Industry experts convene at Clarksons HQ to address challenges and explore opportunities amid turbulent times.
Clarksons Securities , Clarksons Offshore & Renewables , and Green Giraffe Advisory jointly hosted the “Offshore Wind Investment: Mind The Gap” seminar at Clarksons’ headquarters in London. The event brought together key stakeholders, including investors, developers, and suppliers, to provide valuable insights into the offshore wind industry’s current landscape.
Amidst a summer characterized by uncertainty for renewable energy investors, this seminar served as a beacon of hope by offering a comprehensive analysis and discussing strategies to navigate the challenges.
The session’s central theme revolved around the idea of embracing “the gap” in the offshore wind sector, with a focus on achieving long-term positive results for return on investments, sector innovation, and stabilizing the supply chain. The panel included prominent industry figures, such as developer BlueFloat Energy, PE fund (developer) and North Star Renewables owner Partners Group, and foundation manufacturer Sif Group.
Panel discussion including representatives from Clarksons, Sif, Partners Group, BlueFloat Energy and Green Giraffe
Executive Summary
Despite the challenges and negative headlines that have clouded the offshore wind industry recently, the seminar provided an encouraging outlook on how investment can help unlock supply/demand bottlenecks, promote innovation, and ensure more realistic electricity prices. The prevailing sentiment among developers, investors, and supply chain stakeholders is one of optimism, with the belief that the current setbacks are temporary and surmountable. Industry veterans recognize that setbacks are not uncommon and have been overcome before.
Recently, the EU revised its Renewable Energy Directive (RED), requiring member states to lift the share of Renewable energy in their overall consumption to 42.5% by 2030. This seems very ambitions, and targets have been raised through the revision of the RED. The EU can however potentially reach this target. The graph below displays split between fossil and non-fossil fuels in Europe’s primary energy consumption. Please note that the graph is looking at all of Europe, whereas RED naturally addresses EU member states only. In Europe, as of 2022, 29% of primary energy consumption was non-fossil, while 71% was fossil. Note that there are also some nuances between “non-fossil” and “renewables”, as renewables is defined by EU’s RED (non-fossil below naturally includes nuclear, hydro etc.)
The bottom line as Clarksons sees it:
The seminar offered several key takeaways
Section 1: Offshore Wind is Thriving – A Bright Future Ahead
Offshore wind energy is far from being a mere concept; it is not only viable but poised for substantial growth. Recent developments in the market, including Orsted’s endeavors in the US, Vattenfall’s initiatives in the UK, Equinor’s ventures in Norway, and the latest Contracts for Difference (CfD) round 5, have sparked significant interest and debate regarding the long-term prospects of the sector. It’s essential to emphasize that the future of offshore wind is still promising.
The doubters questioning the sector’s long-term viability need to understand that offshore wind will have to play a pivotal role in the next few decades to achieving the 2050 targets for a sustainable and renewable energy landscape. Several compelling reasons support this outlook:
Section 2: Offshore Wind Supply Chain Reshapes Dynamics
The offshore wind supply chain is currently at a unique juncture, and the prevailing dynamics signal a transformation in the industry’s structure. For years, developers held the upper hand, akin to the early days of the Internet, where their focus was on capturing market share, even at the expense of profitability. This intense competition drove a race to secure mandates just before Final Investment Decisions (FID), leading to a rapid decline in Levelized Cost of Energy (LCOE) but also squeezing profit margins. This unfortunate pattern resulted in some companies facing disappointing financial outcomes and even bankruptcy. The tide has now turned, and in every facet of the market, a conspicuous gap has emerged between the considerable gigawatts (GW) under development – even after factoring in project cancellations and delays – and the actual capacity of the supply chain to deliver. This imbalance has considerably strengthened the bargaining power of contractors and suppliers.
This shift in the market landscape manifests itself in several ways:
Importantly, this transformation does not negate the challenges the supply chain faces. Instead, it highlights a shift of these challenges back to the developers, which will eventually affect consumers. In this process, it serves to restore profitability at all levels while maintaining competitiveness within the sector.
“This redirection of dynamics signifies the offshore wind industry’s maturation and its ability to navigate hurdles and complexities more effectively, ultimately resulting in a win-win situation for all stakeholders.”
Section 3: Seizing Investment Opportunities in the Offshore Wind Supply Chain
In light of the evolving dynamics within the offshore wind industry, a remarkable opportunity has arisen for investments in the supply chain. This moment is significant for several compelling reasons:
Unlocking Bottlenecks: The supply chain currently stands as a bottleneck in the offshore wind industry. By investing in this crucial area, we can alleviate the strain on developers, reduce price pressures, and ensure that this pivotal sector for our economy can thrive.
Promising Returns: Investing in the supply chain, bridging the current gap, and streamlining operations offers the prospect of substantial and sustainable returns. This endeavour encompasses a multitude of sub-segments, including ports, grids, cables, turbines, foundations, and more. Each of these sub-segments has its unique set of intricacies and nuances, contributing to the industry’s multifaceted landscape.
Innovation at the Core: Innovation is not only a driving force but also at the core of the offshore wind supply chain.
“Investors, especially those comfortable with higher risks and expecting higher returns, will uncover opportunities within the newer segments of the industry.”
Conclusion: Navigating Towards a Bright Offshore Wind Future
The offshore wind industry finds itself at a pivotal juncture, with a myriad of challenges and opportunities defining its path forward. As our discussion has highlighted, a spectrum of solutions is available to secure a vibrant and sustainable future for offshore wind.
In summary, the offshore wind industry is not only resilient but poised for significant growth. By implementing these solutions and navigating through the challenges, the industry can fortify its position as a beacon of hope for a sustainable energy future. Offshore wind remains a crucial contributor to the global transition to cleaner energy sources, and these strategies will pave the way for its continued success. With innovation, collaboration, and strategic planning, offshore wind will continue to thrive in the face of evolving challenges.
Note: The opinions, beliefs, and viewpoints expressed in this article do not necessarily reflect the opinions of offshoreWIND.biz