As offshore wind energy costs have fallen, more developers, utilities, suppliers and investors are assessing emerging markets with a view to expanding into new regions. But what opportunities exist for European developers?
Offering big potential, the US is following an ambitious plan to build an offshore wind market and local supply chain. Although the market is less mature than in Europe, the connection and interaction with the European supply chain is more relevant. Therefore, the US may see faster cost reduction than Asia, if policies are regulated in a way that allows similar technical and commercial solutions to those in the EU.
The Far East provides a diverse picture. China is the ‘pure megawatt lead’, with ambitious growth plans defined and started quickly via local supply chain support. Taiwan has enjoyed lots of hype from European players owing to its open market outlook on the international supply chain. Finally, Japan has established plans to utilize offshore wind despite high costs and the impracticality of fixed offshore wind in many areas – floating offshore wind technology is crucial to Japan’s growth. All Asian markets are very young and/or driven by strong political ambitions, so full cost reduction is unlikely to be realized.
Role of the supply chain
By exploiting economies of scale and achieving operational cost advantages, developers and the supply chain have cut offshore wind costs dramatically. The more megawatts installed, the lower the levelized cost of energy (LCoE). However, cost reduction pressure by governments means these savings have not been fully realized across the entire supply chain. But why are developers exploring opportunities in emerging markets instead of new locations in European? Reasons include:
- Limited sea space suitable for offshore wind and increasingly unattractive environmental conditions like water depth and distance to shore
- Demand for electricity is limited and may plateau sooner rather than later
- Public expenditure on offshore wind support schemes will not be extended – all countries now use public auctions, exposing cost reduction for all
The role of EU countries
The European model is a balance between:
- Countries competing to secure supply chain pipelines while monitoring renewable energy subsidy cost reductions
- Allowing the electricity wholesale market to transition from conventional to renewable energy sources
Emerging markets must provide a commercial and regulatory framework that attracts mature supply chain players from the European market. One proposal is to offer a higher megawatt hour price but relate the price to the country’s environmental and human-made conditions. Offering sites with preferable soil conditions might mean less feed-in per MWh. More strict grid compliance rules mean this should be considered further. The dominant question remains: What is the right incentive to pull players into new countries?
Finding a win-win solution
This question can only be answered by understanding the differences and risks connected to new markets. Site conditions play a major role as they define the CAPEX and OPEX which set the business case. But a hidden success factor relates to each market’s political and technical requirements. Market success will be judged by creating a set of requirements that are comparable with mature markets, without adding barriers to the supply chain and industry players moving into new regions.
The ideas of leverage (point of balance) and direction of movement (tilt) for supply are illustrated below, together with the hidden barriers (wedges) driven by site and commercial conditions (weights).
Adding competition to each market with more attractive conditions will become a win-win as it will lead to a lower cost of energy. Having one global, uniform market where economies of scale can be achieved requires technical and regulatory considerations to be harmonized. Only a minimal barrier in each country’s cultural and historical regulations should be enforced, ensuring the future continues to look bright for offshore wind, particularly when competing in the global energy industry.