Based on Global Transmission‘s “The Offshore Wind Transmission Report 2020”
Offshore wind energy is poised to grow significantly over the next decade. Strong support from policymakers and regulators, the drastic fall in technology costs, demonstrated competencies in installation, and economic success in recent tenders has spurred growth not only in Europe but also in the Americas and Asia. While offshore wind has garnered the political support and investor confidence, several challenges remain. A key bottleneck is the availability and development of grid infrastructure, both offshore and onshore. This challenge, however, presents the opportunity to deploy new and innovative technologies. Global Transmission’s study, “The Offshore Wind Transmission Report 2020” released in May 2020 analyses the market size and opportunity for offshore wind transmission across the globe. The report provides an overview of the recent policy developments and mandates for offshore wind development, examine the costs and present the various models and technology options for developing offshore wind transmission infrastructure. It also provides information on existing and planned offshore transmission projects and on the key technology players in the industry. Given below are select highlights from the report.
The offshore wind (OSW) industry has gained significant momentum in recent years. The economic success in Europe has provided an impetus to the Americas and the Asia Pacific. OSW is now being included as a key component of the clean energy strategies of the government policies in many countries. The European Commission’s (EC) Green Deal further emphasises the role offshore wind can play in achieving European Union’s (EU) renewable energy targets.
Supportive policy and regulatory frameworks have provided a big boost to the OSW sector. Cumulative capacity of over 200 GW is targeted to be achieved by 15 major countries by 2030. Europe has announced goals for reaching 100 GW of installed OSW capacity by 2030, of which the UK’s target is 40 GW by 2030. China has already surpassed its 2020 target of 5 GW of OSW. The revised ambitious target is now to reach 26 GW by 2024. OSW development is moving at a fast pace in the US, with a cumulative target as of now of 22 GW by 2030.
Source: Global Transmission Research
A robust offshore transmission system is key to meet these capacity targets. The initial offshore wind farms (OFWs) were mostly developed with radial links. With OWFs now moving deeper into the sea in countries such as the UK, Germany and the Netherlands, a more coordinated approach and innovative options are required to reduce upfront capital expenditure (capex) and achieve cost efficiencies through the life cycle of the project.
Growth Trends
Installed project capacity: The global installed OSW capacity reached close to 29 GW by the end of 2019, growing at a CAGR of 13.5% between 2015 and 2019. Supportive government policies and regulations have provided a big impetus to the development of OSW in recent years. This growth has been led by Germany, the UK and the Netherlands in Europe, and by China in the Asia Pacific.
Subsea cables: Export subsea cables are a critical segment of the OSW industry, as they are needed to interconnect OSW projects with the onshore grid. The OSW-related subsea cable industry has witnessed huge growth over the last decade. The total export subsea cable segment has grown at a CAGR of 10.6% since 2015.
HVAC versus HVDC: Expanding offshore wind industry is driving innovation in technology to meet the requirements of newer OSW plants with larger capacities and located much deeper into the seas. The need to connect the OWFs with the onshore grid and to transmit electricity in reliably is leading to new solutions in network designs and configurations. HVDC systems provide a solution for this. Germany was the first to deploy an HVDC system for OSW projects (BorWin 1 in 2010). Going forward, several new projects in Germany and the UK plan to use the HVDC technology for OSW connections. At a regional level, TenneT, in coordination with its counterparts in Denmark and the Netherlands, is actively pursuing an HVDC-based integrated approach (North Sea Wind Power Hub-NSWPH) for OSW transmission development in the North Sea.
Creation of a robust offshore transmission system is key to meet the ambitious OSW targets. The early OWFs have mostly been developed with radial links. As the offshore wind industry moves into deeper waters, a more coordinated approach is needed. The adoption and deployment of advanced technologies will be required to efficiently bring energy to the shore.
