Who Will Win on Offshore Wind: The United Kingdom, Germany, or China?

Though the Obama Administration has taken some serious steps to help accelerate the market for offshore wind power in the United States, a new report from Pike Research reveals that it is Europe that is in the driver’s seat, and that China is the other prime contender for world leader over the next decade.

The market for offshore wind in Europe is more developed than the North America market because it takes advantage of a robust onshore market and the resources put in place to maximize this renewable energy option. Public policy is the prime driver, as European Union (EU) legislation requires greater carbon emissions reductions – and higher corresponding penetrations of renewable energy resources – by 2020. Some of the world’s best turbine manufacturers and supply chain providers are based in Europe, a pooling of expertise that can offer synergies for offshore wind not available anywhere else in the world.

Europe is clearly the focal point of near term offshore wind development. In the United Kingdom, for example, 49 GW of offshore wind projects already have pre-approval, representing a potential investment of over $100 billion!

Of all the European nations, the United Kingdom has taken the most market-based approach to the development of its offshore wind resources. Yet, it also offers the greatest level of government subsidy. For example, the tender process for transmission infrastructure relies on competitive bids from a variety of market participants to drive down costs and spark new market entrants. The series of three rounds of solicitations for offshore wind was designed to help the industry “get off the ground” and ramp up, a staged process aimed at growing the necessary supply chain. While a focus on competitive bidding will introduce delays in the construction and development process, the offshore wind market might also serve as a magnet for developers, creating a more sustainable industry over the long term.

The Pike Research base scenario forecast assumes 12 GW of capacity will come online by 2017, a 42 percent compounded annual growth rate (CAGR). Pike Research estimates that the United Kingdom – the largest single market in the world – will be valued at $4.5 billion in power production revenue by 2017.

Germany is the other lynchpin country in the EU market. Despite its limited coastline – and the need to go to deeper waters – Germany has recently gained significant momentum on offshore wind, as private and public investments are being steered toward required infrastructure. The industry hopes to build on the manufacturing capacity and knowledge base that already exists with onshore wind in northwestern Germany. The country has the most favorable transmission interconnection policies on paper, though there are recent reports of time delays associated with grid interconnections. Because projects have to be built in deeper waters, there is also concern related to whether the subsidy schemes in place are sufficient. The Pike Research base scenario shows a CAGR of 66 percent and 9.5 GW of installed capacity for Germany.

At present, competition between the United Kingdom and Germany is quite intense. It may not be possible for the offshore wind industry to concentrate infrastructure (ports, vessels, and component suppliers) in multiple regional clusters. The prime challenge for all of Europe, nevertheless, is finding new sources of financing, as the utility balance sheet approach that worked in the past is not sustainable.

And then there is China.

China recently completed construction on its first offshore wind farm, the 102 MW Donghai Bridge project. By 2020, the Chinese government plans to increase the use of alternatives to fossil fuels to generate 15 percent of the nation’s total energy consumption. Offshore wind energy has the potential to generate more than 750 gigawatts (GW) of China’s energy, which is almost three times the wind energy potential on land. According to China’s Development Plan on Emerging Energies, offshore wind capacity could grow to 30 GW by 2020. Coastal provinces are now drawing up grid integration plans.

According to the latest available figures, China currently has 51.365 GW worth of offshore wind capacity in some stage of planning. As of 2009, 13.6 GW of offshore wind capacity was in the pipeline according to Azure International, all concentrated on China’s East Coast. Roughly 2.3 GW is currently under construction in China, including some demonstration projects. Perhaps the most interesting of these pilot projects will test vertical axis turbine technologies – the 450 MW Caofeidian Offshore Wind Farm.

Pike Research’s base scenario assumes 11.7 GW will come online by 2017, a CAGR of 70 percent, which is higher than the CAGR for Europe as a whole (57 percent). In the aggressive scenario, China will produce approximately 13.0 GW, which would rank it second behind the United Kingdom (14.4 GW). While Pike Research believes the dire scenario forecast is more probable overall than the aggressive scenario forecast globally, China is the one country where this general rule of thumb does not apply. Even under this dire scenario, China still adds 9.7 GW of offshore wind capacity by 2017.

Article by Peter Asmus, appearing courtesy the Matter Network.

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