The ability of offshore wind to significantly contribute to the renewable energy targets of 2020 in Europe is spurring governments to support and encourage the sector. As the onshore market continues to grow in certain regions and move slowly toward saturation in others, offshore wind is expected to form a greater part of the pie from the meager 2% that it is now. Onshore wind will always occupy a major share of the wind energy market. However, Frost & Sullivan expects offshore wind to grow from an insignificant part of the pie to a more substantial contributor of electricity generated from wind by 2020. According to Frost & Sullivan estimates, installed capacity of offshore wind is expected to grow from 1,276 MW in 2008 to 18,769 MW by 2015.
The UK government has been blamed for its renewable energy policies not having enough teeth to encourage companies to invest in the UK whether it be onshore or offshore or project development or manufacturing. However, with the increase in the number of Renewable Obligation Certificates (ROCs) from 1.5 ROCs/Wh to 2 ROCs/MWh outlined in the budget in April the UK government gave a huge boost to the offshore wind energy industry.
The green light for the 1GW offshore wind farm in the UK, the world's biggest wind farm project, is the beginning of new and important developments of projects in this market. Frost & Sullivan's Industry Analyst Gouri Kumar believes that "after a string of bad news in the industry, this is a significant change that will provide a stimulus to investors in the UK as well as in the rest of Europe. And this is especially important in consideration of the current economic climate."
The investors of the biggest proposed offshore wind farm in the world, the 1GW London Array, yesterday decided to go ahead with the project after a roller coaster ride of events. The wind farm, owned by Danish wind project developer Dong Energy (50%), German utility E.ON (30%) and Masdar (20%), a government of Abu Dhabi controlled investment fund, had put the project on hold citing drying up of capital due to the economic recession as well as the rise of turbine prices due to the fall in the British Pound when compared with the Euro. The project was on the verge of being derailed when in May 2008 Shell withdrew from the project citing dramatic increase in costs, concentration on the wind business in the US as well as the hurdles in planning processes in the UK.
"The offshore wind industry has a lot of potential. However, the technology is very nascent. This is one of the reasons why investment costs are very high," says Gouri Kumar. "High costs are either deterring a lot of project developers from investing or making previously interested investors leave the sector. The investment costs for offshore wind energy projects are almost double that of onshore projects. They have also risen substantially over the past 2-3 years due to increase in raw material costs and demand-supply situation for turbines and some components. The economic crisis is expected to slow the progress of projects for the next few years, but as the decision to go ahead with the London Array project shows that governments are doing everything in their power to make sure the policies in place will spur the industry on."
Although there are a number of problems that plague the offshore wind energy market, an important way of cutting costs is to invest into R&D of technology, installation and O&M. Countries like the UK and Germany (governments and market participants) amongst others are already focusing on programmes to reduce costs. This is related to technology of turbines and various components as well as easier installation methods and better accessibility.