Sharm El-Sheikh, Egypt – 8th November 2022 – As the 27th Conference of the Parties of the United Nations Framework Convention on Climate Change (COP27) convenes, a new report from The Renewables Consulting Group, an ERM Group company, reveals that several developed and emerging markets are falling behind their stated net zero climate ambitions. Of the fifteen countries that have offshore wind specified development targets for 2030, 80% are already predicted to miss their stated goals.
The report, “Global Offshore Wind Market Report: COP 27 Highlights,” reveals that only Vietnam, Poland, and Denmark are set to meet or exceed 2030 offshore wind targets
The International Renewable Energy Agency (IRENA) has predicted that the world would need an installed global capacity of 270 GW of offshore wind by 2030, and 2,000 GW by 2050. Meeting these targets requires the equivalent of the installation of the current global capacity every year until 2030 and then installation 2.5 times that amount (86.5 GW per year) for each of the following 20 years. To date, research from RCG’s Global Renewable Infrastructure Projects (GRIP) database shows that target will be missed by 7%. To reach RCG’s 2030 forecast, an average capacity of 24.5 GW will need to be installed annually.
Breanne Gellatly, Partner and Global Lead, Strategy and Markets for The Renewables Consulting Group, an ERM Group Company, said:
“In spite of the impressive number of offshore wind projects in development, the majority of countries are need additional action to hit their 2030 offshore wind specific targets. ERM’s report outlines what is causing the situation despite the increased attention on renewable energy, as well as some of the actions policy makers have at their disposal to rectify. The report should serve as a wake-up call to governments, institutions, and organizations that plenty of challenging work remains in the fight against climate change.”
According to RCG’s report, there are myriad reasons why countries are falling behind these climate change ambitions. Considering that planning and obtaining approvals for offshore wind consent takes four to five years on average, regulatory bodies should investigate shortening their consenting processes if they are to deliver the significant expansions that are needed to stave off climate change.
Macroeconomic factors are also challenging as offshore wind faces serious cost inflation due to raw materials shortages and price increases. Offshore wind remains competitive, but RCG warns that these increasing capital costs may continue to undermine net zero goals and targets.
For more information about GRIP and RCG’s data and research capabilities, visit https://thinkrcg.com/data-services/
Caption: Seventy-seven Vestas turbines power the Borssele site.
Photo courtesy of Blauwind (www.blauwwind.nl/en)
The Netherlands – 27th September 2022 – The Renewables Consulting Group (RCG), an ERM Group company, served as sole technical advisor to Swiss Life Asset Managers in its recent acquisition of a minority interest stake in the fully operational 731.5 MW Borssele III & IV of fshore wind farms, located 55 kilometres from the Port of Vlissingen in the Netherlands.
The full-scope technical due diligence support included a thorough and detailed analysis of the technical aspects of the project to identify and advise on any technical risks from an investment
perspective. Core areas of focus included the project’s operational performance, operations and maintenance strategy, contractual arrangements including warranties and division of responsibilities, long term energy yield estimations and full operational lifetime OpEx build-up.
Commenting on the news, Nick Morgan, Director, RCG, said:
“RCG is proud to have served as the sole technical advisor to Swiss Life Asset Managers in support of its first investment within the Benelux offshore wind market. Offshore wind represents a crucial pillar in the energy transition, globally, and RCG has extensive experience in advising on projects within this market, from development stage through to advanced operations.” – Nick Morgan, Director
The project, comprised of 77 Vestas turbines, was successful in a tender held in late 2016 and is backed by the Dutch offshore feed-in tariff for the first 15 years of operation. The wind farm began operations in 2021 and is designed to generate 3,000 GWh of energy annually, which is enough to power approximately 825,000 Dutch households.
Greece legislators have signed into law the Offshore Wind Energy Bill, which lays out the steps needed for the country to achieve a target of 2 GW of floating offshore wind by 2030. The legislation is Greece’s first law pertaining to offshore wind and is a strong indication the country intends to meet its target of 35% renewable energy by 2030 established under its National Climate and Energy Plan.
The Bill stipulates that a national offshore wind program will occur after a strategic impact assessment has been finalized. Therefore, the government is expected to make more announcements specifying offshore wind zones and auction criteria.
