Market Challenges And Opportunities

Highly fragmented market dominated by major market players: The offshore wind energy market has been witnessing significant growth over the past few years due to increased policy support and commitments toward renewable energy adoption around the world. The market is highly fragmented with several small and large market players operating globally. While a handful of major developers have dominated the market, there has been a rise in new entrants from the oil and gas industry as well as other renewable energy sectors trying to tap into this high growth area.

The fragmented nature of the market has led to intense competition amongst market players. To gain a competitive advantage, developers are increasingly focusing on developing newer and advanced technologies to optimize offshore wind power generation and reduce costs. This has propelled heavy investments in research and development (R&D) of larger turbines, floating turbines, advanced foundation designs, and smart monitoring systems.

Market Opportunities:

Supportive renewable portfolio standards and carbon emission reduction targets: Supportive renewable portfolio standards and carbon emission reduction targets present a major opportunity for growth in the global offshore wind energy market. Many countries have set ambitious mandates to increase their usage of renewable sources and lower greenhouse gas emissions over the coming decade. This creates a very favorable policy environment for the offshore wind sector to thrive.

Europe in particular has been at the forefront of the offshore wind transition. Countries like Britain, Germany, Denmark, and the Netherlands have implemented carbon pricing mechanisms and require electricity providers to source a rising percentage of their power from renewables each year. As a result, Europe installed a record 6.1 GW of new offshore wind capacity in 2021 alone. This was 50% higher than the 2020 and brought Europe's total installed offshore wind to over 30 GW. Several large projects came online such as the 1.5 GW Hornsea 2 in the U.K., which is the world's largest offshore wind farm.

In Asia Pacific, China has enormous offshore wind potential along its long coastline and is striving to meet its carbon neutrality pledge by 2060 through tremendous renewable expansion. China added 3 GW of new offshore wind capacity 2022 and has set a target of 50 GW total by 2025. Governments across Asia Pacific like Vietnam and Taiwan are supporting pilot projects as they work towards more aggressive renewable goals this decade. Even countries like Japan and South Korea are ramping up plans for their inaugural multi-GW offshore wind installations according to economic development targets and carbon reduction commitments submitted under the Paris Agreement.

Emergence of offshore wind tenders and leasing rounds: The emergence of offshore wind tenders and leasing rounds presents a great opportunity for growth in the global offshore wind energy market. Many countries are increasingly focusing on harnessing the potential of offshore winds by facilitating new offshore wind projects through tenders and leasing of wind sites. This provides developers a standardized process to secure new development rights. For example, in 2021, the U.K. launched the largest ever renewable energy auction which included up to 9 GW of new offshore wind capacity. Germany too held its first tender for offshore wind development in over a decade and allocated areas that could accommodate 5 GW of new capacity.

The tenders and leasing rounds signal long term commitment of nations towards achieving their offshore wind and clean energy targets. According to the International Renewable Energy Agency (IRENA), over 500 GW of offshore wind could be installed globally by 2030 and over 3 terawatts by 2050. This massive scale up will be enabled through continuous tenders and leasing rounds by major markets.

Market Restraints:

High capital cost and logistics issues: Offshore wind is one of the most promising and eco-friendly energy-producing technologies. Though it has a high-capacity factor as compared with related technologies such as solar and onshore wind, its huge capital cost is deterring its implementation. Offshore wind turbines are susceptible to erosion, as they operate for decades in harsh marine environments. Sometimes, even the most advantageous features, such as high wind speeds, become a negative factor for offshore wind turbines. As the size of offshore wind farms has increased over time, challenges that are related to construction, transportation, installation, and operation have also increased. Challenges associated with logistics, in general, are a greater task in offshore wind farms. Wind farms are usually located very far from the shore and are difficult to access, especially in bad weather conditions. Hence, rectifying even the smallest technical issue could be tricky and costly. Other challenging factors in offshore wind power deployment relate to resource characterization, grid interconnection and operation, and the development of transmission infrastructure, which are much simpler in other technologies, such as solar and onshore wind. Thus, the high capital costs and issues associated with operations, maintenance, transportation, and logistics restrain the global market.
Counterbalance: To overcome this restraint, the key market players need to use eco-friendly energy-producing technologies, which might drive the market growth.