The high growth rates in offshore wind energy have led to an influx of new installation ships and new concepts being considered as turbine and park designs get bigger. According to a recent Rabobank report, a more radical redesign of these vessels - dedicated to either installing turbines or foundations - is needed in the long-term to lower installation costs and realise projected capacity growth. While financiers prefer multi-purpose vessels with a scope that goes beyond offshore turbine installation, dedicated vessels are likely to remain in use as new installations in Europe are expected to slow down around 2023. Companies building dedicated vessels can expect a cost upwards of EUR 150 million and rising, but by doing so could quickly become leaders in an immature, but innovative and fast-growing, market. These companies must carefully weigh the risks to future growth created by current policy uncertainty.
“New vessels for the installation and transport of offshore wind turbines and their foundations are required for three reasons: to deal with the acceleration in new installations towards the second half of this decade, to accommodate expanded park and turbine dimensions - further from shore, in deeper water and bigger - and to lower the costs of offshore wind”, states Rabobank analyst, Clara Van der Elst.
Growth forecasts for offshore wind installations are lower than a few years ago but still entail a significant ramp-up. As costs of other technologies, such as onshore wind and solar PV, have fallen and government budgets have been increasingly strained, all eyes are on costs for offshore wind. Utilities – traditionally the main equity investors in wind – have significantly reduced, or even put on hold, further investments as balance sheets remain tightened. In this context, Rabobank predicts the cost of offshore wind installation will need to come down to support further growth and expansion.
“Installation costs constitute up to an estimated 25 percent of total project capital expenditures, and thereby offer significant potential for reductions”, states Van der Elst. “However, with the dimensions of offshore wind installation increasing rapidly, the associated costs are set to rise instead of fall”.
This puts the offshore wind industry in a catch-22 situation: the costs of offshore wind energy in Europe are under significant pressure to meet policy-set levels and keep its place in the renewable energy mix.
Policy insecurity combined with the reduced financing capacity of utilities raise the bar in acquiring financing for these investments. For the next three years, offshore wind vessel capacity looks adequate. Between 2016 and 2018, supply and demand is likely to be constrained. Rabobank concludes there is an opportunity now for more efficient and thereby cost-effective installation concepts and vessels. Leaders can emerge from those companies that invest in an innovative and efficient concept in the next few years. Installation vessels have a two- to three-year construction time, meaning they need to be ordered now to meet the anticipated market conditions. The future success of the industry hinges on making the right investment decisions today.