A breath of fresh air

Driven by European utilities’ desire to deliver an increasing amount of clean power, the offshore wind industry is poised for substantial scaling over the next decade, with the global installed base expected to grow to nearly 45GW by 2020, according to a new market study from IHS Emerging Energy Research. And with large northern European utilities taking responsibility for leading the industry forward over the short-term, the stage is being set for North America and Asia to significantly ramp-up the development of their offshore capabilities as well.

“The global offshore wind energy industry's entry into the next decade will be marked by concrete progress built on the past 10 years of moving along the learning curve.”

"The global offshore wind energy industry's entry into the next decade will be marked by concrete progress built on the past 10 years of moving along the learning curve," says Senior Wind Analyst Eduard Sala de Vedruna, author of the report. "While the global offshore market has been slow to take off due to cost and logistical challenges - climbing from 70MW installed to 1.5GW over the past eight years - the industry is now scaling thanks to an increased focus on offshore by Europe utilities."

In Europe, tapped-out onshore markets and higher capacity factors offshore are driving governments to incentivise the technology, providing key support to the wide-scale industrial build-out that is required. "Offshore is still very much a European industry led by the UK and followed by Germany, Sweden, the Netherlands, Belgium and Denmark. These markets will fuel Europe's offshore wind eminence as the annual megawatts added scale globally," says Sala de Vedruna.

Utilities own around 90 percent of the 20GW of offshore projects in the pipeline in Europe, many of which are now moving to procure turbines and define engineering, procurement and construction strategies for project execution. Northern European players - and German utilities in particular - have the most aggressive expansion plans in terms of megawatts and geographic diversity of their pipelines, says Sala de Vedruna. "European utilities such as RWE, E.ON, DONG, Vattenfall, Scottish and Southern Energy, Statkraft, and Iberdrola are well-positioned to rely on their strong balance sheets and industry expertise to overcome the increased costs and risks associated with offshore wind projects," he explains.

Heading offshore

Europe's offshore wind industry has rapidly evolved into a consolidated market mainly in the North Sea, with onshore competition moving offshore as utility players expand their portfolios. "What began as a market in which smaller developers competed to lock up permitted sites for sale to utilities has shifted to utilities working in tandem with other utilities and developers to assemble the technical skills, financing, and power experience needed for project execution. This shift has been crucial to the market's reaching maturity to handle the sets of technical, construction and interface risks inherent with EPC on this scale," says Sala de Vedruna.

As a result, Asia and North America are currently looking to Europe for technology and cost benchmarking. Between 2010 and 2020, these two regions will contribute nearly 25 percent of the total new offshore capacity installed worldwide, according to the study. EER expects Asia to tap its offshore markets in 2014, led by China and Korea. In North America, test projects in the US (Deepwater Wind) and Canada (NaiKun) may come to fruition by 2012, with over 6GW projected by 2020.

And Sala de Vedruna believes the movement of European players along the value chain is setting the tone for longer-term global competition, with each project providing essential expertise for the industry to improve standardisation across projects for offshore installations, which are larger and more costly than onshore wind projects.

"Offshore projects still present major challenges throughout the process, from permitting to construction and available technology, requiring more skilled players to manage the projects and contingencies," says Sala de Vedruna. In addition to utilities, independent power producers, pure play developers, EPC contractors, and specialised service and equipment providers are increasingly getting active in offshore, he adds.

To reduce installation costs and maximise power output, utilities are seeking bankable, larger turbines to maximise economies of scale. Europe's trend toward 5MW turbines for 200MW and larger projects moving further offshore will provide key references for near-term projects in Canada, the US, China and Korea. The recent launch of larger turbines, the increasing size of projects and the industry's ability to scale the supply chain with vessel, cabling and foundation installation capacity are fundamental to project execution, says Sala de Vedruna. 

The renewable energy economy

And he is not the only one to see the potential in the sector. At the recent European Wind Energy Conference and Exhibition held at Warsaw in April, top wind energy professionals told the assembled delegates that wind energy would help meet 50 percent of the EU's electricity demand in 2050.

