This is a feature from Windpower Monthly's August 2021 Insight Report. Click here to read the full edition
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In the Crown Estate’s fourth round of bidding for seabed leases earlier this year, providing the rights to potentially build 8GW of offshore wind farms in English and Welsh waters, consortia including oil majors BP and TotalEnergies secured over half the total, swooping in with steep bids and leaving offshore wind veterans such as Ørsted and Iberdrola empty-handed.
Big Oil’s aggressive move into UK waters sparked concerns that project returns would be unsustainable, with costs likely to be passed on to consumers, decreasing the competitiveness of a technology that has achieved significant cost reductions.
Iberdrola CEO Ignacio Galán said he was “not surprised” that the oil majors were prepared to pay high prices as they needed to show they were serious about the energy transition.
The ScotWind leasing round, which could see up to 10GW of offshore wind awarded in Scottish waters,closed for submissions on 16 July. It saw a flurry of submissions from consortia including TotalEnergies, Shell, BP and Eni. Winners are expected to be announced in early 2022.
Even before the auctions in UK waters, competition had heated up significantly in offshore wind, and aggressive bids have frequently been backed by the new fossil-fuel arrivals.
Feng Zhao, strategy director at the Global Wind Energy Council (GWEC), says that there could be some “short-term pain” as oil and gas players step more forcefully into offshore wind. They are also at the beginning of their energy transition and need time to settle upon their growth strategies, he notes.
Giles Dickson, CEO of industry body WindEurope, believes the high prices in the Crown Estate auction were simply a reflection of the fact that it was badly designed. The 8GW auction was a quarter of the size of the previous seabed auction a decade earlier, even though demand for offshore projects has increased significantly since then.
“Nobody knew when the next auction was going to take place and there was no ceiling price, so everyone crowded into this auction,” Dickson says. “It was the structure of the auction that caused the very high bidding.”
According to Dickson, oil and gas companies have already been instrumental to the development of the offshore wind industry, particularly in the North Sea, and will continue to be key going forward. The fact that there is already a well-established oil and gas services industry has been “extremely helpful” for the expansion of offshore wind.
“A lot of what offshore wind needs is already there” when it comes to services such as installation, heavy lifting and transportation, Dickson notes.
The offshore wind industry is also learning from oil and gas when it comes to health and safety, while the energy majors’ experience in floating structures is already proving to be crucial in developing floating offshore wind technology, he adds.
The oil and gas majors’ financial fire power and technical expertise are seen as essential for meeting decarbonisation targets. Zhao stresses that these companies are stepping into a growing market. “Today we have a wind industry we never dreamed of a decade ago. If you look to the future, the net-zero commitment offers decades of long-term viability” and prospects for strong growth, Zhao adds.
Consolidation has already been a theme along the offshore-wind-energy value chain, increasingly with oil and gas firms as buyers. In late 2019, Shell acquired French floating-technology firm Eolfi. In June this year, Italian oil and gas contractor Saipem agreed a deal to buy France-based Naval Energies’ floating offshore wind business.
However, the consensus is that the big offshore veterans, who have already built up a formidable track record in fixed-bottom offshore projects, do not risk being swallowed up by the oil majors.
“The companies that are really driving development and holding much of the assets are already large players,” points out Søren Lassen of Wood Mackenzie Power & Renewables.
Partnerships between traditional wind players and oil and gas groups are already an increasingly important feature of the market. Iberdrola has joined forces with TotalEnergies to develop a wind farm of up to 1GW in the Danish North Sea, and Galan has said he welcomes the entrance of new players to help meet emissions targets.
At the same time, the oil and gas industries may be able to provide the traditional wind players with some of the skilled workers needed for growth. “In terms of reskilling, having people going from oil and gas to offshore wind is much easier than having them come from another industry,” says Zhou.
With their global footprints, oil and gas companies could be helpful in developing renewable energy in places such as Africa, Asia Pacific and Latin America, “where the transition needs to happen but capital support” and other enabling factors are lacking, points out Arindam Das, group head of consulting at Westwood Global Energy Group.
“Oil and gas majors have a good understanding of how governments and regulatory frameworks work,” he says.
Last year, Italian oil and gas company Eni brought online the 48MW Badamsha I Badamsha I (48MW) OnshoreBadamsha, Aktobe, Kazakhstan, Asia-Pacific Click to see full details onshore wind farm in Kazakhstan, its first wind farm and one of Kazakhstan’s first as well. The company has been present in the Kazakh market since 1992 in its core business.
Aside from having deep pockets, Das notes that the oil and gas majors “have that brand name that allows utilities to partner with them in developing large-scale renewable projects. Branding is important because you will need to tap into project finance and [these companies] have bankable names.”