Interested developers will need to secure state sanctioned permits to study selected areas. These “exploration” licenses (to identify wind resources, etc) will be valid for up to three years. Auctions for state support will be reserved for permit holders. Selected bidders will gain exclusivity to develop, build and operate in the selected areas.
The legislation introduces a Contract-for-Difference-type subsidy mechanism for offshore wind development. Each development area will be awarded to the bidder with the lowest bid for 20 years. Upon agreement, there will be a six-year period to complete a project.
However, some industry observers note that the Bill lacks detail and did not go far enough with specifics.
Vasilis Markatselis, Senior Associate, says some of the language contained in the legislation needs to be further refined to provide certainty to investors and developers.
“Some aspects of the legislation are vague,” he says. “Although the government has set a 2 GW offshore wind target by 2030, there is no such reference contained in the Bill.”
To send a stronger signal to the marketplace, Markatselis says the Bill should have indicated a subsidy cap for the first auction. Absent a scheduled series of offshore wind specific auctions, the development of offshore wind in the country could lead to delays and deter bidders.
Offshore wind projects in Greece were initially developed in the early 2010s before a period of dormancy which lasted until 2020, when a new marine spatial plan was implemented. Now Greece seems to be of interest as several international developers such as Parkwind, RWE, Ocean Winds and Masdar have expressed interest in pursuing projects in the market, along with local renewable energy developers.
Greece’s territorial sea currently extends to six nautical miles in the Aegean Sea leaving limited space for projects in higher wind speed areas. The Ministry of Energy and Environment has conducted feasibility studies to identify areas suitable for both fixed-bottom and floating wind areas and has determined that the seabed around Greece is mostly suited to floating wind projects as water depths drop significantly.
Exhibit: Greece’s territorial boundaries
Source: RCG’s Global Renewable Infrastructure Projects (GRIP) database
RCG has conducted a high-level pre-feasibility study aiming to identify Greece’s unconstrained offshore wind potential (excluding shipping, fishing, marine protected areas, etc.) highlighting fixed-bottom and floating wind regions. Fixed-bottom areas are generally found very close to a few islands located in the Aegean Sea and the mainland, whilst numerous floating wind opportunities are found everywhere around Greece as water depth drops significantly. The identified theoretical technical potential, within 6 nautical miles, exceeds 100 GW.
To date, two fixed-bottom projects owned by Mytilineos and COP -the 216 MW Thrakiki Aioliki and the 498 MW Kaveiria Offshore Wind Farm- have been awarded Production Licenses. However, the Bill does not include any reference regarding the Production Licenses or if the developers can exercise them.
Exhibit: Bathymetry and potential for fixed and floating wind
Source: Global Wind Atlas v3.0 and GEBCO Bathymetry 2019; GRIP
“The main challenges are from visual impact and the nascent supply chain,” Markatselis explains. “There is no established offshore wind supply chain in Greece nor in any adjacent European market.” Therefore, he says, “the government will have to engage and understand the supply chain capabilities, identifying suitable ports for redevelopment and consider strategic investments.”
Markatselis notes further challenges that need to be addressed, specifically in grid connection.
The Independent Power Transmission Operator (IPTO) will be responsible for developing all offshore wind export grid infrastructure and interconnection and the cost will be socialised toward the system usage charges.
Some industry watchers may speculate that Greece is taking its cue from Germany, the first country to propose a centralized approach.
“The approach has more advantages in terms of system integration and security of supply, when compared to a developer-led approach,” explains Markatselis. Notably, this endeavor appears to facilitate IPTO’s plans to connect all non-interconnected islands with the mainland’s grid, having a more holistic grid infrastructure. However, the centralised approach relies on the experience and capacity of the TSO in executing these infrastructure projects in the required offshore wind development timeframe.”
President Biden has signed a $430 billion economic and energy bill – an omnibus spending bill that seeks to address climate change, inflation and Medicare costs while allocating billions to cut carbon emissions and incenting clean energy production and development.
In a big victory for the Biden Administration, The Inflation Reduction Act of 2022 quickly gathered momentum in Congress in late July after Sens. Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ) – two holdouts that opposed Biden’s original climate bill – agreed to lend their support.
