Europe doubles down on offshore wind to drive industrial competitiveness

Europe’s Governments want to accelerate the build-out of offshore wind. Not least to drive the electrification of Europe’s economy. EU Energy Ministers’ new “tripartite contracts” for offshore wind could be helpful here. Offshore wind faces headwinds. But Government action can help nail the business case and deliver the necessary volumes. Key now will be for Governments to agree a New Deal for Offshore Wind at the Heads of Government summit in Hamburg in January.

Today’s informal meeting of EU Energy Ministers launched the concept of “tripartite contracts” to help Europe’s industry electrify with clean energy. The EU wants the first tripartite contracts to focus on (a) offshore wind and (b) energy storage and flexibility.

It’s good they’re focusing on offshore wind. It can play a major role in the electrification of industry. Many large industrial companies are already signing power purchase agreements (PPAs) with offshore wind farms. Government support to help unlock such investments, which is what tripartite contracts envisage, is essential to deliver the volumes needed – both of new offshore wind farms and investment in industry electrification.

And Government support is needed on many fronts. To simplify the permitting of new wind farms and factories. To accelerate the build-out of the power grids needed for electrification. And to strengthen the business case for investing in new wind and in cleaner, more electric, industrial processes.

A key element of this business case is clear visibility from Governments on the volumes of new wind they want and when they’re going to auction them. And certainty from Governments that the volumes are going to be big enough. To that end the offshore wind industry is calling for a New Deal on offshore wind – where Governments commit to build 15 GW a year of new offshore wind from 2031 to 2040, and on the back of that, the industry commits to reduce the costs by 30%.

The North Seas Heads of Government Summit in Hamburg in January is the perfect moment to agree on that New Deal.

Offshore wind – headwinds but goods things also happening

And this New Deal is essential to get offshore wind back on track to deliver the big expectations Governments are making of it – they want it to grow from 37 GW today to over 300 GW. And the New Deal will help fulfil the strong underlying economic rationale for more offshore wind – it’s cheap and stable for energy consumers, and it creates jobs and growth.

Lots of things are not going well in offshore wind in Europe today:

• some big projects are postponed because the revenues don’t cover the costs;
• some projects are delayed because the grid isn’t ready. One large offshore wind farm in Germany is even built but standing idle, waiting for its grid connection;
• some Government auctions are under-subscribed or even failing altogether, usually because the auction design isn’t right; and
• some auctions are delayed or scaled back, because the industrial demand for more power is less than expected, because of the slow pace of electrification.

But lots of good things are also happening in offshore wind:

• despite the challenge around business case, investments are up this year. 6 new projects have taken Final Investment Decision: 3 in Poland, 2 in Germany and 1 in the UK. These FIDs total €22bn and cover 6 GW of new capacity. One of the Polish wind farms was the largest ever private investment in Poland;
• Governments are auctioning more offshore wind than ever. The UK is currently running an auction round which should deliver close to 10 GW of new projects – over 20 GW of projects are eligible to bid. Poland is about to run its first CfD auction for offshore wind;
• Governments are improving their auction design. Denmark has switched from negative bidding to CfDs. Germany is likely to do so too. It’s a pity it took a failed auction in both countries to trigger the change, but so be it;
• Europe’s offshore wind supply chain is growing. It can make at least 10 GW a year of turbines today, comfortably more than what we’ll build over the next 4 years. And thanks to the support given in the EU Wind Power Action Plan of 2023, the industry is investing in new factories – over €13bn at the moment across the whole offshore wind value chain; and
• Governments are clear that offshore wind is win-win economically and for energy security and that they want much more of it. The very fact that Heads of Government dedicate entire summits to it, like in Hamburg in January, says it all. And energy-consuming industry want it too.

The current project pipeline and auction schedules should get Europe from 37 GW to 80 GW of offshore wind by 2030. With a comprehensive New Deal for offshore wind – and the right action on permitting, grids, electrification and auction design – we can be confident Europe will deliver the much more ambitious targets it’s set itself beyond that.