| Wind power Turbulent times


Turbulent times in the offshore wind sector could change the way large-scale energy projects are built and funded in the future, according to the latest EY Renewable Energy Country Attractiveness Index (RECAI). Offshore wind is crucial to achieving net zero but has experienced a difficult 12 months, challenged by a squeezed supply chain and escalating costs, says EY. “Global project costs have risen by 39% since 2019 and the next decade could see cost inflation adding around US$280 billion in capital expenditure for the sector.” Against this backdrop, around 80% of the 15 markets with offshore wind targets for 2030 are predicted to miss their stated goals. Not least, the UK has conceded its lead position as the most attractive country to host offshore wind projects, falling three places to 7th position on the Index overall. The failure of the UK’s 2023 CfD auction to entice offshore developers to bid represented a huge setback for the UK’s goal of reaching 50 GW of offshore capacity by 2030 [although, with strike prices revised upwards it is hoped next year’s auction will prove more successful, see below].


“For offshore wind to fulfill its role in global decarbonisation, it is necessary to mitigate risks that are beyond the control of developers, guaranteeing them a reasonable return on their investments,” says Arnaud de Giovanni, EY Global Renewables Leader. “Tensions in the offshore supply chain could be alleviated by standardising technologies, offering greater certainty to manufacturers and developers. And governments need to devise strategies that simplify and expedite the consenting process, minimising risks between the issue of offtake agreements and final investment decisions.” Ben Warren, EY Renewables Corporate Finance and RECAI Chief Editor, adds: “The UK’s recent challenges in the offshore wind sector echo a broader, global struggle. When auctioning contracts for offshore wind generation, governments need to reflect economic conditions in the design of the auction. Considering moving away from cost-only auction formats and incorporating factors other than cost, such as environmental considerations and jobs creation, would boost the supply chain, improve deliverability and benefit wider society.”


The top three RECAI markets remain unchanged. The US retains first position, helped by significant solar growth as a result of incentives from the Inflation Reduction Act. Germany remains in second position, having experienced substantial growth in its onshore wind sector; new capacities installed by the end of September surpassed the total installed in 2022. And despite halting national-level subsidies, China continues its upward trajectory in offshore wind, maintaining its overall third position.


The Nordic countries continue to pursue their renewable energy ambitions, with Denmark, Sweden, and Norway climbing two, three, and five places respectively. Japan slips three places to 13th position. Despite abundant potential renewable energy sources and a commitment to reduce fossil fuels, it is falling behind other leading economies in terms of solar and wind deployment. Similarly, Chile drops two spots to 16 th position. Notwithstanding new battery storage targets, Chile continues to struggle with intermittency issues due to solar curtailment across the country.


Meanwhile, vessel collision with turbines and offshore infrastructure can also result in significant losses, with an uptick in incidents seen in recent years, the Allianz report also notes. Although, to date, these have typically involved smaller vessels, often resulting from human error, there have also been a number of incidents involving larger vessels, an increasing concern given some 2500 wind turbines are due to be installed in the North Sea alone before 2030.


Navigating harsher environments Although the offshore sector in Europe has significant expertise in managing operations in hazardous marine environments, as it expands around the world, there will be new developments further from shore in territories


prone to different types of weather conditions and natural catastrophes. “On the East Coast of the United States or Taiwan, for example, wind speeds and wave action will be much more significant. It remains to be seen whether climate change will heighten the risk, as rising sea surface temperatures can intensify the strength of hurricanes,” says Reed.


Despite its invaluable contribution to the net- zero transition, the offshore wind industry needs to be mindful of responsible development and environmental stewardship, the Allianz report points out. This includes managing its impact on biodiversity and marine wildlife or the sourcing of required raw materials such as rare earth elements or lithium. Allianz speaks from experience, having been involved in a number of significant offshore


developments, as investor or insurer. In its recently launched Net-Zero Transition Plan, Allianz Commercial committed to a revenue growth of 150% for renewable energy and low-carbon technology by 2030. In addition, Allianz committed to €20 billion in additional investments for climate and clean-tech solutions. As an investor, the company is contributing to about 100 wind farm and green energy projects such as Hollandse Kust Zuid (Netherlands), He Dreiht (Germany), NeuConnect HVDC link (UK/ Germany). Allianz Commercial provides insurance coverage solutions across all stages of offshore wind development, construction and operations and is the insurer of many projects, among them Revolution Wind (USA), Dogger Bank (UK), NeuConnect and Jeonnam 1 (South Korea).


UK ups CfD strike prices to attract bidders


Responding to the failure of the UK’s 2023 CfD (Contracts for Difference) auction to attract any bidders whatsoever from the offshore wind sector, the government has raised the maximum bid prices, aka strike prices, that offshore wind and other renewables projects can receive in the next auction, Allocation Round 6, to be held in 2024. For AR6, the maximum strike price has been increased by 66% for offshore wind projects, from £44/MWh to £73/MWh, and by 52% for floating offshore wind projects, from £116/MWh to £176/MWh.


In AR6, offshore wind will also be given a separate funding pot “in recognition of the high number of projects ready to participate.” This will ensure “healthy competition among a strong pipeline of projects, helping the UK deliver on its ambition of up to 50 GW of offshore wind by 2030, including up to 5 GW of floating offshore wind.”


“We recognise that there have been global challenges in this sector and our new annual auction allows us to reflect this,” said Energy Security Secretary Claire Coutinho.


The government is also increasing maximum bid prices for other technologies, including: geothermal by 32% – from £119/MWh to £157/MWh; solar by 30% – from £47/MWh to £61/MWh; tidal by 29% – from £202/MWh to £261/MWh.


The government is also proposing to assess applications for the 2025 auction (AR7) not just on their ability to deliver low cost renewable energy, but also on how much a project strengthens the environmental and economic sustainability of the industry. As part of this, a


www.modernpowersystems.com | November/December 2023 | 35


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