Global Offshore Wind Supply Chain Expansion Hinges on $27 Billion Investment by 2026
An annual capacity addition of 30 GW by 2030 is anticipated as opposed to a target of 80 GW
To achieve a fivefold increase in annual offshore wind installations (excluding China) by 2030, the global supply chain will need a secured investment of $27 billion by 2026, finds the latest Horizons report from Wood Mackenzie.
According to the global insights firm’s projections, the base case outlook suggests an annual capacity addition of 30 GW by 2030. However, this falls significantly short of the ambitious offshore wind targets set by policymakers worldwide, which call for nearly 80 GW of capacity per year.
The offshore wind supply chain would necessitate over $100 billion in investment to attain these government-mandated objectives.
The insights were derived from Wood Mackenzie’s analysis titled ‘Cross currents: Charting a sustainable course for offshore wind,’ which examines existing constraints in the offshore wind supply chain, barriers to investment, and the essential measures for scaling up.
Difference between Wood Mackenzie’s Offshore Wind Outlook and 2030 Government Targets
“The supply chain is struggling to scale up and will be an impediment to achieving decarbonization targets if change does not happen,” said Chris Seiple, Vice Chair of Power and Renewables at Wood Mackenzie, co-author of the report.
Seiple added: “Nearly 80 GW of annual installations to meet all government targets is not realistic; even achieving our forecasted 30 GW in additions will prove unrealistic if there isn’t an immediate investment in the supply chain. Governments and developers will require adjustments and new policies to transform the supply chain to deliver offshore wind projects at an industrial scale.”
Attracting Investment a Challenge
The difficulty in attracting investment is amplified by the narrow profit margins prevalent in the offshore sector. The industry’s profitability took a hit due to the surplus generated by the 2015 supply chain expansion, which led to an increase in capacity to deliver approximately 800 turbines each year, in contrast to the average of 500 annually since that time.
The report mentioned that the current situation is exacerbated by inflation over the past two years and elevated raw material costs, as Seiple pointed out.
Seiple further explained that previous negative experiences have made existing suppliers cautious in their investment strategies, causing a slowdown in innovation within the sector.
The uncertain timing of projects presents an additional hurdle, potentially causing significant fluctuations in supply chain requirements. Around 24 GW of projects slated for launch between 2025 and 2027 have secured paths to the market involving subsidies or power purchase agreements (PPAs) yet have not yet arrived at a financial investment verdict.
This stage is crucial for developers to solidify project contracts with suppliers. However, numerous global projects are now facing delays as they renegotiate offtake contracts due to escalated supply expenses and inflation.
Should these projects be deferred at this juncture, the projected demand for equipment would shift from 2025-2027 to 2028-2030.
While this might reduce the immediate need for expanding manufacturing, it would intensify the necessity for investment to facilitate growth to accommodate the heightened demand in the 2028-2030 timeframe.
Wood Mackenzie’s Senior Research Analyst and co-author, Finlay Clark, highlighted the significant ramifications of such delays, noting that certain projects might not come to fruition at all during 2028-2030.
This outcome poses a risk of governments falling even further behind their predefined targets.
Numerous investors express apprehension that if the supply chain were expanded to meet the peak installation demand projected for 2030, as mandated by government wind objectives, there could be an insufficient requirement for equipment beyond 2030.
“This situation bears a striking resemblance to the decline in margins experienced across the supply chain after 2015. Suppliers need assurance of sustained demand over a decade or more to ensure a profitable return on their investments,” Clark further elaborated.
Enabling the expansion of the offshore wind supply chain necessitates a series of adjustments involving both governmental and developer actions, the report noted.
To start, targets and strategies for power market infrastructure supporting offshore wind should encompass periods extending beyond 2030 in regions where such measures are not already in place.
The report suggests policymakers should also factor in implications on the supply chain when deciding whether to revisit existing contracts and when considering the imposition of a size cap to halt the turbine size competition.
Soeren Lassen, co-author and Head of Offshore Wind at Wood Mackenzie emphasized that the responsibility is not solely on governments. Developers must also explore inventive collaborations with suppliers to establish demand stability, a vital element for expanding capacity.
“The industry, particularly policymakers, should seize this opportunity to chart a more sustainable trajectory for offshore wind. This will have an impact not only on present and 2030 projects but also on the anticipated 1.4 TW offshore wind capacity projected to be connected by 2050,” Seiple said.
According to a recent report by BloombergNEF (BNEF), the U.S. offshore wind industry is facing a host of challenges, with rising costs, permitting delays, and grid connection hurdles, all contributing to low returns for developers.
According to another report jointly published by Wood Mackenzie and the Coalition for Community Solar Access (CCSA), community solar installations in the U.S. have displayed a downward trend, with a 6% decrease reported in 2022 and a 13% decline during the first quarter of 2023.