Home Is the Future of Offshore Wind Winding Down? Assessing Trends and Prospects

In a recent development, independent figures reveal a concerning reality: an alarming 80% of crucial global Offshore Wind markets are on track to miss their 2030 targets.

The tumultuous year of 2023 has seen the industry shaken by high-profile failures and substantial financial write-downs, totaling billions of dollars. This unsettling revelation prompts a meticulous reevaluation of economic models by developers, questioning the financial viability of existing projects. Concurrently, prospective ventures face heightened scrutiny, fueling apprehensions of potential delays or cancellations. There is a consequential impact throughout the entire value chain, with manufacturers, suppliers, and services facing significantly lower margins, slower revenue growth, or even decline.

While we foresee the potential for medium-term recovery, FutureBridge strongly recommends that all industry players reassess the assumptions underpinning their financial projections and thoroughly revisit their go-to-market strategy as a matter of priority. We believe the rapidly changing global markets will create significant opportunities for companies identifying with these shifts and being ready to pivot swiftly. Players who fail to act to comprehend the new market dynamics and plan accordingly are likely to face substantial risks to their business in the next 12-36 months.

Fast-Changing Industry Dynamics

In November 2023 Danish wind energy developer Ørsted made a significant announcement, canceling the development of two massive offshore wind farms totaling 2.25 GW in capacity off the coast of New Jersey, USA. This decision resulted in the write-off of sunk costs exceeding $4 billion. Ørsted attributed the cancellation to escalating costs and supply chain issues, marking a pivotal moment in the company’s strategic direction. Simultaneously, energy giants BP and Equinor revealed their contemplation of an $840 million write-down on two US offshore wind projects with a combined planned capacity of 2.08. The decision stemmed from project delays and substantial cost increases, further compounded by highinterest rates.

This phenomenon was not confined to the US market.  On 10 November 2023, Japanese petroleum company Eneos dropped out of a 640MW Yunlin Offshore Wind Farm, a co-development with TotalEnergies in Taiwan, after regional utility Shikoku Electric Power Co. decided to pull out due to technical delays jeopardizing project profitability.

A series of recent failures has reverberated through the offshore wind industry, plummeting investor confidence to a new low. A “perfect storm” of factors and events is looming, posing a potential crisis in the market that may raise key questions for policies predicated on offshore wind to realize the decarbonization goals.


The Underlying Factors: Unraveling the Causes

The current challenges facing the offshore wind industry can be attributed to three primary factors:

  1. Escalating interest rates
  2. Substantial supply chain inflation
  3. Noticeable hesitancy on the part of governments to adjust prices

Read More About the Challenges

Rising Interest Rates In response to post-COVID inflation, central banks globally hik...

In Search of Solutions: Navigating Complexities in the Offshore Wind Sector

The offshore wind industry faces a significant challenge, and unfortunately, the single most influential mitigating factor—revised government policies—lies beyond the control of industry players. A well-structured policy has the potential to do wonders for the offshore wind industry. Among the most successful policies is the UK’s Contracts for Difference (CfD) scheme. This initiative guarantees renewable energy developers a fixed return for the first 15 years of a project’s lifespan. Developers receive ‘top-ups’ if the UK’s wholesale electricity price dips below an agreed-upon set price. In a competitive auction, developers submit bids below the government-set maximum cap, known as the ‘administrative strike price.’ If the wholesale rate surpasses the set price, developers must reimburse the difference to the government.

The CfD scheme mitigates investor risk, attracting risk-averse investors to lend their money at lower interest rates, thus reducing the overall cost of capital-intensive projects. Since the inception of CfDs in 2014, offshore wind costs have plummeted by an impressive 74%, contributing to the UK’s substantial 14 GW of online offshore wind installations.


Yet, emerging market dynamics have ushered in a stabilization of prices. In the latest CfD auction, a notable shift occurred—the first instance since its inception where no single project bid below the administrative strike price. Fortunately, the UK government was quick to sense the writing on the wall and recently raised the administrative strike price by 66% for offshore wind projects (from £44/MWh to £73/MWh) and by 52% for the special sub-category of Floating Offshore Wind projects (from £116/ MWh to £176/MWh) ahead of the next year’s auction.

The high price ceiling for Floating Offshore Wind (FOW) is an encouraging step as FOW is an emerging technology that allows for the deployment of much larger turbines in offshore areas with higher wind potential, leading to greater utilization and scale-down of costs per unit of electricity generated. To explore this technology further, check out our webinar on Floating Offshore Wind Energy.

With these concessions, the UK is promoting a position that would bring it back on track to achieve the country’s ambition of setting up 50GW of offshore wind capacity by 2030, including up to 5GW of floating offshore wind energy.

Assessing the Situation: Temporary Setback or Industry Crisis?

FutureBridge maintains that the enduring potential of offshore wind energy will overshadow the current setbacks facing the industry. The foundational components of the sector remain robust, evident as numerous developers continue to forge ahead with selected projects. As reported by Wood Mackenzie, over 6GW of capacity has received approval in 2023, with Iberdrola announcing a substantial 3GW of offshore wind projects in Europe and the US. The recent commitment from the US Federal Reserve to lower interest rates provides a glimmer of hope for developers. Simultaneously, advancements in high-potential technologies along the value chain offer medium-term cost and efficiency benefits, fostering flexibility for projects.

Nevertheless, government-led policy support, including tax breaks, streamlined approvals, and provisions for contract amendments, remains crucial—especially in new markets—until the industry attains self-sustainability. Despite the current headwinds, the resilience of offshore wind energy, coupled with strategic advancements, signals a promising trajectory for the industry’s long-term success.

With shifting energy and geo-political dynamics, get guidance on where and when to invest and minimize risk. Gain exclusive insights and strategic guidance to propel your journey towards a sustainable and successful future in offshore wind energy. Discuss your business requirements with our Energy experts.

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