The surge in political interest in harnessing the over 70TW of offshore wind streaming round the planet to help answer intensifying climate and energy security concerns is rapidly setting the stage for this natural resource to become a key pillar of the globe’s future energy system.
Yet, supply chain challenges, varying commodity costs and uneven market growth are currently hindering the industry from deploying at the rate needed to help the world reach net zero by 2050 by building the first terawatts of plant.
All the more reason that while attention is understandably focused on larger sector plays in northern Europe, the US, and China, the industry should not underestimate the role that so-called ‘emerging’ markets in all these regions can and should play to boost the industry’s long-term expansion and sustainability.
Regional cooperation was a critical part of the onshore wind industry’s successful growth a decade ago, helping to smooth out the country-specific boom-and-bust cycles that were a risk for the industry. In the US, for example, the start-stop nature of the production tax credit resulted in lumpy growth that was a concern for both developers and the supply chain.
However, manufacturers were able to keep their factories operating and profitable during slow periods by fulfilling orders for neighbouring Canada and Mexico – with the same applied in reverse during the latter countries’ leaner years. This regional growth helped stabilise the industry for the benefit of all.
Similarly, the European offshore wind industry has benefitted from regional cooperation across the North Sea. The combined development pipeline across a number of neighbouring countries offers more regular and predictable growth, supporting a more diverse and larger number of suppliers. This in turn has led to greater competition and cost reductions across the supply chain.
If the offshore wind industry ensures that emerging markets grow with them, this will ultimately help the world achieve its climate goals
In 2019, the World Bank Group and the International Finance Corporation (IFC) launched the Offshore Wind Development Programme with a simple goal: to work with governments and industry to accelerate the deployment of offshore wind in emerging markets.
Over the past three years thanks to the programme’s support, many of these new markets have progressed from a point where offshore wind was not even a consideration, to now having sector specific regulations, capacity targets, and huge – and fast-growing – interest from developers.
Let’s look at some stand-out examples. Brazil has now established a decree for offshore wind and built a pipeline of over 176GW of project proposals. Colombia has progressed from having no consideration for offshore wind to initiating its first seabed leasing round. The Philippines has gone from two offshore wind service contracts to issuing 42 contracts for sites totalling 3GW. And Vietnam has acknowledged the critical role offshore wind needs to play in the country’s transition to net-zero by 2050 by including a target of 87GW of offshore wind by 2050 in its draft long-term energy plan.
In addition, thanks to existing industrial expertise and lower cost of materials and labour, some emerging markets have already been supplying the offshore wind industry globally, with Vietnam now manufacturing wind turbine towers, Indonesia producing foundation jackets, Thailand starting to delivery substations and India sailing out first supply vessels. Taken together these advances are helping lower the cost of offshore wind internationally while providing direct economic benefits to those markets’ manufacturing bases.
Regional cooperation is a win-win
The development of regional markets benefits both the governments seeking to reduce costs, and the industry seeking to direct resources to markets where they know they will have predictable long-term growth. Emerging markets are key to this regional growth, and deserve attention even while the industry focuses on ‘hot’ markets such as the US and Japan.
The US, for example, has ambitious targets and has attracted high industry interest but a stable, certain, long-term pipeline of offshore wind projects does not yet exist. Despite huge potential for this market, these realities are already worrying manufacturers about how they will keep their factory order books filled in the future. Yet on the same side of the Atlantic, Brazil and Colombia also have ambitious offshore wind plans and face the same issues as the US.
Working together, these countries could contribute to levelling-out demand to provide more consistency for the industry, while taking advantage of specific expertise and cost-efficiencies in each unique market. This same logic can also apply to Asia, where markets like Vietnam and the Philippines can be instrumental to growing offshore wind in the region by supplementing demand from Japan and South Korea.
The lesson here is that a rising tide raises all boats. If the offshore wind industry ensures that emerging markets grow with them, this will lead to stronger regional markets that balance out supply and demand, allow for more competitive prices and a more sustainable industry, and ultimately help the world achieve its climate goals.
· Mark Leybourne and Sean Whittaker are co-leads of the ESMAP-IFC Offshore Wind Development Programme