Offshore Wind: Europeans chase American dream

As people in the European offshore wind industry went about their Christmas parties in mid-December, many were also watching an exciting event on the other side of the Atlantic.

Richard Heap
February 11, 2019
Offshore Wind: Europeans chase American dream

As people in the European offshore wind industry went about their Christmas parties in mid-December, many were also watching an exciting event on the other side of the Atlantic.

On 13th and 14th December, US state Massachusetts held an auction for the right to build projects of 4.1GW in three zones in its waters.

There are two reasons this auction received huge interest from European revellers.

The first is that European firms won big. The successful bidders were Equinor; EDPR and Shell’s 50:50 joint venture Mayflower Wind; and the 50:50 Vineyard Wind tie-up between Copenhagen Infrastructure Partners and Iberdrola’s subsidiary Avangrid. This clearly shows that European giants will play an important role in US offshore wind and are battling for an early foothold.

And the second reason is the fierce competition. These European players didn’t win by default. Each of them ended up paying $135m for the right to build a wind farm in the 390,000-acre area, which means the state sold the rights for $405m – nine times the previous record paid in a US offshore leasing round: $42.5m by Equinor in 2016.

The result was exciting for those working in offshore wind in the US too. It showed that the industry has arrived, and has the chance to build a group of projects that will be vital to growing a supply chain. Experienced players with strong balance sheets are betting on delivering projects at competitive prices.

And remember, this follows a 20-year power purchase agreement that Vineyard Wind won from Massachusetts in mid-2018 at a levelised cost of energy of $65/MWh. This was another stunning result given that Europe only went sub-€100/MWh in 2016.

These ambitious bids are the result of a combination of factors.

The first is the strides that firms throughout the supply chain are making to continue driving down the cost of technology. In our Emerging Offshore Markets report we spoke to Duncan Berry, chief executive at LM Wind Power, and MHI Vestas chief executive Philippe Kavafyan about exactly this.

The second reason is the strong market fundamentals: the US has energy-hungry load centres on the coasts, which want to buy electricity from renewables. And this has led to the third reason behind current excitement in the US offshore sector: there is political support at both state and federal levels for growing offshore wind.

But this is where we see a challenge where the US – or indeed, any other promising market – could come unstuck. Offshore wind farms are long-term projects that don’t match short-term political cycles, and investors need long-term certainty.

Our concern is that bidders in emerging markets are competing very aggressively in the hope that their bids will be justified by the evolutions in technology. We can’t tell yet if these bids will prove sensible or not, but we do know that companies are working with slim margins and that their projects could easily be derailed if they are hit by unexpected or retrospective policy changes.

As Jérôme Guillet, managing director at financial advisory firm Green Giraffe told us, there is a risk that offshore PPA prices are falling too quickly outside Europe: “You’re getting European-type prices but not European levels of risk yet,” he said.

However, he is confident that companies in offshore wind have proven they can deal with these issues: “The industry has been pretty good at solving problems up until now.”

The industry will find the job of solving those problems easier if they can work with a fixed set of rules. Therefore, the lesson for US politicians is simple: honour the deals you’ve made now if you want the offshore wind sector to flourish. You’ve seen in Taiwan how sensitive investors can be to such changes. Don’t bring the party to an abrupt end.

As people in the European offshore wind industry went about their Christmas parties in mid-December, many were also watching an exciting event on the other side of the Atlantic.

On 13th and 14th December, US state Massachusetts held an auction for the right to build projects of 4.1GW in three zones in its waters.

There are two reasons this auction received huge interest from European revellers.

The first is that European firms won big. The successful bidders were Equinor; EDPR and Shell’s 50:50 joint venture Mayflower Wind; and the 50:50 Vineyard Wind tie-up between Copenhagen Infrastructure Partners and Iberdrola’s subsidiary Avangrid. This clearly shows that European giants will play an important role in US offshore wind and are battling for an early foothold.

And the second reason is the fierce competition. These European players didn’t win by default. Each of them ended up paying $135m for the right to build a wind farm in the 390,000-acre area, which means the state sold the rights for $405m – nine times the previous record paid in a US offshore leasing round: $42.5m by Equinor in 2016.

The result was exciting for those working in offshore wind in the US too. It showed that the industry has arrived, and has the chance to build a group of projects that will be vital to growing a supply chain. Experienced players with strong balance sheets are betting on delivering projects at competitive prices.

And remember, this follows a 20-year power purchase agreement that Vineyard Wind won from Massachusetts in mid-2018 at a levelised cost of energy of $65/MWh. This was another stunning result given that Europe only went sub-€100/MWh in 2016.

These ambitious bids are the result of a combination of factors.

