The offshore wind industry is at a crucial juncture. Image: Unsplash/Pete Godfrey
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- Supply-chain bottlenecks and regulatory confusion are threatening the large-scale roll-out of offshore wind needed to keep the world on a 1.5°C pathway.
- COP28 is an important moment to restart momentum on offshore wind through political and private commitments.
- Offshore wind promises not only clean energy, but to provide jobs and revitalize coastal communities.
There is a new guiding star for global energy planners and policy-makers: tripling the global capacity of renewables to reach 11,000 GW by 2030, 2030, which 118 countries pledged to deliver at the beginning of COP28. This is what’s needed to harness the full potential of solar and wind, along with other renewable energy sources, to overcome societies’ fossil fuel dependence and limit global heating to 1.5°C.
But the energy transition has hit a critical juncture, with financial headwinds and regulatory unclarity hindering the scale-up of renewables required to phase out fossil fuels. On the cusp of major expansion, with an expected record of more than 500 GW of renewable energy capacity installed in 2023, the global renewable energy industry finds itself in need of decisive action to ensure the necessary build-out.
Even though the build-out of renewable energy is picking up speed, we’re still far behind. We need to deploy around 1,000 GW of renewables annually to triple the existing capacity by 2030, which is a pivotal step to get us on a 1.5°C pathway.
Deploying offshore wind at scale is key to making that goal a reality and to creating a future energy system that is both sustainable and reliable. From the first few turbines in the water 32 years ago, offshore wind has grown into a global industry with an impressive track record for innovation and growth. Tripling global renewable capacity by 2030 translates into 494 GW of offshore wind alone, compared to the 65 GW installed by the end of 2022. This will require immense investments in projects and supply chains.
Unfortunately, the challenges currently facing the renewable energy industry have been felt acutely in offshore wind. On one hand, as both scale of projects and the geographical scope of the technology expands ever faster, the industry often finds itself in regulatory unclarity and supply chain bottlenecks. On the other hand, there has an unpredicted macro-economic shock of high inflation, rising interest rates and more expensive capital.
But even if these challenges have increased the cost of projects, offshore wind remains a competitive and fundamentally strong value proposition, not least since costs of fossil generation have increased even more. And the communities where offshore wind is installed stand to benefit greatly; not just from a strong, predictable and scalable source of green energy in proximity to coastal load centres, but also from its potential to create thousands of lasting jobs and revitalize coastal communities, as turbines, substations, foundations, vessels and cables are manufactured, installed and maintained.
Taking into account deliberations at COP28 and beyond, we provide three courses of action that can help overcome the apparent paradox of offshore wind – being in historic high demand, while also facing new challenges – and pave the way for a thriving, resilient industry, and an accelerated energy transition.
1. Address the current challenges in the offshore wind industry
Up until now, offshore wind has matured in a successful interplay between government ambition and support, and the industry investing and developing to create value for ratepayers and society at large. Thus, industry and government need to continue to work together to overcome the current challenges and accelerate the energy transition with offshore wind. For instance as has been the case in the UK, where strike price thresholds for the upcoming CfD (contract for difference) auction have been lifted to reflect the new macro-economic environment, signalling strong political commitment to the continued build-out.
Governments have already taken the first step in meeting future green energy demands by setting ambitious targets for offshore wind. Now it is time to deliver against these targets by speeding up tender times, front-loading the planned build-out of offshore wind, and tendering larger volumes at a time.
This creates a foresight for demand that enables ramping up the supply chain appropriately. The profit margins of building turbines and other wind equipment are thin, and this creates bottlenecks for the build-out, as suppliers avoid risk. Thus, supporting the robust development of the supply chain has the potential to avoid non-delivery of key components that are needed to develop the projects and can potentially translate into lower costs for offshore wind projects near-term.
2. Address the impasse for offshore wind at COP28
Global decision-makers have come together at COP28 in Dubai to take stock of the global actions needed to mitigate climate change. Our message to them is that a resilient and thriving industry is a precondition for the much-needed energy transition. To play its role in decarbonizing the global energy supply, the current challenges facing offshore wind must be addressed by business and governments together.
COP28 is an important moment to mobilize political and private commitment and re-starting the positive confidence cycle for industry and investors, that has historically been successful in driving technology efficiencies up and costs down. If we lose the momentum, which has been two decades in the making, all of society will lose out. Besides gambling with the climate targets, we risk missing out on growth opportunities and job creation. In Europe for example, around 26,000 full time years of work will be created per 1 GW of offshore wind, directly, indirectly and induced as illustrated (see figure below).
One key avenue for addressing these challenges is by creating a level playing field between renewable and fossil investments. This can be done by phasing out direct subsidies for fossil fuels, expanding beneficial tax schemes reserved for fossil fuel investments to also include renewable energy projects, and make the cost of carbon emissions reflect their real-world impact.
3. Make the industry resilient in the long term
Financial sustainability is the backbone of an accelerated energy transition, and if this isn’t ensured, we won’t meet the global renewable energy targets. A key part of ensuring long-term financial sustainability is governmental de-risking of future offshore wind projects, for instance by adjusting offtake contracts so they take inflation into account and potentially revisiting terms of existing contracts locked in before the recent inflation and interest rate hikes. This is pivotal to ensure that inflationary shocks don’t hinder action.
Another element of long-term resilience entails acknowledging that scaling up the offshore wind industry at the pace needed to deliver its share of the energy transition can result in impacts on society and nature. Environmental impacts must be avoided or mitigated, and local support created proactively to avoid potential structural barriers to the build-out.
Therefore, long-term resilience entails that offshore wind must create more value for society and local communities than “only” renewable energy. One solution is that governments introduce minimum criteria aimed at maximizing the chance of project delivery and creating a level playing field between energy players.
How is the World Economic Forum facilitating the transition to clean energy?
Time is running out, and we need to keep the momentum for the energy transition going by ensuring a resilient and thriving renewable energy industry that can deliver on the global targets. So, let’s act now to keep the 1.5°C target alive and to deliver lasting benefits for society, including jobs and economic growth.
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The views expressed in this article are those of the author alone and not the World Economic Forum.
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