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If we can be sure of one thing in the global offshore wind industry, it is that there is constant change. In 2006, we were in awe of 5MW machines, and we were looking at non-recourse financing as something innovative. Fast forward 15 years to 2021, and wind turbine generators (WTG) were almost three times larger; projects required multi-billion investments, and non-recourse financing became the norm. The world was offshore wind’s oyster.
However, there were three main areas of concern when considering how this could be sustained: - The ever-increasing size of WTGs - The ongoing assumption that the cost of energy (from any source) will continue to drop - The rapid rate of reducing tariffs for offshore wind While the COVID pandemic and the conflict in Ukraine have had an impact, the signs were there that something had to give. We know from experience that rapid development of products can pose significant challenges, and for a long time, most offshore wind projects contain some sort of prototype element. While this is fundamental for any industry to progress, endless evolution is expensive and can make manufacturing inefficient, especially when there is insufficient time to learn lessons from past models. This not only affected the WTG original equipment manufacturers (OEMs) but the whole supply chain as foundations, vessels etc, had to align with the latest models. Even before the current drive for decarbonization, most energy sectors were looking for growth. While this was possible in isolation when we consider these growth targets in totality, it resulted in all industries fighting for the same commodities, be that materials or people. The resulting disruption to the supply chain caused an inevitable rise in prices. This, combined with pressure to keep costs to consumers low, created the conditions for a perfect storm. The offshore wind industry also saw a rapid decrease in tariffs. While decreases had been expected, the rate was much steeper than anticipated due in part to the industry maturing and risks becoming better understood and managed. To maintain market share, all players in offshore wind took significant profit cuts. Anecdotal evidence suggests that in many auctions, Tier 1 contractors submitted bids with profit margins of a couple of percentage points. While this is understandable for a company entering a market or protecting market share in the short term, it is unsustainable in the medium term. Unfortunately, due to these low bids, the inevitable happened; governments expected even better deals for the next auction, and of course, slowly but surely, this expectation resulted in lower and lower tariffs. In an industry that was growing fast, costs started to rise, but expected revenue was reduced. “As an industry though, we cannot stop evolving” Considering this environment, it should have come as no surprise that in the last couple of years, WTG OEMs and related supply chains are experiencing financial difficulties. We have already seen some go out of business, with others posting significant losses. The latest UK offshore wind round attracted no bidders, and other projects globally have been mothballed or abandoned. So, should the industry panic? The answer is definitely no. The industry has had its reality check, and we need to consider what is genuinely achievable. We also need government support in developing consistent policies to enable the offshore wind industry to progress, along with flexibility in commercial routes to respond quickly to market forces. As an industry, though, we cannot stop evolving. Innovation and integration of offshore wind and renewables, more widely, will continue to optimize project economics. At Wood, we are investing in impactful research and development such as:● Continued development of our advanced lidar, which facilitates an improved understanding of wakes, which have a direct impact on future revenues and life extension.
● Development of digital tools that identify the most optimal plant design for industrial clients and integration to networks.
● Continued improvement of our energy yield methodologies to model the wind regime more accurately in any given location.
What does the end game look like? It is not outside the industry’s reach to achieve fully autonomous operations. There is a future whereby a sensor picks up a deviation, clever diagnostics identify the fault, nested drones confirm the fault by visual inspections, an order is sent to a logistics center to dispatch a replacement, the part is delivered to the location, and clever robotics perform the replacement with the old part being sent back to base.
The adjustment we have seen had to happen and a new equilibrium was found. The push for net zero is irreversible, and offshore wind will be a key player in the journey.
