Despite the impact of the COVID-19 pandemic, 2020 was another record-breaking year for the global offshore wind sector:
- additional installed capacity increased by 5.2 GW, with total global installed capacity hitting 32.5 GW;
- global investment in the sector reached US$30 billion;
- 15 new projects went into operation, bringing the total number of operational offshore wind projects to 162 (globally);
- the average size of newly operational projects was 347 MW (compared to 325 MW in 2019); and
- full-time jobs in the sector reached an estimated 297,000.
This trajectory will not change as a result of the pandemic. If anything, the pandemic has served to reinforce the attractiveness of the sector. Investors searching for a secure revenue stream during uncertain times have found a safe haven in existing projects (typically benefiting from stabilising revenue support), while governments seeking to “build back better” and reach “net zero” have put offshore wind at the center of the global energy transition, driving forward new projects. This is demonstrated by some themes identified in this report, including:
- Widening geographies. Although the expansion of offshore wind in Europe, particularly among the North Sea nations, is accelerating, the rise of offshore wind in Asia is remarkable. Taiwan leads in this respect, with the past year seeing some major projects reach financial close and others pursue construction, while South Korea and Japan are advancing following a number of regulatory initiatives to improve the investment environment. Adding to this are developments in the United States where major permitting and financing hurdles have been cleared, thousands of MWs are being contracted on an annual basis, and a number of large utility scale projects are moving quickly towards start of construction.
- Sustained and expanding interest in the sector. The past year has seen continued investment in the sector, both in regard to projects reaching FID and financial close and in respect of M&A activity – in 2020 there were 36 M&A deals in the offshore wind sector valued at approximately US$7.7 billion in aggregate. The appetite for offshore wind as an asset class is strong given the scale of the investment opportunities and the stable returns on offer.
- ‘Big oil’ embracing energy transition with vigour. As a sign of the times, a number of O&G majors have set ambitious targets to hold significant renewable portfolios, with offshore wind playing a principal role. The past year has seen these majors participate in regulatory processes to develop, or simply acquire stakes in, projects in Europe, Asia and the US – with plenty more in the pipeline. This is creating significant competitive tension, both in auction processes at development stage and in the M&A market, potentially pushing out smaller players (but also giving them cause to be more creative with their investment strategies).
- Emerging technologies. The momentum behind floating offshore wind continues to build, with major developers announcing a number of projects in the past year, including in Asia where deeper sea waters make some fixed bottom projects unviable and local industry is well placed to provide floating platforms. We expect to see a much faster progression from demonstration size floating projects to commercial size (300MW+) than we saw in the fixed bottom evolution. In addition, the combination of offshore wind and electrolysis to produce green hydrogen has caught the imagination of the industry and a number of pilot projects are now in train. There is real hope that power-to-X based on offshore wind is a leading solution to the intermittency of renewables. This will be the subject of a separate Orrick report due out later this year.
Orrick’s 2021 Offshore Wind Energy Update and Outlook, linked below, considers these trends and various legal/regulatory points and general market updates are considered in the context of the world’s principal offshore wind markets, building on our 2020 report (Orrick Offshore Wind Energy Update and Outlook) and drawing on our experts’ direct experiences over the past year. If you have any questions, please get in touch with us or the authors of the respective country reports.