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Press release
15 Dec 2023
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Singapore, SG
Offshore wind is at crossroads, as spiraling costs and supply chain issues force developers to reassess projects – EY research
- UK concedes top spot in offshore wind and falls three places in the Renewable Energy Country Attractiveness Index as government auction fails to attract bidders
- Nordic countries, Poland and Philippines emerge as notable climbers in the index, while Southeast Asia’s Vietnam and Thailand continue to rank among the top 40
- Japan and Chile drop in rankings, overshadowed by deployment challenges despite rich natural resources and renewable ambitions
Turbulent times in the offshore wind sector could change the way large-scale energy projects are built and funded in the future, according to the latest EY Renewable Energy Country Attractiveness Index (RECAI). Offshore wind is crucial to achieving net zero, but has experienced a difficult 12 months, challenged by a squeezed supply chain and escalating costs. Global project costs have risen by 40% since 2019 and the next decade could see cost inflation adding around US$280b in capital expenditure for the sector. Against this backdrop, around 80% of the 15 markets with offshore wind targets for 2030 are predicted to miss their stated goals.
Arnaud de Giovanni, EY Global Renewables Leader, says:
“The offshore wind sector has reached an inflection point precisely when the climate emergency demands an urgent escalation of investment to meet global net-zero targets. For offshore wind to fulfill its role in global decarbonization, it is necessary to mitigate risks that are beyond the control of developers, guaranteeing them a reasonable return on their investments.
Tensions in the offshore supply chain could be alleviated by standardizing technologies, offering greater certainty to manufacturers and developers. And governments need to devise strategies that simplify and expedite the consenting process, minimizing risks between the awarding of offtake agreements and final investment decisions.”
UK loses offshore crown
The UK, knocked off the top spot as the best place for offshore wind projects, falls three places to 7th position overall. In September 2023, the maximum strike price of £44 (US$54) per megawatt hour for offshore wind in the UK’s fifth allocation round (AR5) wasn’t enough to entice developers to bid. This represents a huge setback in UK’s goal of reaching 50GW of offshore capacity by 2030.
Ben Warren, Partner, Renewables Corporate Finance, Ernst & Young LLP, and RECAI Chief Editor, says:
“The UK's recent challenges in the offshore wind sector echo a broader, global struggle. When auctioning contracts for offshore wind generation, governments need to reflect economic conditions in the design of the auction. Considering moving away from cost-only auction formats and incorporating non-price factors, such as environmental considerations and jobs creation, would boost the supply chain, improve deliverability and benefit wider society.”
Market highlights: Top three positions hold steady; Nordic countries, Poland and Philippines move up; Japan and Chile drop in rankings
The top three markets in RECAI remain unchanged. The US retains 1st position, fueled by significant solar growth as a result of incentives from the Inflation Reduction Act. Germany remains in 2nd position, having experienced substantial growth in its onshore wind sector; new capacities installed by the end of September surpass the total installed in 2022. And despite halting national-level subsidies, China continues its upward trajectory in offshore wind, maintaining its overall 3rd position.
The Nordic countries continue to show their renewable energy intent, with Denmark, Sweden, and Norway climbing two, three and five places respectively. Poland, moving up two places to 15th, is set to begin construction of its first offshore wind project – the 1.2GW Baltic Power offshore wind farm is expected to come online during 2026 – and has also introduced new legislation to ease the development of onshore wind and solar projects.
In Southeast Asia, the Philippines, in 32nd position, is seeking to unlock its huge solar potential, with reforms to foreign ownership laws spurring growth in commercial and industrial solar power. Vietnam moves up three places to 33rd and Thailand retains its 38th position.
On Southeast Asia’s development, Gilles Pascual, EY Asean Power & Utilities Leader, says:
“Countries in Southeast Asia continue to make progress in their energy transition. For example, Vietnam released new targets with its eighth national Power Development Plan (PDP8); Philippines auctioned rights to build new power capacity from renewable sources; and The Comprehensive Investment and Policy Plan (CIPP) for Indonesia’s Just Energy Transition Partnership (JETP) has just been released for public comment. In Singapore, the award of conditional licenses for the import of renewable energy from various sources, including Indonesia and Vietnam, is spurring new thinking about the value of green electrons and how the region can decarbonize together through the integration of the grid.”
In other parts of the world, Japan slips three places to 13th position. Despite abundant natural resources and a commitment to reduce fossil fuels, it is falling behind other leading economies in terms of solar and wind deployment. Chile drops two spots to 16th position due to the continued saturation of its transmission system impacting renewable project operators.
To view the full RECAI top 40, the normalized RECAI ranking and the corporate power purchase agreement index, as well as an analysis of the latest renewable energy developments across the world, visit ey.com/recai.
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