Posted on January 3, 2024
Governments around the world are turning to offshore wind because it provides clean energy at scale and can help them meet decarbonisation targets. 2023 was a busy year, with more than 10 lease auctions and five support and offtake auctions, but 2024 will be the busiest year so far in offshore wind history. New auctions have been announced in several markets, particularly in Europe, and as Aegir Insights noted recently, 2024 will be the most packed year to date as offshore wind auctions totalling more than 50 GW are planned for kick-off.
In 2024, governments that recognise that inflation has driven developers’ costs up significantly, that pitch prices for offshore wind at the right level, will find plenty of appetite to build projects. Those that don’t will find that developers have plenty of choice nowadays and will go elsewhere. The UK government has recognised this and following an extensive review of the failed AR5 auction – for which no offshore wind developers submitted bids because prices were set too low and did not take into account the effects of inflation – the government has raised the maximum price offshore wind and other renewables projects can receive in the next Contract for Difference auction. The maximum strike price has been increased by 66% for offshore wind projects, from £44/MWh to £73/MWh (US$90/MWh), and by 52% for floating offshore wind projects, from £116/MWh to £176/MWh.
The economics of offshore wind will improve
Interest rates may remain higher in some countries than in others, but the consensus is that they have peaked. This will boost the renewables sector and offshore wind developers, who have been hit hard by high interest rates in the last 12-18 months.
As Clarksons Renewables noted recently, a shift in the narrative about offshore wind is taking place. Bond traders are indicating a more than 50% probability of a Fed rate cut by March 2024, fully pricing in cuts by May. This shift has been accompanied by a substantial decline in long-term treasury yields, with US 10-year treasuries falling to 4.21%, from the peak around 5.00%. Developers, who were adversely affected by rate hikes over the past two years, are set to emerge as the primary beneficiaries of this change. Combined with easing supply chain costs, falling interest rates are likely to be positive for the renewables industry.
Chinese turbines will take a growing share of the market
In October 2023, China’s Mingyang Smart Energy unveiled plans for a new offshore wind turbine which, at 22 MW, will be the largest in the world. The size of Chinese turbines has been growing in leaps and bounds. Some have already been pitched for projects in Europe. European Commission President Ursula von der Leyen said recently that, “The future of our clean tech industry has to be made in Europe,” but it will be difficult to bar Chinese turbines altogether, and they will be supplied to other fast-developing global markets with attractive financing, making it harder than ever for European OEMs to compete. BASF chairman Martin Brudermüller, who has experience of turbines from Europe and China, recently told Frankfurter Allgemein, “The Chinese are technically better than us, and they are also more cost-effective than us.”
More commissioning service operation vessels will be ordered
Large numbers of commissioning service operation vessels (CSOVs) were ordered in 2023, many with exciting environmental credentials. More will be ordered in 2024, despite project delays and cancellations, because offshore vessel owners believe that demand will still far exceed the orderbook.
Just ask Edda Wind, one of the leading owners of CSOVs. Rather than reducing demand, Edda Wind says delays and unscheduled work at windfarms increase demand for CSOVs. Despite the problems developers encountered in 2023, there will be a steep increase in the number of wind turbines installed and in operation in the coming years . As a result, it is estimated that in excess of 250 CSOVs will be needed by 2030 to assist with commissioning and operation, a figure that compares favourably with the existing fleet of fewer than 75 vessels, including vessels under construction. At the same time, subsea tonnage, which used to fill the gap between supply and demand, continues to migrate back to the offshore oil and gas market, further increasing demand.
Green ships for a green industry
In every sector of the shipping industry, owners are in a race to decarbonise and make their ships greener. For an industry like offshore wind, for which the raison d’etre is generating green energy, responding to that trend is an imperative. 2024 will therefore see designers and builders of all types of vessels for the offshore wind industry focus ever more fully on green ships and green solutions.
In 2023, Damen Shipyards Group revealed details of a fully electric service operation vessel it has designed. Designed for offshore charging, significantly reducing emissions while operational, the SOV 7017 E has a 15-MWh battery, sufficient to power the vessel for a full day of operations.
In November 2023, Windcat Offshore placed a contract for two more commissioning service operation vessels designed by Damen Shipyards, bringing its planned CSOV fleet to five vessels, leaving an option for a sixth vessel. The ‘Elevation Series’ will be hydrogen-powered and fitted with hybrid-battery technology and offshore charging capability.
A pioneering project supported by Innovate UK is aiming to retrofit a crew transfer vessel with fuel cells to cut CO2 and NOx emissions. Project Verdant’s conceptual design incorporates hydrogen fuel cells that are connected to electric motors, which can work in conjunction with the existing diesel-fuelled engines, which can be shut down to enable zero-emissions operation at low speed. The hybrid system could reduce a vessel’s CO2 emissions by up to 30% and NOx emissions by up to 40%.
New vessel concepts will be unveiled and advanced designs ordered in large numbers in 2024.