The first is the strides that firms throughout the supply chain are making to continue driving down the cost of technology. In our Emerging Offshore Markets report we spoke to Duncan Berry, chief executive at LM Wind Power, and MHI Vestas chief executive Philippe Kavafyan about exactly this.

The second reason is the strong market fundamentals: the US has energy-hungry load centres on the coasts, which want to buy electricity from renewables. And this has led to the third reason behind current excitement in the US offshore sector: there is political support at both state and federal levels for growing offshore wind.

But this is where we see a challenge where the US – or indeed, any other promising market – could come unstuck. Offshore wind farms are long-term projects that don’t match short-term political cycles, and investors need long-term certainty.

Our concern is that bidders in emerging markets are competing very aggressively in the hope that their bids will be justified by the evolutions in technology. We can’t tell yet if these bids will prove sensible or not, but we do know that companies are working with slim margins and that their projects could easily be derailed if they are hit by unexpected or retrospective policy changes.

As Jérôme Guillet, managing director at financial advisory firm Green Giraffe told us, there is a risk that offshore PPA prices are falling too quickly outside Europe: “You’re getting European-type prices but not European levels of risk yet,” he said.

However, he is confident that companies in offshore wind have proven they can deal with these issues: “The industry has been pretty good at solving problems up until now.”

The industry will find the job of solving those problems easier if they can work with a fixed set of rules. Therefore, the lesson for US politicians is simple: honour the deals you’ve made now if you want the offshore wind sector to flourish. You’ve seen in Taiwan how sensitive investors can be to such changes. Don’t bring the party to an abrupt end.

As people in the European offshore wind industry went about their Christmas parties in mid-December, many were also watching an exciting event on the other side of the Atlantic.

On 13th and 14th December, US state Massachusetts held an auction for the right to build projects of 4.1GW in three zones in its waters.

There are two reasons this auction received huge interest from European revellers.

The first is that European firms won big. The successful bidders were Equinor; EDPR and Shell’s 50:50 joint venture Mayflower Wind; and the 50:50 Vineyard Wind tie-up between Copenhagen Infrastructure Partners and Iberdrola’s subsidiary Avangrid. This clearly shows that European giants will play an important role in US offshore wind and are battling for an early foothold.

And the second reason is the fierce competition. These European players didn’t win by default. Each of them ended up paying $135m for the right to build a wind farm in the 390,000-acre area, which means the state sold the rights for $405m – nine times the previous record paid in a US offshore leasing round: $42.5m by Equinor in 2016.

The result was exciting for those working in offshore wind in the US too. It showed that the industry has arrived, and has the chance to build a group of projects that will be vital to growing a supply chain. Experienced players with strong balance sheets are betting on delivering projects at competitive prices.

And remember, this follows a 20-year power purchase agreement that Vineyard Wind won from Massachusetts in mid-2018 at a levelised cost of energy of $65/MWh. This was another stunning result given that Europe only went sub-€100/MWh in 2016.

These ambitious bids are the result of a combination of factors.

The first is the strides that firms throughout the supply chain are making to continue driving down the cost of technology. In our Emerging Offshore Markets report we spoke to Duncan Berry, chief executive at LM Wind Power, and MHI Vestas chief executive Philippe Kavafyan about exactly this.

The second reason is the strong market fundamentals: the US has energy-hungry load centres on the coasts, which want to buy electricity from renewables. And this has led to the third reason behind current excitement in the US offshore sector: there is political support at both state and federal levels for growing offshore wind.

But this is where we see a challenge where the US – or indeed, any other promising market – could come unstuck. Offshore wind farms are long-term projects that don’t match short-term political cycles, and investors need long-term certainty.

Our concern is that bidders in emerging markets are competing very aggressively in the hope that their bids will be justified by the evolutions in technology. We can’t tell yet if these bids will prove sensible or not, but we do know that companies are working with slim margins and that their projects could easily be derailed if they are hit by unexpected or retrospective policy changes.

As Jérôme Guillet, managing director at financial advisory firm Green Giraffe told us, there is a risk that offshore PPA prices are falling too quickly outside Europe: “You’re getting European-type prices but not European levels of risk yet,” he said.

However, he is confident that companies in offshore wind have proven they can deal with these issues: “The industry has been pretty good at solving problems up until now.”

The industry will find the job of solving those problems easier if they can work with a fixed set of rules. Therefore, the lesson for US politicians is simple: honour the deals you’ve made now if you want the offshore wind sector to flourish. You’ve seen in Taiwan how sensitive investors can be to such changes. Don’t bring the party to an abrupt end.

Full archive access is available to members only

Not a member yet?

Become a member of the 6,500-strong A Word About Wind community today, and gain access to our premium content, exclusive lead generation and investment opportunities.