Utility Week

24 | 15TH - 21ST DECEMBER 2017 | UTILITY WEEK Operations & Assets Market view O ffshore wind is an increasingly viable renewable energy source. Growth has accelerated because of considerable cost reductions over the past five years – for example, costs in the mature UK industry have fallen by 32 per cent. Although this is primarily being driven by advanced techno- logical developments, economies of scale, lower internal rates of return and financial optimisation, now, as the industry expands, a more comprehensive understanding of the key risks is a supporting factor for even lower pricing. In turn, this is enabling more offshore wind potential to be leveraged and brought on to the grid. Global growth In 2016, operators connected 1.6GW of new offshore wind power capacity to the Euro- pean grid, representing 70 per cent of global installed capacity that year. Wind Europe has estimated that European offshore wind capacity will more than double – to reach 24.6GW – by 2020. While Europe is certainly leading the industry, more developments are being made worldwide. The US has a huge amount of off- shore wind potential along both its east and west coasts and – although it is still expen- sive relative to other sources of power in the US – developments in Europe signal that as the market matures and projects scale up, costs are expected to fall further. China is also learning from Europe. The government's 13th five-year plan on wind energy development – from 2016 to 2020 – targets an increase in total offshore wind farm capacity to more than 5GW in opera- tion and another 10GW under construction. On the back of continuous cost-cutting, gov- ernment support, and growing operational experience, China's offshore wind capacity looks set to increase fourfold by 2020. A sea of risk Yet if the robust pipeline of new offshore wind projects is to continue, the associated risks must be understood. These range from those at the point of construction – technol- ogy risk and counterparty risk, for example – and those during the operation phase – such as resource risk, regulatory risk and market risk. Crucially, as long as the market contin- ues to undergo change, so will the risks. Technology risk will be a particularly important factor. Trends in the industry are moving toward using bigger turbines and foundations – increasing manufacturing and production efficiency – but with greater dis- tances to shore come harsher sea conditions, which technology must be able to weather. This risk is accentuated when the pace of development is such that the technologies proposed at the bidding stage differ from those that are most appropriate or feasible at the time of construction. Even when the technology has been established and the offshore wind project is operating, certain challenges remain. As with onshore projects – and, indeed, the wider spectrum of renewables – variability in resources is a crucial factor. When con- sidering the amount of resource risk any given offshore wind power project faces, it is important to establish whether wind will be available in the quantity and quality needed to meet production and performance expectations. As the European industry matures, and the North American industry obtains a secure mooring on the grid, the nature and full extent of these risks is gradually been made known. And while risks – such as exposure to pool prices, availability of wind resources and maintenance of assets – will remain, we expect more clarity and, there- fore, more growth. Breezing along Future offshore wind projects will most likely trend towards bigger turbines and foundations with lower costs and improved technology as this new, exciting global industry continues to strive for increased capacity. As such, we could see new geo- graphical regions starting to bring offshore wind on to the power grid. Although offshore wind certainly remains a long-term prospect in Latin America, for instance, new estimates demonstrate the ambitious growth that offshore wind could realise in the coming years. Brazil has the longest coastline in the region, and the gov- ernment estimates that local offshore wind potential is about 12 times greater than that of onshore wind power (143GW). Regulatory and political risk remain the main challenges for this sector and will con- tinue to play an important role in driving development. Ultimately, however, new pro- jects will leverage the vast untapped poten- tial of offshore wind power around the world. Luisina Berberian, associate director, infrastructure, S&P Global Ratings Offshore wind: in risky waters The risks associated with the construction and maintenance of offshore wind projects are becoming clearer. Luisina Berberian considers the risk environment and the future of the industry.

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