The legislation – which aims to cut emissions 40% by 2030 – contains $369 billion in climate and energy provisions, devoting nearly $280 billion to clean energy tax incentives.
Generally speaking, renewables in the US are facing pressure from rising supply chain costs, global supply chain disruptions and spiking commodity costs. The IRA will stimulate green technologies and ramp up domestic supply chains, creating favorable conditions for US offshore wind.
The act extends and expands several new clean energy tax credits, such as the Investment Tax Credit (ITC), Production Tax Credit (PTC) and Advanced Manufacturing Production Credit. Such long-term extensions are crucial for developers and suppliers to plan future projects without the fear of tax incentives expiring.
Perhaps the most impactful measure for offshore wind is an extension of an existing ITC, which was set to expire in 2025. The bill allows for the 30% ITC available to projects placed in service after 2024. Notably, the ITC and PTC would phase out when emission reductions meet target levels of 25% of 2022 levels or after 2032, whichever is later.
“The Inflation Reduction Act provides certainty for clean energy as this legislation breaks the ‘on-again off-again’ policy cycle,” notes Doug Pfeister, Managing Director of The Renewables Consulting Group, an ERM Group company. “This game-changing legislation will set-up US offshore wind for years to come and go a long way in helping President Biden achieve his stated target of 30 GW of US offshore wind by 2030.”
A long-term extension should also help to alleviate wind developer concerns about the rising cost of raw materials. Projects meeting certain domestic content requirements are eligible for a bonus credit. The act supplements the offshore wind supply chain with a broad array of supportive tax measures, such as extra deductions for US-made content like offshore wind shipbuilding but also for production costs of critical minerals, nacelles, tower foundations, inverters, batteries, and other components in the offshore wind supply chain.
The Act also opens up wide swaths of seabed available for future leasing opportunities. For starters, the IRA will resume offshore wind leasing off the southeast seaboard, reversing a 2020 executive order issued under President Trump. The IRA also directs the Bureau of Ocean Energy Management to issue Calls for Information before September 2025 for offshore wind areas within the exclusive economic zone adjacent to US Territories such as Puerto Rico, Guam, American Samoa, the US Virgin Islands and the Northern Mariana Islands.
For the first time, the act includes significant new incentives for clean hydrogen production, such as a Clean Hydrogen PTC/ITC. The bill provides a separate credit stream for integrated hydrogen projects and is available during the first 10 years of facility operation provided projects begin construction before 2033.
Tugce Sahin recently joined the RCG London team as Principal. She has a comprehensive understanding and experience of the offshore renewable energy markets.
Tugce is an expert in market intelligence, market analysis, and delivering successful consulting projects. As Principal, she has the responsibility of developing a strategy for RCG’s market intelligence services and supporting all global practice areas to deliver management consulting, and technical advisory work.
Tugce has held energy industry leadership roles and has led renewable consultancy projects. This includes serving as a research manager and offshore wind consultant. She led, secured, and delivered successful consulting projects to leading offshore wind value chain companies. The assignments have included due diligence and providing strategic advice for new market entry. Tugce also has experience in market research, numerical analysis, and report writing across the offshore wind and subsea cable markets.
Tugce trained as a chemical engineer and has a post-graduate degree in energy engineering and environmental management.
On June 30, in the case of West Virginia vs. the Environmental Protection Agency (EPA). the US Supreme Court struck down the EPA’s Clean Power Plan, limiting the agency’s authority to cap CO2 emissions to address climate change. The decision will significantly inhibit the EPA’s ability to limit Greenhouse Gas emissions from the power sector and is likely to impede the United States’ goal of decarbonizing the electricity markets by 2035.
The decision was a blow to many US citizens concerned with climate change and advocates of clean energy. The mainstream media broadly covered this as a major set-back. However, there are many reasons to be hopeful, as demand, market forces, higher efficiencies and cost reductions in the renewable energy sector are driving unprecedented growth and deployment in the United States without EPA mandates, and the same trends are occurring worldwide.
