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Is the offshore wind market poised for scale?

Stephanie Aldock

The global market for offshore wind energy has reached a critical juncture in its path towards large-scale deployment. but what will the next steps be? A new report from Emerging Energy Research (EER) offers some perspective and Renewable Energy Focus gets a sneak preview.

After nearly a decade of policy formulation, project permitting, and sporadic installations in Europe, the offshore wind market represents just 1111 MW installed, or just over 1% of total global wind power capacity. At the same time, the global offshore wind project pipeline has surpassed 30 GW spread across three continents, with individual projects of over 1 GW planned.

There is no doubt that offshore wind is poised for takeoff, but will it? The combination of improving market environments, strong long-term demand forecasts, and increasing participation by major utility players and manufacturers point toward a steady uptake in offshore wind energy globally. And several barriers to development that have previously plagued the industry – including a lack of production incentives, permitting bottlenecks, and funding shortages – have been successfully resolved to create concrete project opportunities.

However, the challenge for the offshore industry is to now prove that it can deliver on the supply side. From component design to plant operation and maintenance (O&M), offshore wind supply is a maturing industry that still lacks scale to execute a steady flow of MW installations.

With only two OEMs boasting a significant turbine track record, less than half a dozen available installation vessels, and a lack of transmission capacity, much of offshore wind's takeoff now relies on accomplishing a specific set of manufacturing and construction tasks, in order to grow the market.

Europe leads global offshore market toward sustained growth

Offshore development activity will continue to be concentrated in Europe, with this region accounting for over 70% of the total global installed base through the period. Nonetheless, starting in 2010 the industry will begin to transition towards more geographically-diverse growth, with operational projects expected in 11 European markets and five north American and Asian markets by 2020.

EER looks at offshore activity in the key market regions of Asia, Europe, and North America with forecasts highlighting the following important global and regional trends:

  • The global offshore wind market is expected to grow at a compound annual growth rate (CAGR) of 31%, from a total installed base of 1111 MW at year-end 2007, to 37,929 MW by 2020;
  • With offshore wind supply challenges and significantly higher developments costs than onshore, the contribution of offshore to the global wind power installed base will build gradually over the long term. By 2020 offshore wind will account for roughly 7% of total installed wind power, a sevenfold increase from 2007;
  • While the offshore wind industry is expected to become more geographically diverse going forward, the UK and Germany are expected to emerge as key pillars of growth in the leading European market. Together these two markets are expected to account for 38% of the 36.8 GW that will be added globally offshore, between 2008 and 2020;
  • Between 2008 and 2010, European offshore wind will be a two-to-three project-per-year market. With the first large-scale German and UK projects expected to begin construction around 2011, European offshore will move towards a multi-project, higher volume market with projects in Sweden, Belgium, and France;
  • Offshore wind take off in north America and Asia depends on flagship project successes, including Cape Wind in the US (468 MW), Nai Kun in Canada (1750 MW), and pilot offshore projects in Korea and China.

Europe aiming to diversify motors of growth

Four countries – Denmark, the UK, the Netherlands, and Sweden – have largely made up the European offshore wind industry since its inception in the late 1990s, when it comes to realising large-scale projects. While the UK has emerged as the global industry driver, accounting for nearly half of all MW installed since 2004, the region is beginning to see more diverse growth, with pilot projects in Germany, Belgium, and France. It will take another 5-7 years before offshore wind becomes a truly European industry, with a steadier flow of installations in the North and Baltic Seas, along with southern European projects.

North America banks on “mega projects” for market take off

North America's offshore wind installation forecasts rely heavily on successful execution of large projects that have spent over five years in development, specifically Cape Wind and Nai Kun. Both the USA and Canada are still defining permitting processes based on state, province, or national jurisdiction, while developers continue to deal with multiple siting issues and rising project costs in an effort to open the market with the first flagship projects. EER expects the creation of US and Canadian markets around the same time, post-2011, with sporadic, large, individual projects driving growth. More demand in the US will encourage longer-term growth, particularly on the East coast, while Canada's lower demand indicates thinner project flow.

China and South Korea to drive Asian market emergence

Asia Pacific offshore wind forecasts mainly depend on China developing this segment of the wind industry, and delivering on average over 40% of annual MW added through 2020. Nevertheless, offshore wind development is equally (if not more) urgent in those Asian countries with few onshore sites, rising energy demand, and increasing initiatives to develop renewable power generation. As such, South Korea is likely to build its offshore wind industry in parallel with China, followed by Taiwan and Japan toward the end of the forecast period.