Regional Analysis
Europe’s OSW story is now catching up with other regions. Levelised Cost of Energy (LCOE) of OSW has fallen drastically in the last few years and Germany and the Netherlands have recently witnessed zero-subsidy auctions. OSW is expected to become competitive with other renewable energy resources soon in other parts of the world as well.
Buoyed by the prospects of OSW, the US and Taiwan have announced lofty targets and are moving fast to develop a conducive environment for its development. Japan, South Korea and many other economies have begun steps to exploit their OSW resources. China has already surpassed its previously set targets and has now become more ambitious.
Over the next decade, the key markets for OSW-related transmission investment will be the US, the UK, Germany, China, the Netherlands and Taiwan. Together, these markets are projected to account for over 60% of the total expected investment in OSW transmission between 2020 and 2030.
Cost Trends
While technology improvements and policy and regulatory support have led to a drastic fall in the OSW capital costs in both established and new markets, the future capex will mostly continue to depend on the distance to shore, water depth and quality of resources. Distance to shore and size (n terms of capacity) are the two critical factors affecting the transmission capex of the OSW project. The increasing number of OWFs being located farther from the shore, highlight the need for developing more advanced transmission technologies. The two key technologies used in OWF interconnection are HVAC and HVDC systems. The HVAC systems have a cost advantage over a short distance, but over longer distances, HVDC transmission systems offer higher cost savings.
Offshore cables: Newer OSW projects are deploying higher voltage AC cables, which reduces the power losses for a given power rating. The majority of the installed offshore wind farms transmit electricity via 110 kV and 220 kV cables. This is expected to be raised to 400 kV, which in turn will be achieved through technological and manufacturing advancement, and improvements in cable design and material selection. Despite technology improvements, prices of AC cables are not expected to register any significant reduction over the next ten years. However, according to IRENA, minimising the infrastructure required to support offshore wind transmission is the most promising strategy to lower costs which is also applicable for AC subsea cables.
A critical issue in OSW projects is related to cable failure, which accounts for about 80% of the OSW insurance claims. Newer solutions to minimise cable failures are expected to drive the operation and maintenance costs. However, driven by demand from larger projects located deeper into the sea, HVDC cables are likely to witness a reduction in prices over the next ten years.
Transformers: Offshore power transformers have shown relatively stable prices in the last few years. In the near-term, no further decrease in prices of these transformers is expected. However, further improvement in their performance is expected which could lead to a reduction in operation costs.
Here again, HVDC technologies are likely to have more room for cost reduction than HVAC technologies. It is expected that the costs of DC stations could fall as design reliability and installation experience increase. For AC stations, no significant cost reductions are foreseen. Technological maturity has already been reached and further cost reductions are expected to be associated with the optimisation of AC-cable installation.
Projections Indicate a Promising Outlook
According to Global Transmission, the global OSW industry is expected to grow exponentially over the next decade. Over 141 GW of OSW capacity is likely to be installed between 2020 and 2030 in the countries covered in the report. This translates into an investment requirement of USD560 billion in those markets by 2030.
This also implies a significant investment opportunity in the OSW transmission segment (including export cables, onshore substations and offshore substations). According to Global Transmission Research over USD100 billion worth of investment will be needed for the OSW transmission sector by 2030. Based on their analysis, the average annual capex in OSW transmission will likely double between 2020 and 2030.
Expanding OSW industry is creating greater demand for export cables, which in turn depends upon several factors, primarily the OWF’s distance to shore and its size. The initial OWFs were built closer to shore. However, in recent years, the newer plants have moved farther into the sea waters. This trend is expected to continue to exploit better and more reliable wind resources found deeper into the oceans.
Several emerging economies with strong offshore wind resources are also now keenly exploring this opportunity. These trends are perhaps one of the reasons for the World Bank and the International Finance Corporation to launch a new programme to fast-track the adoption of offshore wind in some emerging economies. Through this programme, these two institutes aim to help emerging economies assess their offshore wind potential and provide technical assistance to develop a pipeline of projects that are ready for investment.
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