Offshore Wind – WIND WORKS

Offshore wind is currently broken. There is a despondent mood in the sector, and it looks like everybody is trying to get rid of their assets or reduce their exposure to the sector (see BP, Equinor, Shell, Vattenfall, Total, an even Ørsted, Corio or Bluefloat). And yet – they brought this on themselves, through a combination of hubris, ignorance, and reliance on lobbying rather than good business acumen.

The supervisor of an onshore wind farm construction site in Changhua County has been released on bail of NT$200,000 (US$6,260) following the death of a worker on Monday due to a CO2 leak incident, according to the Changhua District Prosecutors Office. The incident occurred on Aug. 20 at the Hai Long construction site for an offshore wind farm, resulting in one death, with two workers still in critical condition, and 14 others injured.

Opposition to offshore wind by the third-party presidential candidate turned Trump supporter began decades ago in the waters off Cape Cod. Project proponents say the fierce opposition by Kennedy, a presidential candidate who recently suspended his campaign but remains on the ballot in nearly three dozen states, had a long-lasting impact on the U.S. offshore wind industry and laid the seeds for opposition that continues today.

“It set back offshore wind over 20 years in the United States,” said Jim Gordon, the former CEO of Cape Wind, the company that tried to build the Nantucket Sound project. Gordon said Kennedy was often the loudest, most combative voice of the well-funded opposition. “You have to understand that they created such a brouhaha and so much fear over the technology and the impacts, which have proven to be unfounded.”

Offshore wind projects incur up to 90% of lifetime cost upfront and have very low operational costs. To finance the high upfront capital needs, projects typically take on long-term loans with heavy debt-service commitments. The economic viability of these projects hinges on stable, long-term revenues – but markets cannot deliver those, because of their volatile nature and limited hedging options.

Governments procure renewables through a variety of mechanisms. Contracts for difference (CfDs) have been used for more than 50% of the global offshore wind supply. The payments awarded through CfDs are sometimes labelled subsidies, suggesting that they support uneconomic activity. Here, we argue that the primary role of CfDs is rather risk management by creating a market for electricity supply at stable long-term prices. Similar to its use in other sectors of the economy, this contract type transforms a variable to a fixed price to reallocate volatility risks. Such long-term contracts are often necessary for renewables financing due to limited hedging options in existing markets.

As the offshore wind sector struggles with cost increases and the often-hostile scrutiny that this brings, it is worth taking a step back to think about how governments should design auctions to get projects built at the lowest possible cost.

Several of the recent highly publicised project cancellations or delays are directly linked to poor auction design, so it makes sense to avoid or correct certain mistakes.

The goals of auctions are many, and some governments may prioritise some over others, but it is worth listing them explicitly.

We identify and describe five grand challenges affecting offshore wind finance in the U.S. Failing to address these challenges may put deployment targets at risk. The challenges include (1) Early years financing: navigating the complexities, timing mismatches, and high costs of projects in the development phase; (2) Policy support for project financial solvency: addressing the uncertainty and systematic transfers of tax credits away from offshore wind, characteristic of the U.S. Investment Tax Credit; (3) Workforce development: building a skilled workforce for an emerging market; (4) Transmission and integration barriers: upgrading the power grid to reliably support large scale offshore wind integration; and (5) Floating wind development: financing the development and scale-up of floating offshore wind technologies. The second challenge has already been solved to a large extent by the Inflation Reduction Act.

So offshore wind has become, almost unexpectedly, a significant part of the picture when future renewable energy systems are considered – at least in OECD countries. It provides diversification, opportunities to Big Energy to go green, possibly less public hostility and potentially reasonable economics. But it’s worth remembering that even in Europe, it’s just 10% of the overall wind capacity installed (and a bit more of actual generation, thanks to higher capacity factors).

One worker has been killed, and three injured, in an explosion at a factory run by Danish wind sector supplier Welcon, according to media reports in Denmark.

The accident occurred at the company’s recently-expanded factory in the Give area of Denmark, and resulted in the death of a 41-year old Portuguese national, according to a report by Danish news website Vejile Amts Folkeblad, which quoted Stig Simonsen, a deputy police inspector at South East Jutland Police.

Fox anchor Martha MacCallum and anti-renewable energy activist Michael Shellenberger defended widely debunked statements former President Donald Trump made about whales and offshore wind farms at a recent campaign rally, instead crediting him for “shining a light” on the issue.