Offshore wind - market status

There is now over 1.5 GW of offshore wind capacity installed worldwide, with 334 MW installed in 2008. At the time of writing there was a further 1.5 GW under construction offshore. Many projects due online between now and 2013 are otherwise engaged in tendering activity, pointing the way to continued growth ahead.

Over € 21.5 billion in capital expenditure is expected to be spent in the offshore wind industry between 2009 and 2013. By comparison, the previous five years saw a total spend of € 1.8 billion. The huge rise in expenditure is down to two main factors. Firstly, a sharp increase in offshore wind project activity, and secondly, considerable cost increases in the industry.

The next few years

Annual expenditure is forecast to peak at almost € 6.2 billion in 2011, a particularly busy year for the sector. Activity here has been driven largely by projects off the UK. Temporary increases in the number of Renewable Obligation Certificates (ROCs) allocated to offshore wind projects have spurred on projects. At this time we also see the first major commercial activity off Germany. Despite an enormous amount of planned capacity, the country has been slow to see market development but this is now changing.

Almost 6.6 GW of new offshore wind capacity will be brought online in the 2009 - 2013 period. In 2009 we will see 730 MW completed, and a similar level of activity will occur in 2010. From 2011 through to 2013, project completions increase markedly with rates increasing to over 1.8 GW in 2011, then reducing slightly to around 1.6 GW in 2012 and 2013.

Costs

The largest market for the 2009 - 2013 period is the UK, where expenditure totaling some € 10.7 billion is forecast. Behind the UK is Germany, where almost € 5.7 billion is expected to be spent on projects coming online in the next five years. The next most significant markets are Denmark (€ 2.1billion and Belgium € 1.8 billion).

Cost increases in the industry have been significant. From £1.1 million/MW (€ 1.3 million/MW) on the first UK projects in 2003, to over £3 million/MW (€ 4.2 million/MW) for projects reaching financial close today, the cost increases have caused much concern.

Offshore wind projects, to date, have almost exclusively been built through balance sheet financing. But this has now changed to most new projects progressing through project financing from banks and private equity.

A utility driven market

The role of utility companies in project development and ownership has become de-facto. Whilst there have been some notable successes in privately developed projects, particularly in the UK, the market is now almost fully utility driven. Utility involvement has grown due to the increasing capital required to move projects through development and requirements for utilities to source energy from renewable resources.

The response from banks and private equity has been less than enthusiastic. The current financial climate means investors are naturally cautious. Whilst early UK projects can demonstrate an excellent rate of return, current projects are far from attractive, with many failing to demonstrate even a 10% rate of return. We are now seeing some projects returning to a turnkey contracting strategy, a move intended to lower risk in the eyes of financers.

Author: Adam Westwood, Douglas-Westwood Ltd
www.dw-1.com

The World Offshore Wind Report 2009-2013 will be launched shortly by Douglas-Westwood. It forms part of a series of reports that are used by companies in more than 50 countries. These include leading corporations, investment banks and agencies of governments. The report considers the prospects for this growing market and values future expenditure through to 2013. The report also reviews technologies and drivers and details prospects.

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