(IN BRIEF) Europe’s offshore wind sector is making progress in terms of investments and installations, with 2.1 GW of new offshore wind capacity added in the first half of 2023, bringing the total capacity to 32 GW. However, this growth rate is still insufficient to meet the continent’s energy and climate targets. Delays caused by regulatory uncertainties and government interventions in power markets in 2022 slowed investments. The European Union (EU) aims to build an average of 11 GW of offshore wind per year until 2030, but the current pace is falling short of this goal. To achieve these targets, investments in the offshore wind supply chain are crucial, but there are bottlenecks in foundation production, installation vessel availability, and other areas. The EU’s Green Deal Industrial Plan and Net-Zero Industry Act need further improvements to adequately support the supply chain expansion. Auction design is another concern, with the need for indexation to cover inflation and avoidance of uncapped negative bidding, which can lead to higher costs.
(PRESS RELEASE) BRUSSELS, 17-Aug-2023 — /EuropaWire/ — Europe built 2.1 GW of new offshore wind in the first half of 2023. Final investment decisions were taken for a further 5 GW after delays last year. But this is still whims what the EU wants. Crucially, the offshore wind supply and logistics chain urgently needs new investments – and the EU’s Net-Zero Industry Act won’t deliver these in its current form. Auction design is another red light: Governments must allow for cost indexation and avoid uncapped negative bidding.
Europe installed 2.1 GW of new offshore wind in the first half of 2023, bringing its total offshore wind capacity to 32 GW. Over half of this was in the Netherlands. The rest was in the UK, Germany and Norway.
This is below the level needed to reach Europe’s energy and climate targets. Investments were delayed in 2022 over the regulatory uncertainty caused by abrupt Government interventions into power markets. So Europe has catching up to do.
The EU should be building on average 11 GW a year of offshore between now and 2030. It’s always been clear that more would be built in the 2nd half of the decade. But the current pace, 1.4 GW in H1 2023 in the EU, is still below par.
Investments in offshore wind supply chain required; NZIA falls short
Europe needs to expand its offshore wind supply chain to support this big ramp-up. But the necessary investments in factories, workforce and infrastructure are not happening fast enough either. There are already bottlenecks in the production of foundations for offshore wind turbines and in the availability of installation vessels. New turbine and cable factories are needed too. Plus €9bn of investments in port infrastructure. And major investments in new grid connections.
Europe needs to fix its regulations (e.g. permitting and market design) to make the business case for such investments. Public support will also be needed. But the EU’s Green Deal Industrial Plan and Net-Zero Industry Act fall short as they stand. The EU needs to put money on the table that will help scale up the supply chain – and not just fund innovation. National governments need to max out on the new flexibility they have in the EU state aid rules to support investments. And auction rules need to reward investments made in supply chain resilience and other areas of added value.
The importance of auction design
Governments have also got to get their core auction design right.
They need to fully index the auction prices to cover inflation between the auction and the actual procurement of equipment. Offshore wind turbine costs have increased by up to 40% over the last two years. If Governments don’t recognise that, they’ll lose projects, just like the UK has lost Vattenfall’s Boreas offshore wind project.
Then Governments mustn’t fall for the temptation of “uncapped negative bidding” – requiring developers to pay however much they can for the privilege of building an offshore wind farm. Of the 12 GW offshore wind awarded in actions so far this year, 60% has been awarded with uncapped negative bidding. But the amounts developers are offering to pay are huge – over €1.5bn per GW in Germany. It adds significantly to the costs of building the wind farm and developers will have to pass these costs on to electricity consumers and/or the supply chain, both of which are already struggling.
Financial activity recovering slowly
Last year there wasn’t a single new investment in large-scale offshore wind in Europe. Final investment decisions (FID) were delayed as inflation added to project costs and investors were spooked by government interventions in electricity markets. Things have improved this year. Six big projects have reached FID totalling €15bn of investment and 5 GW of new capacity. But some investments remain delayed and many investors remain hesitant.
Things moving on floating offshore wind
One of the new offshore wind farms completed this year has been the Hywind Tampen floating offshore wind farm in Norway. At 95 MW it’s the world’s largest floating wind farm and brings Europe’s total floating wind capacity to 208 MW.
This is just a start. France is auctioning a 250 MW floating wind farm off Brittany and plans further auctions next year. Several gigawatts of floating wind farms are now under development also in the UK and in southern Europe. Portugal is preparing its first floating wind auctions.
Floating wind allows countries with deeper seas (water depths of more than 60 meter) to start doing offshore wind. Europe can be confident it will have 3-4 GW of floating wind in operation by 2030. And it is not unreasonable to think it will have 10 GW by then if Governments back up their expansion targets with the right policies.
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SOURCE: WindEurope
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