The offshore wind industry is facing a significant investment challenge to keep pace with ambitious growth targets, according to a report released by Wood Mackenzie.
The report, titled “Cross currents: Charting a sustainable course for offshore wind,” underscores the need for substantial investments to propel the offshore wind supply chain forward.
The offshore wind supply chain must secure $27 billion in investments by 2026 to accommodate a projected five-fold increase in annual installations (excluding China) by 2030. The report’s base case outlook estimates annual capacity additions of 30 gigawatts (GW) by 2030. However, government-led targets worldwide are aiming for nearly 80 GW per year, necessitating over $100 billion in investment to meet these ambitious goals.
Chris Seiple, Vice Chair of Power and Renewables at Wood Mackenzie and co-author of the report, emphasized that governments have shown a strong commitment to offshore wind as a key element of decarbonization and energy security. Nevertheless, he highlighted the challenge the supply chain is currently facing in scaling up to meet these targets.
“Nearly 80 GW of annual installations to meet all government targets is not realistic,” stated Seiple. He also noted that even achieving Wood Mackenzie’s projected 30 GW in annual additions would prove unrealistic without immediate investments in the supply chain. He called for adjustments and new policies from governments and developers to transform the supply chain into a capable engine for delivering large-scale offshore wind projects.
The report identified several factors contributing to the investment challenge:
Low Margins: The oversupply resulting from the supply chain buildout in 2015 has depressed profitability. Industry capacity increased to supply around 800 turbines annually, compared to the historical average of 500 turbines. Inflation and higher commodity input costs have further strained profitability and dampened suppliers’ ability to fund expansion and innovation.
Uncertainty in Project Timing: Many projects scheduled for 2025 to 2027 have secured routes to market but have not yet made financial investment decisions (FID). Delays in projects due to renegotiations offtake contracts, increased supply costs, and inflation could shift equipment demand from the short term to 2028-30. This uncertainty has made supply chain participants cautious about further expansion.
Finlay Clark, Senior Research Analyst at Wood Mackenzie and co-author of the report, warned that such delays could result in certain projects not being built at all in the later timeframe, putting governments’ targets at risk and underscoring the importance of timing in expanding the supply chain.
The report emphasizes the critical need for strategic investments in the offshore wind supply chain to ensure that the industry can keep pace with the growing demand for renewable energy while supporting the transition to a low-carbon future.