The Next Trillion-Dollar Energy Industry

The glob­al wind indus­try is expect­ed to become a $1 tril­lion , accord­ing to the Inter­na­tion­al Ener­gy Agency. The indus­try will grow by 13 per­cent per year, pass­ing 20 GW of annu­al instal­la­tions by 2030.

Around 150 new off­shore wind are expect­ed to for­ward in the next five years.

The nascent indus­try is still far behind oth­er sources of ener­gy, includ­ing oth­er renew­ables. But the poten­tial is near­ly lim­it­less. “The best off­shore wind sites could sup­ply more than the total amount of elec­tric­i­ty con­sumed world­wide today,” the IEA said in its report. “And that involve tap­ping only the sites close to shores.”

In a lengthy report spot­light­ing off­shore wind, the IEA found that the total tech­ni­cal poten­tial for the indus­try is 36,000 TWh per year for instal­la­tions in waters less than 60 meters deep and with­in 60 kilo­me­ters from shore. That com­pares to total glob­al elec­tric­i­ty demand of 23,000 TWh.

But off­shore wind can also go deep­er and far­ther from shore. The IEA said that float­ing off­shore wind alone has the poten­tial to meet the world’s elec­tric­i­ty 11 times over in 2040.

Still, it is ear­ly days, and total capac­i­ty addi­tions only topped 4 GW in 2018.

Offshore wind

(Click to enlarge)

Nev­er­the­less, the agency high­light­ed a long list of attrac­tive fea­tures that make off­shore wind so promis­ing.

Wind projects onshore have low­er capac­i­ty fac­tors, which means that they do not gen­er­ate in all hours of the day. Off­shore, the winds are stronger and more con­sis­tent, giv­ing off­shore wind an aver­age capac­i­ty fac­tor of between 40 and 50 per­cent. “Off­shore wind’s high capac­i­ty fac­tors and low­er vari­abil­i­ty make its sys­tem val­ue com­pa­ra­ble to base­load tech­nolo­gies, plac­ing it in a cat­e­go­ry of its own – a vari­able base­load tech­nol­o­gy,” the IEA said. Off­shore wind also tends to pro­duce more elec­tric­i­ty in win­ter months in the U.S., Europe and Chi­na, which makes it more use­ful than onshore wind and solar.

On top of that, off­shore wind avoids all the land use con­flict that so many oth­er ener­gy sources car­ry.

In addi­tion, there are “syn­er­gies” between off­shore wind and off­shore oil and gas. The IEA says that about 40 per­cent of the full life­time cost of an off­shore wind project has over­laps with oil projects. Com­pa­nies build­ing foun­da­tions and sub­sea struc­tures for oil and gas, for instance, can do the same for off­shore wind. The same is true for and of off­shore struc­tures.

Of course, much depends on cost. Off­shore wind is behind, with the lev­elized cost of elec­tric­i­ty aver­ag­ing $140/MWh in 2018, far high­er than gas, coal and oth­er renew­ables. But costs are com­ing down. “Off­shore wind is set to be com­pet­i­tive with fos­sil fuels with­in the next decade, as well as with oth­er renew­ables includ­ing solar PV,” the IEA said. Financ­ing costs account for 35 to 50 per­cent of the cost of a project, leav­ing plen­ty of room for improve­ment. The agency said costs could fall to $60/MWh by 2030 and $45/MWh by 2040 if financ­ing costs come down. 

In Europe, off­shore wind is already com­pet­i­tive. The results from recent auc­tions sug­gest that off­shore wind will soon beat out nat­ur­al gas, and will be rough­ly even with solar and onshore wind, the IEA said. One project in France had a strike price of just $50/MWh, although it did not include trans­mis­sion.

Europe pio­neered off­shore wind, and remains a key strong­hold. Den­mark pro­duced 15 per­cent of its elec­tric­i­ty from off­shore wind last year. How­ev­er, as is the case with most dis­cus­sions revolv­ing around every ener­gy , Chi­na is play­ing an increas­ing­ly impor­tant . In 2018, Chi­na added more off­shore wind than any oth­er coun­try.

For now, though, the major com­pa­nies are Euro­pean, includ­ing Ørst­ed, RWE and Vat­ten­fall. 10 of the 15 largest com­pa­nies by mar­ket are from Europe, although Chi­na Longyuan ranks third. Only one in the top 15 is from the U.S. – Glob­al Infra­struc­ture Part­ners – and it is an investor rather than a devel­op­er.

Still, despite off­shore wind’s poten­tial, the pace of growth is not fast enough to meet glob­al cli­mate tar­gets. The IEA said that deploy­ment needs to accel­er­ate to around 40 GW of annu­al instal­la­tions by the 2030s, which would trans­late to $1.2 tril­lion in cumu­la­tive invest­ment over the next two decades. Based on cur­rent trends, the agency only sees annu­al instal­la­tions top­ping 20 GW by then with cumu­la­tive invest­ment reach­ing $840 bil­lion.

Offshore wind

(Click to enlarge)

There are some major hur­dles that will require more accom­moda­tive pol­i­cy sup­port from gov­ern­ments. The indus­try still needs to build out sup­ply chains, capac­i­ty for ever-larg­er tur­bines, larg­er ves­sels, onshore grid infra­struc­ture and trans­mis­sion lines con­nect­ing tur­bines to the shore. There is a bit of a chick­en-and-egg prob­lem between all of these mov­ing pieces; the lack of each is slow­ing progress on oth­er aspects.

But the bot­tom line is that off­shore wind has the poten­tial to be a “game-chang­er,” accord­ing to the IEA.

“In the past decade, two major areas of tech­no­log­i­cal inno­va­tion have been game-chang­ers in the ener­gy sys­tem by sub­stan­tial­ly dri­ving down costs: the shale rev­o­lu­tion and the rise of solar PV,” said Dr. Fatih Birol, the IEA’s Exec­u­tive Direc­tor. “And off­shore wind has the poten­tial to join their ranks in terms of steep cost reduc­tion.”

By Nick Cun­ning­ham of Oilprice.com

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