investment activity was not confined to Taiwan, with projects in Vietnam and Japan also reaching financial close over the last year. South Korea remains in the mix and a key market to watch.
RCG said the wind turbine orderbook is robust and the number of offshore turbines on order is approaching the number of units installed in the water (around 5,000), reflecting the projected rapid growth in installed capacity over the coming years. Despite the trend for larger turbines, the increased capacity of projects has offset the potential reduction in the number of individual units on order. Further innovations on the horizon, including floating turbines, will open up new resources and markets.
Fifth, the US development pipeline is strong. Commissioning activity in the US is expected to pick up from 2022 onwards, when the first commercial-scale projects are due to come online. Over 6 GW of offtake has already been secured, providing a strong route to market, but RCG analysis shows there is more to come.
The company said China has huge potential to become a market leader but is well known for its commercial privacy across all industry sectors. Obtaining accurate information regarding its developments is very challenging and for that reason, China is included in RCG’s Annual Market Report but is excluded from the global hot spot analysis for 2019.