Energy Transition

The wind power industry is facing major cost headwinds. What's going on (and what can be done)?

Wind power forms a significant part of the projected expansion in renewable energy sources.

Wind power forms a significant part of the projected expansion in renewable energy sources. Image: Unsplash/martenbjork

Johnny Wood
Writer, Forum Agenda
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Energy Transition

This article is part of: Centre for Energy and Materials

This article was first published in October 2023 and updated in November 2023.

  • Soaring costs are forcing some wind power developers to delay or halt new projects.
  • This comes at a time when wind power capacity needs to rise swiftly to help clean up the energy system.
  • Government and business leaders must work together to find solutions to financing, regulatory and permitting issues, says the World Economic Forum’s Fostering Effective Energy Transition 2023 report.

A storm is brewing for the global wind power industry, with economic headwinds bringing numerous projects to a virtual standstill.

More than $30 billion in investment has been put on hold as at least 10 offshore wind projects in the US and Europe experience delays, according to The Wall Street Journal.

Developers of onshore and offshore wind projects are facing rising costs, but offshore investments are bearing the brunt of the current industry challenges.

So, what exactly is happening, why is it important, and what needs to happen to safeguard this vital part of the global energy transition and keep the turbines of tomorrow turning?

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How is the World Economic Forum facilitating the transition to clean energy?

Why is the wind industry facing problems?

Soaring inflation, supply chain disruption, high interest rates and lengthy waiting times for permits and grid connections are creating a perfect storm for wind project developers.

In recent years, investors have been drawn to the wind industry by falling project costs and the prospect of new wind farms generating an abundance of cheap, clean energy. But that was before Russia’s invasion of Ukraine sent energy markets into turmoil and inflationary pressures hit many parts of the global economy hard, straining project supply chains and increasing raw material and labour costs.

Alongside these disruptions, the wind industry’s race for scale is placing added pressure on turbine manufacturers to produce ever-bigger rotor blades. Larger turbine blades harvest more energy, which has helped reduce the cost of wind power by 60% in the decade to 2021, according to the International Energy Agency.

However, with contemporary turbines sporting masts high enough to tower above the Statue of Liberty, and blades the length of football pitches, specialist vessels and infrastructure are needed to transport and install them.

For vessel makers, investing in new vehicles capable of carrying the latest turbines runs the risk of them quickly becoming redundant as even bigger turbines appear on the market. Other parts of the supply chain are also under strain, as large-scale turbines require bigger ports, reinforced quaysides to carry additional weight and other new logistical challenges.

Back when project outgoings were lower, many wind farm developers entered into long-term agreements to sell electricity at low fixed prices. Soaring costs mean these electricity prices are now unviable.

Wind turbines across the sea. wind power energy
Soaring costs are causing some offshore wind projects to be delayed or halted. Image: Unsplash/timusic

In the US, Norwegian energy company Equinor and British multinational BP have three wind projects in development off the coast of New York that would have enough capacity to power around 2 million households. However, the firms say that unless they can renegotiate their power price agreements, the projects could fail to attract sufficient financing.

Why do the wind sector’s cost pressures matter?

What’s happening in the global wind power industry could derail global efforts to achieve climate targets.

Wind power is a big part of the projected increases in renewable energy generation.
Wind power is a big part of the projected increases in renewable energy generation. Image: International Energy Agency

Renewable energy investment needs to triple by the end of the decade and 90% of global electricity generation needs to be renewable by 2050, according to the International Energy Agency’s Net Zero by 2050 Roadmap. Wind power forms a significant part of the projected expansion in renewable energy sources.

Global outlook for new wind power installations

In Europe, there are signs of action to tackle wind power's stalling potential. In October, the European Commission launched its Wind Power Package, which outlines 15 actions to help the continent strengthen its wind energy industry to meet climate goals.

While, in the UK, the government increased subsidies for offshore wind developers in November, to encourage "homegrown clean energy", the Financial Times reported.

These moves are important, as installations of wind power capacity need to grow fivefold this decade to help the world limit temperature rises to 1.5°C above pre-industrial levels.

Wind power installations need to rise rapidly this decade to help keep global temperature rises under 1.5°C.
Wind power installations need to rise rapidly this decade to help keep global temperature rises.. under 1.5°C. Image: Global Wind Energy Council

Based on current growth rates, projected new wind capacity will fall short of this and will account for only 68% of what’s required.

Project delays could leave us even further from achieving what is required and undermine the affordability and sustainability of energy – two elements of the “energy triangle” outlined in the World Economic Forum’s Fostering Effective Energy Transition 2023 report. The energy triangle, shown below, highlights the elements needed to achieve the energy transition.

Figure illustrating the Energy Tranisition Index update.
The energy triangle shows the foundations needed for the energy transition. Image: World Economic Forum

What can be done?

With such a complex set of challenges, there is no simple solution.

“Offshore wind developers are not going to invest if project economics don’t work,” Rebecca Williams, Head of Offshore Wind at trade group the Global Wind Energy Council told the Financial Times.

Yet despite wind power costs increasing to the point where some projects may become unviable, it remains critical to invest in scaling up renewables to help combat the climate crisis.

What’s clear is that no company or government can go it alone – the way forward depends on industry and corporate stakeholders working together to cross-fertilize ideas and bring about system change.

The Forum’s Fostering Effective Energy Transition 2023 report says that partnerships and policies will be at the core of shaping a balanced energy transition. This can enable solutions to be found to issues such as regulatory and permitting challenges – both of which are necessary hurdles to jump, but which can sometimes cause long waits for project developers.

Have you read?

The wind industry also needs to find innovative approaches to reach the scale and speed of development required to achieve climate goals. Public-private collaboration is only going to help with this.

A good example of this public-private collaboration is the North Sea Energy Island, which sits approximately 100 kilometres off the coast of Denmark. Leading offshore wind developer Ørsted and various partners are creating an artificial island that serves as an energy hub connecting a network of 10 offshore wind farms. The electricity generated will be supplied to neighbouring countries.

More energy islands are planned in the North Sea and the Baltic Sea, and are due online in the early 2030s.

Collaborative projects like these spread costs and risks, and enable stakeholders to share knowledge and best practice to speed up deployment of clean power capacity.

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Energy TransitionNature and Biodiversity
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