| Work Detail |
The global offshore wind sector grapples with a fresh set of challenges in cost escalation and supply chain pressures and will need $27bn of secured investment by 2026 if it is to meet a fivefold growth in annual installations (excluding China) by 2030, according to energy consultancy Wood Mackenzie.
The figure is based on Wood Mackenzie’s base case prediction, which forecasts annual capacity additions of 30 GW by 2030, but it pales in comparison to policymakers’ offshore wind objectives, which call for nearly 80 GW per year and over $100bn in investment.
The bulk of that $27bn should be secured in the next two years to account for facility ramp-up, Wood Mackenzie noted, adding that the number does not include full supply-chain buildout and that it is only what is required for installation, foundations, towers, blades and nacelles.
Installation of turbines and foundations, where the vessels are the key component, is looking at the largest investment gap, where more than 20 newbuilds need to be commissioned. Of the $13bn in investment needed overall, installers have committed to slightly less than half.
Several projects in the US and UK that won competitive tenders that locked in their remuneration schemes have recently found themselves facing low projected returns due to unanticipated cost increases, with a few even forced to halt development and pay contract termination fees for early exit.
Companies in the offshore wind supply chain have seen declining EBITDA margins since 2015, when the industry had built out its capacity to supply around 800 turbines. Since 2015, turbine installations have averaged around 500 a year. Even in 2022, only 678 turbines were installed outside China.
“The oversupply that resulted from the 2015 buildout is one of the factors depressing profitability. Suppliers are now also having to cope with the inflation of the past two years and higher commodity input costs,” said vice chair power and renewables at Wood Mackenzie and co-author of the report Chris Seiple, adding: “Burned once, current suppliers are cautious in their investment plans and the lack of profitability is hampering their ability to fund manufacturing capacity expansion – ultimately stalling innovation in the sector.”
Some 24 GW of projects scheduled to come online between 2025 and 2027 have secured a route to market, through either some form of subsidy or power purchase agreement but have yet to make a financial investment decision.
While it is unlikely all of the projects would be delayed, Wood Mackenzie noted that it would shift expected equipment demand from 2025–27 to 2028–30, which would result in less need for manufacturing expansion in the short term but an even greater need for expansion to meet the next demand window.
“In reality, if this occurs, certain projects might not get built at all in 2028–2030, meaning governments will fall even further behind their targets,” said Finlay Clark, senior research analyst at Wood Mackenzie.
The focus of many governments around the world has been to set an offshore wind target for 2030, resulting in a projection of 77 GW of installations in 2030 compared with 6 GW in 2023.
However, Wood Mackenzie found that many investors are concerned that if the supply chain were built out to satisfy peak installation demand in 2030, somewhere close to government targets, there would be insufficient demand for equipment to support it after 2030.
“The supply chain is struggling to scale up and will be an impediment to achieving decarbonisation targets if change does not happen. Nearly 80 GW of annual installations to meet all government targets is not realistic, even achieving our forecasted 30 GW in additions will prove unrealistic if there isn’t immediate investment in the supply chain. Adjustments and new policies by governments and developers will be required to transform the supply chain to deliver offshore wind projects at industrial scale,” noted Seiple. |
