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Offshore Wind Development Downgraded

Report Suggests Less Development Than Expected

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By Swagato Chakravorty
Tuesday, November 27th, 2012

Navigant Consulting Inc. projects that high costs of Swedish wind power and continuing grid delays in Germany will probably slow the growth of offshore wind turbine installations worldwide.

The company cut its 5-year forecast (operating through 2016) to 23.9 GW of offshore power; that’s a reduction of 11.6 percent.

Germany is expected to take the worst of it, with a projected loss of 1,700 MW installed power.

From Businessweek:

“Germany has been downgraded despite a huge pipeline of offshore projects in German waters as there is concern in the wind industry over grid availability and grid delays,” Aris Karcanias, an analyst at BTM Consult, said by e-mail.

Although Germany remains committed to its goal of 25 GW in turbine power by 2030, continued bureaucratic problems and inadequate grid connection agreements have caused offshore wind developers like Denmark’s Dong Energy and EnbW Energie Baden-Wuerttemberg AG (ETR: EBK) to back off on developing projects in that country.

Last August, the government supported draft legislation intended to bring about an end to these hindrances and offer stronger investor security by transferring more direct responsibility to grid operators for financial damage, Businessweek reports.

However, that also means high initial costs and increased penalties—something that may ward off developers. Sweden, meanwhile, was downgraded because its incentive program simply doesn’t offer alluring enough incentives.

Some of the newer European projects are expected to cost as much as 4 million euros ($5.1 million) per MW—almost 1.5 times or twice the cost of earlier projects. These increases result largely from a need to install turbines deeper in the waters.

But it’s likely that as technology adjusts to meeting these challenges, costs will settle back down.

The report suggests that Europe will lead in the area until 2016, and Asia will account for around 25 percent. The three largest offshore markets by 2021 are expected to be China, the U.K., and Germany.

Some 470 MW of offshore power was installed in 2011, meaning global capacity is now at least 3,987 MW.

Leading companies involved are Vestas Wind Systems (CPH: VWS), Siemens AG (NYSE: SI) (which together occupy almost 86 percent of the total), REpower Systems SE (ETR: RPW), and Sinovel Wind Group Co. (SHA: 601558).

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