Investment in floating offshore wind projects is about to take off in Europe as technology improvements and government backing stokes interest from commercial banks and developers, according to two sources active in the sector.
Floating offshore wind platforms are more expensive and complicated to install, due in large part to their locations in deep water far from land. But with a handful of floating projects online demonstrating that the technology works, and government backing for the sector growing, projects in the pipeline are seen as highly bankable, according to a source active in the sector, and of interest to investors, according to a second sector source.
Earlier this year, the Scottish government awarded 15 GW in floating offshore capacity to several major offshore players via its ScotWind leasing auction — demonstrating investor interest in the sector.
But while the UK is expected to dominate the sector — as it does ground-mounted offshore wind — near-term growth is also expected in France, Norway, Portugal, Italy, Spain and Greece. The Global Wind Energy Council (GWEC) estimates that globally there will be 16.5 GW of floating offshore wind in operation by the end of this decade, up from its 2020 prediction of 6.5 GW — and the 113 MW in operation globally at the end of 2021. Of that, the GWEC predicts that Europe will be the most active market by the end of the decade, with 47% of all floating offshore installations.
The biggest advantage of floating offshore wind is that the turbines can produce more energy as they are located in deeper seas further from shore where there is more wind. But the cost of floating offshore wind is currently double that of offshore ground-mounted installations, according to law firm Brodies LLP. Indeed, floating wind is expected to remain below grid parity until after 2030, as reported. But then most of the projects awarded via the ScotWind auction, for instance, aren’t expected to be completed until 2030 or 2031.
Debt financing may be difficult to secure until the sector develops more of a track record. But that dynamic may not last, as there is strong interest from commercial banks and a lot of help from the European Investment Bank, in addition to government guarantees, according to the first source.
The EIB has provided substantial help to the industry, providing a EUR 60m loan for the first project in Portugal as early as 2018, and a EUR 210m loan for three floating offshore wind farms in France in June. Governments will need to work together with financial institutions until the levelized cost of energy (LCOE) of floating offshore wind declines by arranging specific auctions, according to a report by Natixis. That kind of assistance will help the technology reach parity with ground-mounted offshore wind, according to the report.
Still, early investors in floating offshore installations could earn higher returns than investors who come later, according to a report from law firm Slaughter and May, which reasoned that returns on investments in ground-mounted offshore wind have declined as confidence in the sector — and asset prices — has grown.
UK leading the way
The biggest near-term European market for floating offshore wind is the UK — which is also the biggest market in Europe for ground-mounted offshore wind, with more than 40% of all Europe’s offshore wind capacity — according to a report by Catapult Offshore Energy, a government-founded UK research organization.
The UK boasts the world’s most ambitious pipeline of floating offshore wind projects, with 26 GW planned. In January, the UK government announced it would provide GBP 60m for floating offshore wind technologies, including up to GBP 10m apiece for 11 projects. This is part of the government’s plans to have 1 GW of floating offshore wind in operation by 2030. The UK currently has 80 MW of floating offshore wind in operation.
In June, the UK government set up the Floating Offshore Wind Task Force to push the development of floating technologies. It will provide a study outlining the UK’s potential in the sector before the end of the year.
In January, the Scottish government awarded 15 GW in floating offshore capacity to major offshore players including Shell, Vattenfall, SSE Renewables, BayWa and Falck Renewables via its ScotWind leasing auction. The successful auction is seen as a sign of investor interest in the floating offshore sector, though the projects are expected to need public support to be profitable, as reported.
New EU markets
Other markets in which floating offshore development is expected in coming years include France, Norway, Portugal, Italy, Spain and Greece, according to Catapult. Those countries currently have few, if any, ground-mounted offshore wind farms in operation, but floating offshore wind has major potential in areas such as the Mediterranean where the seas are too deep for ground-based installations.
France will grow to become the third largest market for floating offshore wind globally by 2035, according to Catapult. The country has been slow to roll out ground-mounted offshore wind due to regulatory approval issues. But four floating offshore pilot projects are now in place, and the first ground-mounted project has reached financial close.
While France’s regulatory regime raises risks for floating offshore projects, there is strong interest in the technology from commercial banks as well as domestic and international developers, according to the first source. In addition, the French government is also providing guarantees, aiding the sector’s prospects, according to the first source.
Catapult lists Italy as number 11 globally in floating offshore wind preparedness and potential. In its last call for tenders, the Italian government received 39 expressions of interest for floating offshore wind projects. Players in the market are “relaxed,” and many are from the Nordics and have significant experience with offshore projects, the second source said. The tariffs set by the Italian government for floating offshore wind projects are at EUR 165 per MWh, which is very generous, making the projects very attractive to investors, the second source said. Italy is pushing hard into renewables, as it currently gets 55% of its electricity from gas — much of which is provided by Russia.
While floating offshore wind does provide another renewables option for European nations trying to wean themselves off of Russian oil and gas, it is not likely to completely replace fossil fuels in countries such as Italy, for instance, which is highly reliant on gas, according to the second source.
Spain, Portugal and Greece are also looking seriously into floating offshore wind. Earlier this year, Greece passed a new law to regulate the offshore wind sector and most future capacity is expected to be floating due to the deep seas surrounding the nation. Portugal has a 25 MW pilot project in operation called Salamander, owned by Iberdrola.
Floating offshore wind isn’t catching on everywhere. Albania, Croatia and Serbia have looked at the technology, but there has been little interest due to its high costs, according to the second source.