"2050 might seem like a long way off, but the decisions we take today will have a big impact on our energy supplies in 40 years' time," says Arthouros Zervos, President of the European Wind Energy Association (EWEA). And with the G8 and EU already committed to an 80 percent greenhouse gas reduction by 2050, Zervos is adamant that strong leadership was required to ensure the huge opportunities afforded by wind are realised over the coming decades. "We can't allow the politicians to make grand statements and leave the serious decisions to the next generation," he says. "Given the long life of power plants, our vision for 2050 has to be reflected in the construction of new power plants from at least 2020 onwards. A fully renewable power sector is the only solution to reaching 80-95 percent CO2 reductions by 2050. The remaining carbon emissions will be needed for other sectors, such as agriculture."

Indeed, Zervos believes we should be talking about a "renewable energy economy" rather than just a low carbon one. "Renewable energies can provide 100 percent of Europe's power supplies by 2050 without any further contribution from so-called low-carbon technologies," he asserts.

Wind energy is already a mainstream power source in Europe, and annual market growth has been impressive over the past 10 years, averaging 23 percent year-on-year. "Realistically, wind can provide 50 percent of power supplies by 2050 if the necessary changes to infrastructure and markets are made," agrees Christian Kjaer, EWEA's Chief Executive. "The potential is there and the industry is ready. All we have to do is maintain current growth rates, both on and offshore. I am also confident that other renewables can easily meet the other half of Europe's electricity needs."

Cost efficient?

Kjaer also believes that wind power is fundamental to reducing electricity prices as well as CO2 emissions. EWEA recently completed a comprehensive assessment of studies conducted into the impact of wind energy on electricity prices, including findings from case studies in Germany, Denmark and Belgium. The report finds that electricity prices were reduced by between €3-23/MWh depending on the amount of wind power, and concludes that the studies "essentially draw similar conclusions" that "an increased penetration of wind power reduces wholesale spot prices".

Kjaer believes that this is a significant finding. "It has already been well-established that wind reduces CO2 emissions," he says. "But now we have stronger evidence than ever before that wind power also reduces electricity prices for consumers. The message is clear - if you want affordable CO2-free electricity, increase the amount of wind power in your electricity mix."

The report found that wind power is often used as an alternative to CO2-intensive production technologies, with wind replacing hard coal power plants - the technology that usually sets the price on the wholesale market - during hours of low demand, and gas-fired power plants during hours of high demand in all the countries under review. EWEA believes this is because wind's low marginal costs push more expensive technologies, such as gas and thermal plants, out of the market.

However, there are still a number of hurdles to be overcome in order for wind to become a widespread and fully functional part of Europe's energy mix - not least the adoption of a Pan-European power market. Europe needs to interconnect its electricity networks as a necessary step towards a truly integrated European electricity market. "A pan-European grid is the first priority, but a clear vision of, and a strong political commitment to, the long-term energy mix is also essential," says Kjaer, adding that an integrated power market is essential for the smart management of renewable energies, and in order to lower the costs for consumers. "Energy is an international challenge," he says. "It is astounding that 24 years after establishing free movement of goods, services, capital and labour, the EU has not yet established a fifth freedom: free movement of electricity."

There are promising signs that this could be about to change, however, with the new EU Commissioner for Energy, Günther Oettinger, recently announcing his support for a European supergrid. "We will never be able to deliver our ambitious energy efficiency or greenhouse gas emission targets without fully utilising the opportunities that large and integrated markets offer," Oettinger said during a spirited speech delivered at the Eurelectric Conference in Brussels, before adding that transmission system operators will bear the critical task of building the infrastructure needed to integrate large scale wind energy with both the networks and the markets. "We require a European mechanism that allows us to produce our energy in the most efficient way, so we can be sure that valuable wind power is not stuck at a border, or worse never produced, because we do not have the right cables to carry it."

How a wind turbine works

Most turbines have three aerodynamically designed blades. These blades spin a shaft that connects to a generator that, in turn, produces electricity.

BLADES The wind passes over the blades creating lift (just like an aircraft wing) that causes the rotor to turn

NACELLE The nacelle houses the low-speed shaft, the gearbox (or alternatively a slow-rotating generator and no gearbox), the high-speed shaft and the generator

LOW-SPEED SHAFT The turning blades spin this shaft 30-60 times per minute

GEARBOX The gears in this box connect the low-speed shaft to the high-speed shaft. They boost the rotation speed of the high-speed shaft to 1000-18000 rotations per minute

HIGH-SPEED SHAFT This rapidly spinning shaft drives the generator to produce electric power

GENERATOR The generator's electrical output goes to a transformer that converts it to the right voltage for the larger electricity grid