Gone with the Wind: Is This the End for Wind Energy?

For years, wind energy has symbolized the clean energy transition. Towering turbines onshore and offshore have driven significant progress in reducing carbon emissions. However, recent setbacks in the global offshore wind industry have raised concerns about its future. 

Rising costs, delayed projects, and shifting investment priorities force governments and companies to reassess their ambitious wind energy targets. While countries like China continue dominating the sector, others, including the United States and European nations, struggle to keep pace.

Profit vs. Progress: Why Energy Giants Are Scaling Back Offshore Ambitions

The offshore wind sector faces mounting challenges, with profitability concerns leading to significant withdrawals. Most recently, five energy companies, including Shell and Lyse, pulled out of Norway’s first large-scale floating offshore wind tender. The project, slated for 1.5 GW of capacity, has been deemed too risky due to profitability, timelines, and industrial maturity concerns.

Norway’s government capped state support at NOK 35 billion (EUR 3 billion), which critics argue is insufficient to attract large-scale investments. Energy Minister Terje Aasland defended the cap, stating it would be enough to launch 500 MW of floating wind capacity. 

However, energy companies like Fred. Olsen Seawind and Hafslund have opted out, citing Norway’s restriction on mainland-only connections, which limits the profitability of exporting energy to other countries.

This follows a pattern seen elsewhere in Europe, where rising costs and regulatory constraints are driving companies to reconsider offshore wind projects. Denmark’s Ørsted, a global leader in renewables, has also exited several offshore wind opportunities, highlighting broader challenges within the sector.

Skyrocketing Costs Blow Offshore Wind Goals Off-Course

Globally, the offshore wind industry is grappling with escalating costs.

• Over the past two years, the average cost of offshore wind projects has risen by 30% to 40%, reaching $230 per megawatt-hour (MWh). This is more than 3x the cost of onshore wind, placing significant pressure on developers.

Inflation, supply chain disruptions, and high interest rates have further exacerbated the financial strain.

Equinor, a leading player in renewable energy, recently withdrew from offshore wind projects in Vietnam, Spain, and Portugal, citing unsustainable costs. Paal Eitrheim, Equinor’s head of renewables, noted that:

“It’s getting more expensive, and we think things are going to take more time.” 

• RELATED: The “Northern Lights” Shines: Shell, Equinor, and TotalEnergies JV Powers the Norway CCS Project

Similarly, Shell, another energy giant, is scaling back its offshore wind ambitions. Shell sold its stakes in projects across Massachusetts, South Korea, Ireland, and France, signaling a strategic retreat from leading offshore developments. A company’s spokesperson stated in an email to S&P Global:

“While we will not lead new offshore wind developments, we remain interested in offtakes where commercial terms are acceptable and are cautiously open to equity positions if there is a compelling investment case.”

Shell CEO Wael Sawan admitted that the company lacks the competitive advantage to generate material returns in renewable generation. This sentiment is echoed by other oil majors like BP.

The withdrawal of these energy giants underscores a fundamental shift in priorities, with many companies now favoring onshore renewables like solar and wind, which are less affected by rising costs and regulatory hurdles. These challenges come at a time when global governments have set lofty targets for offshore wind energy.

Global Shortfalls and Missed Targets

Governments around the world have pinned their hopes on offshore wind as a key driver of the clean energy transition. The International Renewable Energy Agency (IRENA) initially projected a need to increase global offshore wind capacity from 73 GW to 494 GW by 2030 to meet climate goals. 

• However, revised estimates now suggest the industry will fall short by one-third, delaying this milestone until after 2035.

The U.S. Offshore Wind Dilemma

The U.S. offshore wind industry, for instance, is at a crossroads. The country aimed to install 30 GW of offshore wind by 2030 but has less than 200 MW operational as of mid-2024.

Despite federal support through tax credits and lease auctions, the sector faces significant challenges. The outgoing administration of President Joe Biden issued permits for 15 GW of projects and held six lease sales. However, the recent election of President-elect Donald Trump raises concerns about future policy support, as his campaign promised to dismantle the industry’s progress.

Carl Fleming, a renewable energy policy advisor, noted that market conditions alone make it unlikely for the U.S. to meet its 2030 goals, regardless of political leadership. Delays in project approvals and a lack of supply chain investment have hindered progress. Analysts predict the country will achieve less than half of its target due to these challenges. 

The European Wind Shortfall

Europe, which currently accounts for 40% of global offshore wind capacity, is also falling behind. Rising costs and lengthy approval processes have slowed progress.

Nations like the UK, Germany, and the Netherlands are projected to meet only 60% to 70% of their 2030 targets. Even Norway, a country with abundant wind resources, is struggling to attract developers due to perceived risks and limited support mechanisms.

• SEE MORE: UK Renewables Outshine Fossil Fuels in 2024: Wind Gushes Ahead

Future auctions will require far larger investments to meet the targets, putting additional pressure on developers and governments alike.

Rebecca Williams, deputy CEO of the Global Wind Energy Council, expressed cautious optimism, stating that with the right policies, targets remain achievable. However, delays and financial constraints make it increasingly unlikely that Europe will meet its goals within the set timelines.

China’s Offshore Wind Boom

While Western markets struggle, China continues to dominate the offshore wind sector.

• In 2023, China accounted for more than half of the world’s new offshore wind installations, adding 6.3 GW of capacity. 

The country’s state-owned enterprises benefit from low financing costs, subsidies, and locally produced components, enabling rapid deployment.

China’s dominance is expected to grow further, with annual installations projected to reach 16 GW over the next few years. However, the country’s closed market limits opportunities for international developers to participate or benefit from its advancements.

The Winds of Change: Adapting to a Shifting Energy Landscape

Remarkably, a recent market development suggests renewed enthusiasm. Energy giants BP and JERA have partnered to create JERA Nex BP, a $6 billion joint venture aimed at becoming one of the world’s largest offshore wind developers. Combining their existing assets, the venture boasts a potential net generating capacity of 13 GW. 

BP CEO Murray Auchincloss emphasized the company’s “capital-light” growth approach, while JERA CEO Yukio Kani highlighted offshore wind’s critical role in the energy transition.

With 1 GW of current capacity, 7.5 GW in development, and 4.5 GW of secured leases, this collaboration seems to bring back confidence in offshore wind’s role in the energy transition. 

Ultimately, the offshore wind industry is facing significant headwinds, but it remains a vital part of the clean energy transition. The current challenges highlight the need for governments and developers to adapt, innovate, and collaborate to ensure wind energy remains viable.

China’s rapid progress offers valuable lessons on the benefits of state support and localized manufacturing, while the struggles in Western markets underscore the importance of addressing financial and regulatory barriers.

The question is not whether offshore wind will survive but how it can evolve to meet the demands of a rapidly changing energy landscape.

• FURTHER READING: Sweden’s 100 GW Offshore Wind Power Ambition: Unlocking a Renewable Energy Powerhouse

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