- The EU will offer continued support for multi-national offshore wind projects with attractive advantages.
- The North Sea region, in particular, hosts some of Europe’s most advanced markets for offshore wind technologies as well as the associated supply chains and infrastructure. As a result, we expect the region to offer increasing scope for such projects.
- The Baltic states will reap the rewards of close geopolitical offshore wind partnerships and have a big impact on the Estonian and Latvian energy transition, with the gulf of Riga project representing a 27% share of both markets total power mix.
The EU will offer continued support for multi-national offshore wind projects with attractive advantages. At the end of 2020 the European Commission has proposed its strategy for offshore wind in the EU which includes a 60GW target for 2030 and 300GW by 2050, a significant increase from its current installed capacity at 12-14GW. In order to achieve these goals, we expect to see an increase in supranational developments as markets look beyond their waters for development opportunities. This will drive increased cooperation between member states on offshore interconnection projects. We highlight that this will become achievable in the EU owing to the higher level of integration, interconnection and cooperation between markets. Cross border wind and interconnection development projects offer several key advantages over the traditional self-build option:
- Markets benefit from access to wind sites that have significantly better wind resources. For example, Belgium has an extremely limited coastline within its marine boundary and is not exposed to the same climatic wind conditions as the central or northern North Sea.
- Interconnectivity enables the smoothing of power supply with an increased trade pool. We expect that rising levels of intermittent renewables, coupled with the phase out of baseload power supply, will continue to spur on the growth of cross-border interconnections in and around Europe. It is a core tenent of the EU’s energy policy.
- By building projects with multiple partners, the scale of projects can increase with limited risk which will drive costs down due to economies of scale. Combining expertise, logistics and supply chains will spread the development costs between partners and reduce risks for less experienced parties, which will enable a greater number of new projects in new development regions.
The EU has identified the importance of integrating markets and over July of 2021, the European Parliament launched EUR30bn worth in funding for the upgraded Connecting Europe Facility (CEF). Approximately EUR5bn has been set aside for energy projects which focus on the development of cross border interconnection of European energy markets.
The North Sea region, in particular, hosts some of Europe’s most advanced markets for offshore wind technologies as well as the associated supply chains and infrastructure. As a result, we expect the region to offer increasing scope for such projects. The European Commission’s North Seas Energy Cooperation (NSEC) is a project that aims to facilitate the combined development of a unified cross border offshore wind grid for the benefit of all regional partners including Belgium, Denmark, France, Germany, Ireland, Luxembourg, the Netherlands, Norway and Sweden. Currently, the development of multinational offshore wind and interconnection projects are constrained by the regulation on the seabed rights, coordination between multiple parties, complex legal frameworks and competing national interests including the use of one state’s wind resources for the benefit of another state. However, the NSEC will seek to create frameworks to enhance coordination between partners and give guidance for the fair allocation and distribution of costs, benefits and risks between multination projects. Over Q221, German Energy Minister Peter Altmeir outlined that joint development projects will play a crucial role in delivering offshore wind programs in the region.
Recently, more concrete plans have been established by Denmark with their aims to construct a EUR28bn artificial energy island hub in the North Sea. Proposals for the energy island – approved by Denmark’s Ministry of Climate, Energy and Utilities in February 2021 – will see the installation of around 5GW of wind capacity on the island situated 80km west of Denmark by a loosely-held 2033 completion date. This follows an agreement in June 2020 on Denmark’s energy policy, which has paved the way for the construction of both the artificial energy island and another on Bornholm in the Baltic Sea. Combined, the two hubs will host 10GW of wind capacity. The Bornholm Baltic Sea’s project will start with an initial 1GW of capacity built by Denmark with the scope to enable interconnections to Sweden, Denmark and Poland the site could grow to potentially 3-5GW.
Towards the end of 2020, Denmark and the Netherlands signed a memorandum of understanding for the joint development of unified offshore wind hubs. Both markets’ transmission system operators (TSOs) highlighted the intention of developing more than one offshore wind hub and will carry out analysis over the coming year to determine its fiscal feasibility. This has also been followed by the Belgian and Danish TSO’s announcements that they will conduct cost-benefit analysis of the new Danish North Sea Energy Island interconnection over 2021. This will lead to a decision over 2022 on whether to cooperatively develop connections to offshore wind farms.
The Baltic states will reap the rewards of close geopolitical offshore wind partnerships and have a big impact on the Estonian and Latvian energy transition, with the gulf of Riga project representing a 27% share of both markets total power mix. The EUR720mn Baltic project is set to be one of many developments linking the Baltic states together and includes projects in Estonia, Latvia and Lithuania. The aim is to bind these states more closely with the European synchronous system, adding flexibility and the potential to install greater volumes of renewable power of their own. These markets have been in the process of uncoupling their grid from Russia and were in danger of becoming marginalised in the wider European system. The region’s states – Denmark, Germany, Estonia, Latvia, Lithuania, Poland, Finland and Sweden – have also agreed to further collaborate in the Baltic Energy Market Interconnection Plan. The group aims to jointly commit to fostering hybrid offshore wind projects, smart grids and energy system integration. The group aims to draft a work programme for offshore wind development in the Baltic Sea, which will form a core focus of their NECPs as well as broader EU policy developments. Within the region, we highlight that Estonia is set to add 2.7GW of renewable capacity over the decade, with the sector set to represent 72% of total installed capacity.
In July 2020, the governments of Estonia and Latvia signed a memorandum of understanding for the development of a 1GW offshore wind farm in the Gulf of Riga. The two countries will jointly execute studies to find the best location for the project, which will be followed by an approval process and tendering, with the winning bidder securing a building permit for the offshore area. The project, which is due to start operations in 2030, will have an annual capacity of around 3.5TWh, which would represent 27% of the combined power generation share of both Estonia and Latvia. Over Q221, it was announced the Estonian and Latvian TSOs would examine the possibility of a joint connection of the 1GW offshore wind project planned in the Gulf of Riga. The cross-border interconnection that would facilitate the trade of electricity from the new wind farm is slated to be tendered in 2026. They highlight that the possibility of such a project could become more concrete with the co-financing possible from the EU under the new CEF funding. We also highlight that Estonia has an additional 2GW of offshore wind projects in the pipeline, which if realised will have a major impact on the regions power mix and dynamic and will have large consequences for thermal operators in the region.
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