Utilities stake claims for long-term portfolio additions

Global offshore wind remains a small market, with only 26 operational wind plants – for a total installed base of just over 1 GW – concentrated in the hands of a few players. The most salient offshore wind plant ownership trend is the overwhelming dominance of utilities, which control nearly 90% of the market. So far, IPP participation in the market has been limited to the ownership of small projects. Examples are the Danish IPP Samsø Offshore Wind, which owns the 23 MW Samsø wind plant, or Shell, which has a 50% stake in the 108 MW Nordzeewind plant in the Netherlands.

Utility and IPP pipelines tightly focused on the UK and Germany

The offshore wind project pipelines of Europe's utilities and IPPs provide a rough indicator of market growth potential for these firms in the near- to medium-term. Given current offshore pipelines, the main trends expected as the offshore windpower industry begins to take off include:

Case study: UK launches draft marine bill

In 2007, the UK Government announced ambitious plans in a scoping document report launched by John Hutton. This identified a potential to develop up to 33 GW of offshore wind, or 5000-6000 wind turbines. Following on from this, a draft marine bill has been announced, which will creat Marine Conservation Zones (MCZs) for offshore habitats and wildlife, with a new Government agency, the Marine Management Organisation (MMO) setting planning policy. The Bill effectively creates a one stop shop for regulating the marine environment. Current management of sea resources is governed by various pieces of legislation, which this Bill aims to c-ordinate, making it the world's first dedicated Marine Bill.

The British Wind Energy Association (BWEA), UK's leading wind, wave and tidal energy trade association, has welcomed the Bill's aim to create a new planning framework for the offshore environment, but is calling on the UK Government to ensure that the Bill balances conservation concerns with sustainable economic needs, such as renewable energy, Maria McCaffery, BWEA Chief Executive, comments: "We welcome the Bill, which will provide much needed stability and clarity for the marine environment. However, the sea isn't just an environmental asset, it has to be a sustainable, economic one as well."

BWEA supports the creation of MCZs, but believes the location and management of MCZs should be decided by the Marine Management Organisation, with input from all stakeholders, including nature conservation agencies and other sea users, such as renewable energy deveopers.

BWEA also wants a clear commitment to sustainable development in the MMO's remit, which will ensure that offshore planning policy will allow for the siting of the 5000-6000 wind turbines needed to meet the UK's renewable energy targets, and tackle climate change.

McCaffery adds: "Britain's potential to develop offshore wind resources and reach the Government's renewable energy targets must be placed at the heart of the draft Marine Bill. The Marine Bill should promote sustainable development, and that includes economic activity, such as offs

  • The offshore market will continue to be dominated by utilities, which currently account for 70% of the near- to medium-term global offshore pipeline;
  • Of the top 10 utilities seeking to build offshore, northern European players have the most aggressive expansion plans in terms of MW, and the geographic diversity of their pipelines;
  • Based on its pipeline, German energy powerhouse E.ON is set to lead the global offshore market, overcoming current leaders DONG and Vattenfall;
  • Irish firm Airtricity currently leads the select group of IPPs with offshore wind expansion plans;
  • Ten out of the selected top utilities and IPPs have projects planned in the UK; for 8 of these firms, the UK market accounts for the largest share of their pipeline.

Supply side critical to market take off

To realise the large scale the market promises, developers must first secure a steady flow of permitted, well-financed projects that will justify major supply chain investments by players that currently focus more on oil and gas offshore, such as EPC contractors and installation vessel operators. Developers are seeking access to wind plant components amidst growing bottlenecks resulting from supply constraints, especially for turbine and transmission capacity. While confronting congestion arising from the limited number of vessels available for foundation and turbine transport installation, developers must coordinate EPC firms involved across various construction stages in a complex marine environment.

New players scaling turbines to 5 MW

As has been the case onshore, offshore wind turbine size has progressively increased. While turbines in the 1 MW to 2 MW class account for 45% of the total offshore windpower installed base, no new turbines in this segment have been installed since Vestas delivered 30 of its V80-2.0 MW models for the Scroby Sands project in the UK in 2004. Since then, turbines in the 2-3 MW – and in the greater than 3 MW class segments – have prevailed.

In the next few years, average wind turbine size is set to continue increasing, with Vestas and Siemens having secured nearly 1.4 GW in orders for their >3 MW models. Siemens, Vestas, and Nordex will likely consider adding a wind turbine over 4 MW in size to their portfolios in the medium term, especially once the German market takes off, given that most projects in this potentially enormous market have been planned for 5 MW wind turbines. As such, this larger wind turbine size segment is currently only served by REpower and Multibrid, with BARD initially producing its VM 5 MW model exclusively for its own projects.

About the report:

This excerpt was taken from a new study by Emerging Energy Research analysing Global Offshore Wind Energy Markets and Strategies, 2008-2020, released March 2008.

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