Global competition for offshore wind power is so hot that license auctions now resemble the oil and gas competitions of just a few years ago, and some of the names are familiar, too, as global oil majors move aggressively into renewable energy.
The drive among top fossil fuel producers to make fast inroads into lower-carbon businesses comes as more countries roll out plans to boost wind power to reduce their carbon footprint.
The cost of securing sites to develop has risen to levels that some top wind farm operators say are unsustainable and which would hurt consumers by driving up power prices.
Illustration: Yusha
Governments worldwide are expected to offer a record number of tenders for offshore wind sites and capacity this year, with more than 30 gigawatts (GW) on the block.
That is almost as much as total existing global wind capacity of 35GW, and the tenders are shaping up to be the most competitive ever.
Several European oil firms including Total, BP and Shell plan to rapidly increase their renewable power portfolios, reducing reliance on oil and gas to satisfy investors who want to see viable long-term low-carbon business plans and governments that are demanding reductions in emissions.
The oil majors, with deep pockets, are willing and able to pay up for a foothold in the market, even though margins are much smaller than for their traditional operations.
At a leasing round held by the Crown Estate earlier this year for seabed options around the coast of England, Wales and Northern Ireland, BP and German utility EnBW paid a record price to secure two sites, representing 3GW.
Developers pay an annual option fee prior to making a final investment decision, which in the case of BP and EnBW would amount to about £1 billion (US$1.37 billion) made in four annual payments of £231 million for each of the two leases.
Traditional offshore wind developers, Iberdrola, Orsted and SSE all said that they had been unsuccessful in the leasing round.
The previous Crown Estate offshore round was held more than a decade ago when the market was a fraction of its current size and structured without option fees, an added cost developers would now have to recoup.
“Someone is going to have to pay and it’s probably, at least in part, the consumer,” said Duncan Clark, Orsted’s UK head.
Some analysts also said the high fees threaten to erode the huge cost reductions the industry has achieved over the past decade.
BNP Paribas chief sustainability strategist Mark Lewis said the Crown Estate option fee would add about 35 percent to project development costs, assuming today’s building costs.
BP said that the fee was justified by the prime location of the two Crown sites: in the Irish Sea; in shallow water, close to the shore allowing for shorter, cheaper connection cables; and next to each other, allowing for cost efficiencies across both projects.
“Not every resource base was born equal,” said Dev Sanyal, executive vice president of gas and low-carbon energy at BP, adding that those factors made the company confident of achieving the 8 to 10 percent return it has set for renewable projects.
EnBW said the prices achieved reflect the different intrinsic value of the respective projects.
HOT TENDERS
Some in the industry fear a knock-on effect, with Global Wind Energy Council chief executive officer Ben Backwell saying that there are not enough projects to meet demand.
“So you are going to create an over-heated market when what we want to see is more opportunities made available,” he said.
A price cap at a Crown Estate Scotland tender of Scottish seabed leases taking place this year has already been hiked tenfold.
Orsted, Iberdrola and SSE all said that they expect to enter the Scottish round, and while neither BP, Total nor Shell would confirm their involvement, analysts said it would be surprising if oil firms did not participate.
Projects from the recent Crown Estate auction would not be built until 2027 to 2030, when development costs are expected to have fallen further, at least partly offsetting higher fees.
For example, announcements about larger turbines show that the pace of technology development remains very active, said Julien Pouget, senior vice president of renewables at Total, which won a lease in the Crown Estate auction with Macquarie’s Green Investment Group.
That “makes us optimistic on the potential in terms of cost reductions,” he said.
While the UK offers a guaranteed return on some renewables, the amount has fallen sharply, tracking lower development costs.
At a 2019 auction for contract for differences, which guarantee operators a minimum price for electricity sold, a record low price of £39.65 per megawatt-hour was achieved, about 30 percent lower than the previous auction held in 2017 and lower than current average electricity prices.
The next contract for differences auction is expected at the end of this year, too early in the development process for the recent Crown Estate lease winners.
NEW MARKETS
Although the UK is the world’s largest offshore wind market, with about 10GW of capacity, opportunities elsewhere are increasing and tenders are expected to be keenly fought.
European countries, including Denmark, Poland and France, are expected to hold auctions this year, with more regions planning to build up capacity.
US President Joe Biden wants to deploy 30GW of offshore wind power by 2030. In the US, there are 13 projects in development, with a combined capacity of about 9.1GW, and they are expected to come online by 2026.
Iberdrola is already involved in tenders in Rhode Island and Massachusetts through its US arm Avangrid, while BP sealed a US$1.1 billion deal last year to buy 50 percent stakes in two US developments from Norway’s Equinor.
In Asia, Japan plans to install up to 10GW of offshore wind capacity by 2030, and 30GW to 45GW by 2040, with analysts expecting tenders for a total of about 3GW of capacity to be held this year.
Iberdrola, which bought Japanese developer Acacia Renewables last year, said it expects to participate in tenders there.
“Asia is going to be a huge market for renewable growth globally and we as a global player want to be actively participating in that,” said Jonathan Cole, managing director of Iberdrola Renewables’ offshore wind division.
However, experts said that new regions cannot charge as much for seabed leases or expect to offer such low price support as the UK.
“We have a mature industry in Europe and the UK but it’s not there yet in Asia, or the US,” Backwell said. “Each region has to build up its own industry and skills before they can expect to see the most competitive prices.”
Could Asia be on the verge of a new wave of nuclear proliferation? A look back at the early history of the North Atlantic Treaty Organization (NATO), which recently celebrated its 75th anniversary, illuminates some reasons for concern in the Indo-Pacific today. US Secretary of Defense Lloyd Austin recently described NATO as “the most powerful and successful alliance in history,” but the organization’s early years were not without challenges. At its inception, the signing of the North Atlantic Treaty marked a sea change in American strategic thinking. The United States had been intent on withdrawing from Europe in the years following
My wife and I spent the week in the interior of Taiwan where Shuyuan spent her childhood. In that town there is a street that functions as an open farmer’s market. Walk along that street, as Shuyuan did yesterday, and it is next to impossible to come home empty-handed. Some mangoes that looked vaguely like others we had seen around here ended up on our table. Shuyuan told how she had bought them from a little old farmer woman from the countryside who said the mangoes were from a very old tree she had on her property. The big surprise
The issue of China’s overcapacity has drawn greater global attention recently, with US Secretary of the Treasury Janet Yellen urging Beijing to address its excess production in key industries during her visit to China last week. Meanwhile in Brussels, European Commission President Ursula von der Leyen last week said that Europe must have a tough talk with China on its perceived overcapacity and unfair trade practices. The remarks by Yellen and Von der Leyen come as China’s economy is undergoing a painful transition. Beijing is trying to steer the world’s second-largest economy out of a COVID-19 slump, the property crisis and
As former president Ma Ying-jeou (馬英九) wrapped up his visit to the People’s Republic of China, he received his share of attention. Certainly, the trip must be seen within the full context of Ma’s life, that is, his eight-year presidency, the Sunflower movement and his failed Economic Cooperation Framework Agreement, as well as his eight years as Taipei mayor with its posturing, accusations of money laundering, and ups and downs. Through all that, basic questions stand out: “What drives Ma? What is his end game?” Having observed and commented on Ma for decades, it is all ironically reminiscent of former US president Harry