Denmark: Bright Future for Global Offshore Wind Power Industry
While maturing growth and policy headwinds have dampened growth in onshore wind power, offshore wind power is expected to show strong growth – especially towards the end of the decade. MAKE Consulting expects offshore installation compound annual growth of 44% in 2011-2016, with 18GW of installations in the period, supported by favourable policy in Europe and China.
MAKE Consulting expects Europe to be the growth powerhouse for offshore wind, with 62% of total installations in 2011-2016 in the region. 77% of all new European installations will be driven by Germany and the U.K., who are striving towards their ambitious 2020 offshore targets of 18GW and 10GW respectively. Mirroring the upward swing in Northern Europe, Asia-Pacific is expected to install 6.6GW out till 2016, representing 36% of the global offshore market. China will remain the largest offshore market in the region, but the emergence of South Korea, Vietnam and Taiwan in the period will supplement growth. In sharp contrast, progress in the U.S. is expected to be lacklustre due to low gas and electricity prices, ample onshore resource and weak political commitment to renewables.
Offshore asset ownership will remain dominated by European utilities and developers, with Vattenfall and DONG Energy at the forefront. Southern European utilities are not represented in the top asset owners currently due to lack of offshore activity and challenging economics in their home markets, but they do represent a sizeable chunk of the 185GW pipeline. In addition to the utilities and developers, MAKE expects increasing interest in asset ownership from the financial sector. Pension funds and insurance companies are attracted to the sector due to the return expectations of new developments relative to other asset classes, as well as the improving risk profile of offshore wind, as the industry matures. China Three Gorges, Guodian and Marubeni are the top Asian offshore asset owners.
Lowering the levelised cost of energy (“LCOE”) remains a key industry focus to support future offshore growth. MAKE estimates that current LCOE range for offshore wind is EUR 120-180/MWh with most assets around EUR 140-160/MWh presently; this will need to improve, as reductions in offshore tariffs are expected in the medium term. MAKE estimates that larger turbines with resultant fewer cables and foundations mean that capital costs could drop by nearly 17% and LCOE could drop by 20% by the end of the decade towards EUR 115-120/MWh.
Aside from lowering the LCOE and reducing capital costs, transmission infrastructure build-out is another challenge that faces the industry, especially in Europe. Delays in supply of HVDC converting platforms and liability issues surrounding grid connection delays are key challenges for the German offshore sector. Grid connection is not a limiting factor for the forecast period in the U.K., and Round 3 projects have already secured grid connection.
The trend to larger projects in deeper waters further from shore continues to drive technology changes. The increasing water depth of offshore projects is driving foundation technology change from monopiles to jacket-type foundations. On the cabling side, line losses will accelerate the shift from HVAC to HVDC technology for cables and substations, especially for deep water projects far from shore. Innovations from the likes of ABB, e.g. its new HVDC circuit breakers, are expected to facilitate the construction of offshore grids with HVDC technology, but these developments are unlikely to become widespread until towards the end of the decade.
Press release, December 17, 2012; Image: alpha ventus