Page 42 - North American Clean Energy July/August 2020 Issue

wind power
Is U.S. Offshore Wind Ready
to Take Europe’s Lead?
by Aneesh Prabhu
While Europe has seen profitability and investor interest increase significantly over recent years, its U.S. counterpart has yet to provide an economic case. With an ocean between them, yet similar goals, how exactly do their approaches differ?
To date, offshore wind has been a largely European endeavor, with the region accounting for roughly 80 percent of the world’s offshore capacity at the end of 2018. Large European utilities dominate the offshore market, providing an important advantage with regard to project and supply chain management. In stark contrast, the U.S. currently has only one offshore
wind farm in operation. Additionally, offshore has yet to demonstrate its profitability on this side of the Atlantic. This could be about to change, however, thanks to increasing investor interest that suggest sector growth is in the cards.
From strength to strength
While offshore wind still accounts for just 1 percent of the European energy mix – amounting to 20GW installed by the end of 2019 – the past decade
has seen significant growth. Favorable pricing mechanisms, lower costs of capital, and excellent operator execution have kept costs markedly low, while significant increases in capacity are on the horizon. Recently updated national energy policies and government commitments, across several different countries, reveal a total of 90GW in planned offshore capacity in Europe – with the lion’s share coming from the U.K and Germany.
Of course, European power prices have declined dramatically in 2020, as the coronavirus lockdown and a historically mild winter came together to reduce power demand. Though the pandemic has dampened demand as we head towards a global recession, offshore wind is, so far, proving resilient from a credit
perspective. The big European players have all seen their credit ratings affirmed, with extra support from the EU’s commitment to a greener COVID-19 recovery (via the European Green Deal).
It’s not all good news for offshore developers, though. Traditionally, projects have been supported by feed-
in tariffs or other supporting pricing mechanisms, leading to enviable equity returns. Nevertheless, as
the technology matures and costs fall, governments are adopting more advanced, market-based ways
of supporting development. It has now become commonplace to award contracts for offshore-wind projects through reverse auctions in which bidders compete by accepting lower subsidies. So, while the evolving situation may ultimately lead to the end of double-digit returns in the sector, the development of cheaper and more efficient technology will see the sector continue to move forward.
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JULY•AUGUST 2020 ///
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