The North Sea is a place of awe-inspiring power and resource that has been exploited for energy production for well over half a century. Now the era of the North Sea 3.0 has begun. The outlines of floating offshore wind, power-to-X (PtX) and other new offshore technology solutions are materialising, but what could a post-2030 North Sea look like?

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The North Sea has focused on a single energy form since the late-1960s, starting with offshore oil & gas production before moving on to offshore windin the 1990s. North Sea 3.0 is standing on the shoulders of both previous energy production hubs with the introduction of PtX, carbon capture and storage, and system integration. The North Sea will be a beast with many heads, and it will need innovative infrastructure solutions to transport the new energy forms and the significantly increased volumes of offshore wind.

For energy producers, the prospects ahead for the North Sea are both exciting and complex. New technologies and innovative solutions are opening new opportunities, but at the same time the route to market is less straight forward than it was, and the combination – and sometimes competition – of several forms of renewable and low-carbon energy adds to the complexity of developing projects and building new infrastructure.

The future market for offshore wind connected to PtX in the North Sea will be huge and growth targets are rightly ambitious. But there are several looming uncertainties and numerous challenges that need to be overcome.

Beating the grid bottleneck

Congestion in the European onshore electricity grid has been an ongoing issue for years – and one that only gets worse as larger volumes of variable renewable electricity are added. Green power from Northern Europe is stuck in a bottleneck in the middle of the continent, and offshore wind generation is frequently curtailed.

The ideal would be to site new renewable electricity consumption in areas with a surplus of production and vice versa, something transmission system operators (TSOs) are trying to incentivise with tariffs and other support schemes. However, other factors affect location decisions, and the incentives might not be enough.

Energy system integration – where offshore wind production is combined with storage and PtX – can mitigate grid congestino but clarity is needed as to how regulation at EU and national levels will impact these solutions

Energy system integration – where offshore wind production is combined with storage and PtX production – can mitigate grid congestion by balancing the electricity supplied to the network. The technical and digital solutions are being developed to optimise both electricity flow and cash flow in switching between electrons, storage and hydrogen molecules. Yet, clarity is needed as to how regulation at EU and national levels will impact these solutions.

Offshore wind’s new routes to market

The countries around the North Sea are home to the world’s most mature offshore wind markets, which have been helped by generous government subsidy schemes in the past decade. But as offshore wind’s levellised cost of energy has dropped so too has the financial support. The latest auctions in the Netherlands, Germany and Denmark resulted in the award of zero-subsidy projects. And the Norwegian government originally intended to launch the first phase of its shallow-water Southern North Sea 2 acreage without subsidies, but decided to include subsidies after determining that the projects here will only pump power to Norway.

So, the writing is on the wall reads ‘subsidy-free offshore wind’, which is making developers look at corporate power purchase agreements as a route to market for securing a stable business case.

The offtake of electrons for electricity end-consumption is still a main line to market for offshore wind, but this is only for part of the 200GW planned to come in over the next couple of decades. Renewable hydrogen and green fuels offer new routes to market that can offtake significant amounts of renewable electricity.

Offshore wind to be used for renewable hydrogen production cannot receive net support according to EU’s delegated act that defines renewable hydrogen and green fuels. This necessitates support of other parts of the PtX value chain, starting with offshore wind and finisheing with end-consumption of renewable hydrogen or a green fuel.

PtX support schemes are being designed and launched at EU and national levels, but the focus is mainly on near-term auctions and dedicated support under the IPCEI (Projects of Common European Interest) scheme to kickstart the renewable hydrogen sector.

Power-to-X is here but production and offtake isn’t

Despite seemingly never-ending announcements of new PtX projects in Europe, very few have reached financial close. One of the main challenges is that PtX production and the expansion of PtX consumption into hard-to-abate sectors need to be developed in parallel to avoid stranded investments in one part of the PtX value chain.

There is no doubt that PtX will be central for decarbonisation of hard-to-abate sectors, such shipping, aviation and industria and manufacturing l facilities that cannot be electrified. Still, questions remain about ‘how much’, ‘where’ and not least ‘when’ there we commercial-scale appetite for renewable hydrogen and green fuels.

The revision of EU’s renewable energy directive – which is nearing final approval – sets decarbonisation and PtX consumption targets for several sectors. This should incentivise the use of PtX, but it is still very early days in having significant PtX consumption in place.

Furthermore, the ‘chicken and egg’ conundrum described above creates a need for close collaboration between the offshore wind developer, the PtX producer, and the downstream links in the value chain. Cooperation like this is necessary in the build-up of a PtX sector but can be a barrier for any new players looking to enter the market.

New transmission links and energy islands

Tripling the offshore wind production capacity in the North Sea region calls for new transmission infrastructure as well as new solutions. Some of the renewable electricity will be transported as electrons and some will be used for production of renewable hydrogen and transported as molecules.

Offshore grids with trunklines connecting multiple countries is the first step on a journey to novel offshore transmission solutions. Denmark’s Kriegers Flak was the first of offshore wind farm with a hybrid connection to both Denmark and Germany. TSOs – both the ones transporting electricity and the ones transporting gas – are proposing new offshore solutions. Energy islands and a North Sea Wind Power Hub focusing optimising the flow of electricity are being developed, while plans for offshore hydrogen transmission are being made.

Infrastructure projects on such a massive scale have a long lead-time and some of them are dependent on commercial commitment from energy producers. Again, the energy sector is facing Catch-22 where the risk needs to be split between the infrastructure operators and the renewable energy producers.

The current regulation does not address these future hybrid solutions, and there is a need for clarity on what the revenue models for the infrastructure will be. There are outlines of what could come. Recent EU regulation mentions ‘offshore bidding zones’, which is being explored as a market setup for offshore hybrid connections to multiple countries. Furthermore, the European Commission’s recent proposal for an electricity market reform includes so-called ‘transmission access guarantees’ which could help de-risk investments in hybrid offshore wind farms.

The proposed regulation gives an indication of a future setup, but it is still pending approval and implementation.

These challenges are being addressed by various stakeholders across the renewable energy sector. Yet, having an overview of the challenges and the progress being made within regulation, market design, infrastructure design and technology availability is a challenge on its own.

· Maria Holm Bohsen is head of research & analytics at Copenhagen-headquartered analyst group Aegir Insights