By Fitch Solutions

Key View

  • We expect offshore wind to experience strong growth globally over the next decade, with Asia and NAWE set to drive the segment’s expansion.
  • Mainland China and the US will see the rapid emergence of their offshore wind markets while Europe will see continued growth from markets with mature offshore wind sectors and newcomers.
  • In markets lacking necessary regulatory frameworks, slower growth is expected to drive private investment, while markets with supportive policies will see their power mixes transformed by offshore wind growth.

Offshore wind is expected to experience strong growth globally over the next decade, with Asia and North America and Western Europe (NAWE) set to drive the segment’s expansion. Falling project costs and technology improvements continue to advance the offshore wind sector’s maturity, increasing the attractiveness of projects to developers in markets across the globe. Furthermore, the segment has seen increasing policy support as governments aim to decarbonise their power sectors and develop low-carbon power capacity. We believe these trends will drive significant growth in the offshore wind sector globally over the next decade, with installed capacity increasing from a forecasted 71GW in 2022 to 228GW in 2031. We expect Asia and NAWE to drive growth as established markets in these regions expand on existing capacity and newcomer markets emerge with their first projects.

Asia’s offshore wind capacity will grow rapidly at an annual average rate of 15.3% from 27GW in year-end 2021 to 109GW in 2031. This growth is supported by a substantial project pipeline, with 128GW currently under development according to our Key Projects Data (KPD). The region hosts a number of large coastal cities providing offshore wind development opportunities near demand centres as well as a supportive policy environment across markets further adding to our positive outlook.

In Western Europe, the region’s robust auction framework and strong new growth targets will drive 60GW of added development in the segment, which is expected to account for 40% of global growth. The EU has a set a target of 60GW of installed offshore capacity by 2030 and 300GW by 2050. This was recently increased by the North Sea Energy Cooperation Group, a collection of seven nations which agreed to non-binding targets of just under 80GW of installed offshore wind capacity by 2030 and 260GW by 2050.

Mainland China and the US will see the rapid emergence of their offshore wind markets while Europe will see continued growth from markets with mature offshore wind sectors and newcomers. After more than tripling installed capacity in 2021 compared to 2020, we expect Mainland China to continue its strong growth in the offshore wind segment reaching 97GW in 2031. The market will record a rapid annual growth rate of 14.3% and account for about 87% of Asia’s total offshore wind capacity and 39% of global growth over the forecast period. Offshore wind development in Mainland China is supported by the large availability of favorable locations and its increasing cost-competitiveness with other technologies in the market.

Offshore wind power is set for a rapid expansion in the US and will drive the segment’s growth in North America. The market will account for 14% of global growth over the next decade, after having an installed capacity of just 28MW in 2021. Offshore wind development has lagged regional peers in recent years due to a lack of support at the federal level, however this has changed with the administration of President Joe Biden which has established federal development goals and funded research and development programs. Strong state-level policies have driven development efforts in the market and the east coast is expected to have the first utility-scale offshore wind project operational by the end of 2023.

Note: May include territories, special administrative regions, provinces and autonomous regions. RoW = Rest of the World. Source: EIA, IRENA, local sources, Fitch Solutions

Europe will see an expansion in capacity from markets with mature offshore wind sectors as well as newcomers completing their first projects. The UK is home to one of the most established offshore sectors in the world and we expect the market to continue to drive growth in the region with record low development prices. In the latest auctions, the price for fixed bottom offshore projects fell to GBP37.35/MWh from GBP39.6/MWh in 2019 and also below the price for onshore wind projects of GBP42.5/MWh. Offshore wind capacity in the UK is forecast to reach over 46GW over the next decade and account for nearly half of Western Europe’s total growth. Poland, Spain, Estonia and Ireland are each expect to add over 1GW of offshore wind capacity over the forecast period as technology improvements have made previously cost-prohibitive projects now viable. Further, European markets are increasingly turning to offshore wind as a preferred technology in decarbonisation and power sector diversification efforts. The UK has adopted new government rules and planning measures to accelerate the project planning timeline from four years to one to advance its shift toward renewable energy and support the offshore wind sector. In addition, the UK government has outlined strategies to improve local supply chains and to establish new interconnection hubs to further support newly awarded auction sites.

Slower growth is expected in markets lacking necessary regulatory frameworks to drive private investment while markets with supportive policies will see their power mixes transformed by offshore wind growth. We expect Latin America to be slower in developing offshore wind capacity compared with other regions globally, despite substantial technical potential for the technology. Offshore wind development has lagged onshore growth in the region due to prohibitive project costs, a lack a regional supply chains and insufficient policy support. While the policy landscape is improving with governments adopting regulatory frameworks and supporting the segment as part of broader economic development strategies, we currently only forecast two projects to come online in the region over the next decade. We highlight that the only Latin American markets with offshore wind projects under development in the KPD, Colombia and Brazil, have established regulatory frameworks offering certainty for developers. This signals a need for government action in developing clear, defined concession processes for the industry before private investment will expand to additional markets in the region.

In contrast, offshore wind will drive significant changes in the generation mixes of markets with favourable development policies for the sector. We expect offshore wind’s power mix share to see the largest growth in European markets as newcomers adopt supportive policies and incumbents strengthen existing development efforts. The sharpest change will be in Estonia, where offshore wind will account for nearly 51% of the electricity mix in 2031 despite having no currently installed capacity. This will be supported by aggressive government efforts to accelerate renewables development, particularly offshore wind, to shift away from gas-fired generation as a result of the Russia-Ukraine conflict. Markets with mature sectors in the region such as Denmark and the UK are expected to continue their support for the segment while also pursuing enhanced efforts to meet ambitious offshore wind development goals. Growth in these markets will be enabled by policies to streamline the development process, enhance grid interconnection and create local supply chains. We expect offshore wind’s share of the power mix growth from 28% in 2022 to 50% in 2031 in Denmark and from 18% to 42% over the same period in the UK.

This article has been sourced from Fitch Solutions and can be accessed here.