Whether it be turbine manufacturers investing to develop products for the offshore market, vessel operators ordering new ships, or financial institutions, all need to know that governments are backing the business for the long haul and will not turn away when the economic climate looks less than rosy.
It is therefore a testament of businesses' faith in the future of offshore wind that, as this special report shows, big investments are indeed being made. While 18 months ago, the sector was concerned about a future shortage of turbine installation vessels, many companies, including newcomers to the industry, have placed orders for ships, several with options for more.
An increasing number of turbine manufacturers are jostling to get in on the act by developing machines aimed specifically at the offshore market. And existing players are coming up with ever-bigger designs, typically around 6 or 7MW in capacity.
A potential fly in the supply chain ointment, however, is a shortage of export cables for hooking up wind farms to the onshore grid. As our feature finds, suppliers are holding back their plans to expand cable production until developers provide the commitments that would give them confidence to make the necessary investment.
Turbine makers Siemens, GE, Gamesa and Mitsubishi plan to open new manufacturing or research facilities — mostly in the key offshore market of the UK. Although, as with the cable suppliers, some of these plans are likely to depend on firm orders from developers.
Offshore market leader Vestas announced last month that it is considering a new offshore turbine factory in Kent, south-east England, but only if the government can provide stability in the market and a long-term political and regulatory certainty.
Yet hard on the heels of Vestas' announcement, a government-commissioned report by the Committee on Climate Change has threatened to shake confidence in the UK sector. It states that if lower-cost alternatives can be found, the UK's offshore wind ambition for 2020 can be reduced. Maria McCaffery, CEO of industry voice RenewableUK, has urged the government not to lose its nerve but to "stand four-square" behind offshore wind: "The UK's world-leading offshore sector needs confidence, not doubt and prevarication."
No such doubts seem to exist in Germany. Chancellor Angela Merkel is looking to wind, offshore in particular, to plug the energy gap as the country phases out nuclear power in the wake of Japan's Fukushima disaster. The government is proposing a bill to cut red tape for the offshore wind consenting process to help it meet its 10GW renewables target for 2020.
Germany believes mass deployment of renewables such as offshore wind will drive down costs and less will be spent on imports from Russia and other energy-producing countries. Germany's relatively low onshore wind speeds mean offshore wind is set to compete with onshore wind sooner than in windier countries.
Costs pose chicken-and-egg problem
The fact remains, however, that costs for installing wind farms offshore are around double those onshore — an extra cost only partly compensated for by higher wind speeds and better energy yield at sea. Bringing down the costs of offshore construction is the biggest challenge. A global survey of major offshore players by financial consultants PwC says the sector is in a classic "chicken and egg" situation: "To get the cost base down it needs economies of scale. To get economies of scale it needs to make a convincing case that costs can come down."
The survey does find optimism among government bodies, with some 60% expecting the technology to be economically viable without subsidies within 15 years. Equipment manufacturers and contractors are more cautious: just 42% foresee a real-terms fall in costs.
Ronan O'Regan, director, PwC Renewables and Clean Tech, points out that much of the offshore costs come from heavy engineering, steel and other raw materials. "Recent trends in commodity prices suggest that these cost components will remain volatile," he warns.
The good news is that confidence in the sector has improved among financial institutions, with 66% saying investment risk in offshore has decreased over the past two years, so the cost of borrowing should come down.
"This improved confidence needs to translate into an increase in new equity investment and lending to offshore developers, if much of the pipeline of development projects is to reach commercial operation," says O'Regan.