OWE 2017: Five Talking Points


June 5, 2017

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Offshore wind has made remarkable progress in the last year. Utilities have kept smashing price records, while the market has gained a foothold in Asia and North America. And, as you read in today’s news, Australia could soon get in on the act too.

This week’s Offshore Wind Energy conference in London is a good chance to take stock and work out where the sector goes now. But what will be the biggest talking points? Here are five trends that will fuel conversation from tomorrow until the end of Thursday:

1) Zero-subsidy developments: An obvious one. Last year, we were wondering how the industry would reach its target of a levelised cost of energy on new projects of under €100/MWh by 2020. Over the last year we have seen that target beaten by the likes of Dong Energy, EnBW, Shell and Vattenfall; and the zero-subsidy projects that won Germany’s first offshore auction gained major attention. These were the 900MW He Dreiht by EnBW, and Dong’s 240MW Borkum West 2 and 240MW OWP West.

It was a strong signal to the industry and costs will undoubtedly fall, but we expect a great deal of talk this week on how sustainable these zero-subsidy projects are. Dong and EnBW based their bids on a number of key considerations, most notably that the cost of offshore wind energy is set to fall below wholesale power prices before these three projects are commissioned near 2025. In our view, zero-subsidy schemes will be the exception for a couple of years but sub-€100/MWh will be widely achievable.

2) Ever-increasing turbine sizes: To make projects financially-viable at those rates, we need further investment in developing larger offshore turbines – even as the 8MW turbines that are currently largest are still in their infancy. Dong Energy, for example, has said it expects 15MW turbines to be on the market by 2024.

However, it is not simply a case of scaling up an 8MW turbine, and manufacturers have a huge amount of work on to make turbines work efficiently for decades at such sizes. We expect a strong representation of manufacturers at the event, and the viability of moving towards 15MW machines will be a major talking point.

We have been surprised by the fast rate of technological evolution in the last five years. Manufacturers must now repeat the trick.

3) Evolution in the refinancing market: In recent years, we have seen more demand for non-recourse, off-balance sheet financing in offshore wind. Typically, projects in Belgium, Germany and the Netherlands have been built using this type of funding, while developers in the UK have more often built using corporate finance and then used non-recourse structures for refinancing. This has created a dynamic market for firms buying into operational and under construction projects.

As competitive auctions constrain the number of new projects coming through in the UK and Germany, we would expect investors to seek out more opportunities to buy into schemes that are already operational or in construction. What will these opportunities be?

4) North American momentum: Outside Europe, we expect most attention to be focused on the growing offshore wind market in the US, and whether this will be affected by President Trump’s move to withdraw the nation from the Paris climate change agreement of late 2015. Dong is among those saying it’s business as usual.

We certainly see momentum in the market after the completion of the 30MW Block Island by Deepwater Wind, and the influx of European firms including RES. There are also states embracing this sector, particularly along the northeast coast, as they seek ways to get electricity for major coastal cities. That support could make up for any hostility from Trump and his team.

5) But Taiwan coming up strong: Copenhagen Infrastructure Partners, Dong Energy, Macquarie and Northland Power are among the major overseas players that have entered Taiwan’s offshore market in the last year. In our mind, it is still behind the US because no schemes have been commissioned yet, and clearing that hurdle is a necessary step to show the market exists.

That said, Taiwan has strong wind resources, and the government has ambitious plans to install 4GW of wind farms by 2030, including 3GW offshore wind by 2025. It could yet overtake the US.

Will you be at Offshore Wind Energy? Would you like to discuss these or other topics? If so, get in touch with our team and we’ll see if we can arrange a time for a chat. See you there.

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