2025 in the offshore wind industry: unknown unknowns, signs of recovery and uncertainty in emerging markets

To quote former US Secretary of Defense Donald Rumsfeld, in any given situation, there are “known knowns – things we know we know” and there are “known unknowns,” that is “there are some things we do not know.” But there are also ‘unknown unknowns’ – “the ones we don’t know we don’t know.”

What we do know is that following the 2024 Presidential election, and the election of Donald Trump to serve a second term, offshore wind in the US is likely to experience a certain amount of turbulence in 2025. Exactly how things might play out is, for the time being, a ‘known unknown’ and might even qualify as an ‘unknown unknown.’

The offshore wind industry is much more entrenched in the US now than it was in President Trump’s first administration. To dismantle it wholesale would waste jobs and investment, but President Elect Trump has a number of levers at his disposal if he does set about attacking the industry.

Depending on the levers he selects, and whether those levers have the effect he desires, offshore wind in the US could experience a major setback, or there may be a slowdown for the next four years.

The President Elect’s harsh words about the industry have already begun to deter investors. That is bad news for the US, but could mean that markets in other countries, such as the UK and EU, benefit, as developers and the supply chain turn their attention elsewhere.

Failed auctions and badly designed auctions

Auction design is critical in the offshore wind sector, not least because about 90% of offshore wind projects are auctioned. Get it right, and the conditions can be created for a mini-boom in the sector. Get it wrong and you get what happened in the UK in 2023 and in Denmark in late 2024: nothing.

As highlighted recently by OWJ, Denmark’s latest 3-GW offshore wind auction ended without any bids. That was down to bad auction design, not least uncapped negative bidding. The failed auction was certainly disappointing but, sadly, not surprising. Uncapped negative bidding is not helpful because it raises costs and risk. And as WindEurope noted, it is even harder when the bidders do not know who is going to be buying the energy they produce and how it will get to them. Then factor in the requirement that the Danish government be a 20% shareholder in any projects – something that is common practice in Denmark and used in offshore gas contracts, but not to date in offshore wind where the revenue model is quite different – and you have a recipe for disaster. And disaster it was.

In 2025, the answer lies in the use of a two-sided contract for difference (CfD), a model that has done so much to advance offshore wind, especially in the UK. It’s not a perfect system, and could benefit from being tweaked, but it works.

In 2024, some auctions that used negative bidding succeeded in attracting bids, and large volumes of offshore wind capacity were awarded, including those in Germany and the Netherlands, but the German auction in particular aroused other concerns.

Although the results of Germany’s first tender for offshore wind in 2024 demonstrated continued interest from investors, the design of the tender needs to be modified, say industry associations, because the kind of sums bid to win the auction – US$3.3Bn – will further increase cost pressures in the value chain and slow down much-needed investment.

Inflation’s influence waning?

Inflation and high interest rates adversely affected the offshore wind industry in 2024, as they did in 2023. They will continue to do so in 2025, but to a lesser extent, partly because rates are slowly coming down and partly because developers and the supply chain have adapted. Problems could still arise, however, if countries use auction designs that do not reflect the changed reality of higher materials costs and the increased cost of capital.

Despite these challenges – and absent any major economic or geopolitical shocks – 2025 will be a turning point for the global offshore wind market, with optimism slowly returning to the sector. That will be good news for the EU and other countries that have set such high targets for offshore wind capacity.

Europe wants to use offshore wind in northern seas to transition to green energy and provide energy security. It wants 110 GW of offshore wind in northern seas by 2030 and more than 300 GW by 2050. That is a big ask. To bring targets like that within reach, Europe must create the conditions for European companies to invest, or others will step in and do so.

Life could be tough for offshore wind newcomers

In 2024, more markets for offshore wind emerged and more countries made progress towards holding inaugural auctions for offshore wind.

Nine companies, including leading European developers and companies from China, filed compliance paperwork in the first stage of Colombia’s first tender for offshore wind energy. Bids for seabed leases are due to be submitted in the first half of 2025.

In July 2024, the World Bank and DNV said offshore wind ‘could be Brazil’s next hydro’ and could provide the large-scale electricity generation needed to meet population growth and rising demand. A bill that will regulate offshore wind generation in the country has successfully progressed through the Senate. More than 200 GW of offshore wind projects have been registered with the country’s environmental licensing agency IBAMA.

Both countries already have offshore oil and gas industries, which will help them with offshore wind development, but inflation and high interest rates are adversely affecting auctions in developed markets, let alone new ones. What chance successful auctions in emerging countries, particularly those that, unlike Brazil, for example, do not already have an established supply chain, or those that will rely on more expensive floating wind?

There are signs that the market is emerging from the mini-crisis caused by inflation and the increase in the cost of money, but only countries with the most attractive auction frameworks will secure investment. 2025 will see developers provide an indication of how quickly emerging markets will take off in what remains a high-cost environment.

Long-term outlook remains promising

2024 was a difficult year for the offshore wind industry, but developing offshore wind projects is a marathon, not a sprint and the long-term outlook remains very positive.

Analysis by Clarksons Research suggests that, by 2035, active offshore wind capacity will reach a level of around 450 GW globally, that is, six times current capacity. Support from underlying ‘energy transition’ trends, energy security concerns and continued globalisation of the sector means there are plenty of reasons to be optimistic, with significant growth in capacity in Europe, China and elsewhere. Installed offshore wind capacity is projected to grow by 36% globally by the end of 2025 and by a further 28% by the end of 2026.

Figures from Clarksons suggest investment in new offshore wind projects remains broadly positive. In 2024, it says, around US$29Bn of offshore wind project capex was committed globally, representing 10.4 GW of capacity, with several large projects expected to have reached FID before the end of 2024. In 2025, an estimated US$69Bn, equating to 32 GW, is projected to be committed globally, which would be a record in dollar and GW terms.

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