It’s a turbulent time for the offshore wind energy sector. Wind turbines installed along coasts can take advantage of the strong, consistent winds that blow there. Given that 40 percent of the world‘s population lives within 100 kilometers of the sea, offshore wind farms could be a boon in achieving clean energy supplies around the world.
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But how did things go in 2023? In recent months, projects around the world have been delayed or even canceled altogether as costs skyrocket. There were also interruptions in the supply chain. The latest setbacks could challenge efforts to reduce greenhouse gas emissions, which are known to cause climate change.
In the coming year and beyond, there will likely be further delayed or even canceled projects, but the industry is also seeing restarts and continued technological development. The question is whether the current problems are just a minor obstacle or a real sign that the industry will go off the road in 2024. So what’s next for offshore wind energy?
Slumps and setbacks
Denmark’s wind power giant Ørsted cited rising interest rates, high inflation and supply chain bottlenecks in late October when it quietly canceled its highly anticipated Ocean Wind 1 and Ocean Wind 2 projects. The two projects would have fed just over 2.2 gigawatts into the US state of New Jersey’s grid – enough energy to power over a million households. Ørsted is one of the world‘s leading developers of offshore wind turbines and was named to the list of “15 Climate Tech Companies to Watch” in 2023 by MIT Technology Review.
And the canceled Ørsted projects are far from the only setback for offshore wind energy in the USA: According to an analysis by energy analyst BloombergNEF, contracts with an output of more than 12 gigawatts were either canceled or had to be renegotiated in 2023.
Part of the problem lies in the way projects are typically built and financed, says Chelsea Jean-Michel, a wind analyst at BloombergNEF. After a developer selects (or secures) a location to build a wind farm, it enters into contracts to sell the electricity generated by the wind turbines. This price is set years before the project is completed. This means: For projects that are being started now, the contracts were usually negotiated in 2019 or 2020. And they no longer have to make sense today.
Big changes
A lot has changed in the last five years alone. Prices for steel, one of the key materials used in wind power construction, rose over 50 percent in North America and Northern Europe from January 2019 to the end of 2022, according to a 2023 report from the American Clean Power Association.
Inflation has also caused prices for other materials to rise. Higher interest rates mean that borrowing also becomes more expensive. Now developers argue that the electricity prices they previously agreed to are no longer appropriate.
The industry’s economic problems are global. There were no bidders in the last auction of offshore wind project sites in the UK. Additionally, a major project planned in the North Sea was canceled by its developer in July. Japanese operators that had plunged into new projects in Taiwan are suddenly leaving as costs skyrocket in this still-developing market. The simmering conflict between Taiwan and China is also likely to play a role.
China stands out positively in an otherwise difficult landscape because the government wants it that way. The country is now the largest offshore wind market in the world, accounting for almost half of the world‘s installed capacity. However, rapid development and increasing competition have led to falling prices for some projects there.
Growing pains
While many projects around the world have suffered setbacks over the last year, the real problems are concentrated in newer markets, including the US. The problems have continued since the big cancellation in New Jersey: In the first weeks of 2024, the developers of several New York projects have asked to renegotiate their contracts, which could delay progress – even if those projects actually end up going ahead.
Although more than 10 percent of electricity in the USA is already generated from wind energy, the majority is generated by turbines on land. The U.S. offshore wind market lags established markets in countries like Britain and Denmark by at least a decade, says Walt Musial, senior engineer for offshore wind at the U.S. National Renewable Energy Laboratory.
An open question for next year will be how quickly the industry can increase capacity to build and install wind turbines in the United States. “The supply chain in the US for offshore wind turbines is basically still in its infancy. It doesn’t actually exist,” says Jean-Michel.
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