In the United States, more than 6,619 MW of wind, solar and storage was installed in the first quarter of 2022 alone, according to the American Clean Power Association (ACP). This was the most capacity ever installed in a yearly first quarter. Solar and wind were nearly equal with 56 new utility-scale solar projects coming online in 2021, for a total of 2,997 MW. Ten new wind projects came online, totaling 2,865 MW. Finally, the industry installed 24 new battery storage projects with a total capacity of 758 MW/2,537 MWh.
The pipeline of projects in advanced stages of development continues to hover at sky-high levels with 23,346 MW of wind (including 17,458 MW offshore), 48,492 MW of solar (of that over 21,497 MW is under construction), and 14,701 MW of energy storage.
Renewables supplied a record 24.5% of electricity in the United States through to April, versus 21.6% a year earlier, with the sector on track to exceed forecast performance for 2022, according to the latest figures out of the Energy Information Administration (EIA). The agency forecasts that renewables will produce 22% of the nation’s power in 2022, up one percentage point from a year earlier. It estimates wind will provide 9% and solar 4%.
Globally, the news is equally encouraging. Almost two-thirds or 163 GW of newly installed renewable power globally in 2021 had lower costs than the world’s cheapest coal-fired option in the G20, according to a report released July 2022 by the International Renewable Energy Agency (IRENA).
The global weighted average levelized cost of electricity (LCOE) of new onshore wind projects added in 2021 fell by 15%, year‑on‑year, to USD 0.033/kWh, while that of new utility-scale solar PV fell by 13% year-on-year to USD 0.048/kWh and that of offshore wind declined 13% to USD 0.075/kWh, according to IRENA’s study.
Notably, those falling prices were despite rising materials and equipment costs. Those rising prices are not stopping developers around the world from bidding into power and renewables auctions at unprecedented prices. Witness in offshore wind, where much of RCG’s advisory work is intensely focused and covered in the recently released Global Offshore Wind Annual Market Report (see GRIP).
In the United Kingdom, the recent CFD AR4 auctions in early July this year resulted in 7 GW of offshore wind capacity contracted for upcoming builds at electricity strike prices of GBP 37.35/MWh in 2012 prices, approximately GBP 47.06/MWh (USD 56.57/MWh) in today’s prices. That is cheaper than most onshore wind is contracting for in the UK, US, and elsewhere globally. RCG compiled the graphic below, which shows a steady march downward when contracts are awarded.
Exhibit: UK offshore wind auction price reductions (source: RCG)
The only price outlier in the UK’s AR4 auctions was TwinHub at GBP 87.30/MWh in 2012 prices, or GBP 110.01/MWh (USD 132.25/MWh) in today’s prices, which itself is a notable achievement since it is a floating offshore wind project. While it may be a small project, it shows commercial success and that the cost reduction journey is well on its way for a technology that many have doubted in recent years could achieve either.
Since 2020, total global capacity of floating projects has increased by over 116 GW. Despite no single project of more than 50 MW being fully commissioned to date, increasing confidence in the viability of the technology has encouraged developers to propose multi-GW sites across all regions.
The success of floating technology will be nothing short of disruptive to the global energy landscape as coastlines previously considered off-limits for offshore wind will be ripe for development. In the United States, the typically cautious and slow US federal government is moving with uncharacteristic speed by specifically offering up dozens of areas to lease for offshore development for floating projects.
California’s auction is scheduled for this fall and could see over 6 GW of first phase projects awarded sites. The Gulf of Mexico offshore wind lease sale is expected to occur by Q1, 2023 and will include both fixed and floating sites with potential for around a dozen sites 1,000 MW or more auctioned. The lease auctions in the Central Atlantic are for both fixed and floating and expected to go forward in mid-2023. Oregon is scheduled for Q3, 2023 and could support around 3 GW in first phases. Lastly, the Gulf of Maine (which could feed power into populous Massachusetts) will be auctioned in Q3, 2024, with site estimates too unknown at this point.
So, yes, in the United States the EPA has been effectively stripped of its ability to strongly regulate CO2 emissions from power plants without regulatory action from a Congress notorious for disfunction and inaction. But in the meantime, the renewable energy industries have put into action the technology and cost advances that are seriously challenging the dominance of CO2 emitting fossil fuels now and for the foreseeable future, no matter what the EPA or the US congress do – or don’t – about it.