A sea change18 January 2024
Offshore wind has proven its ability to deliver large amounts of green energy at a reasonable and affordable cost, playing a key role in decarbonisation worldwide, and has the potential to positively impact energy costs in both Europe and the UK, if growth targets are met. However, while high inflation and rising energy prices due to the Russian invasion have highlighted the need for green energy development, government policy and support frequently lag far behind. Nicholas Kenny speaks with Per-Erik Holsten, head of ABB Energy Industries Northern Europe, to learn more about the obstacles facing offshore wind and why it’s vital that policymakers address them swiftly and comprehensively.
Even before the start of the Russian invasion of Ukraine in February 2022, the European energy market was already becoming increasingly volatile, as fears over potential conflict grew. In the first two weeks after the invasion began, the price of oil, coal and gas rose by roughly 40%, 130% and 180%, respectively, according to the European Central Bank. While energy prices have stabilised somewhat in 2023, rising inflation and the ongoing supply chain crisis have held back recovery, as has the continuing conflict.
In the UK, the spike in energy prices that followed the war was a huge blow to the UK economy, forcing the government to provide over £78bn in support to households and businesses while inflation rose to a peak of more than 11%. By September 2023, inflation still held at 6.7%, largely due to the increased cost of fuel. Inevitably, that’s all passed down to the consumer, and the energy price cap is expected to be raised some 5% to roughly £1,930 a year in January 2024. Even before the latest increase, some UK households have seen their standing charges double over the past two years.
It’s clear, then, that the green energy transition not only offers Europe the opportunity to combat climate change and reduce pollution, but also to improve its energy security and ensure price stability within its energy market. Yet, several of Europe’s energy problems still need to be overcome. Offshore wind power boasts great potential for tackling some of them.
Boost energy security
“Offshore wind has a huge potential to contribute to the energy transition,” says Per-Erik Holsten, head of ABB Energy Industries Northern Europe. “From increasing energy security and self-sufficiency for both households and industries to creating jobs, the benefits are clear. Not to mention that offshore wind will also play a key role in addressing the decarbonisation goals set in the global fight against climate change.”
Since the breakout of the war in Ukraine, Europe has been searching for ways to reduce its dependence on Russian oil and gas. In 2021, Russian natural gas accounted for almost 45% of the EU’s gas imports, while oil made up about a third of the EU’s oil imports, according to the International Energy Agency (IEA). Of all the different types of green energy, offshore wind power is well posed to help quickly divest Europe from Russian fossil fuels.
“Offshore wind is cost-effective, but pricing is highly dependent on capacity. The more green energy sources that enter production, the greater the local supply, the bigger the impact on energy costs,” says Holsten. “For example, during the summer when we had a lot of wind capacity, we saw energy prices coming down as a result.”
Naturally, improving energy supply within European countries and reducing the need for imports will also boost energy security across the continent. Russia is already feeling the impact on its energy exports, which the IEA predicts will fall by 7% in the coming decades. Indeed, the nation’s revenue from oil and gas was down a whopping 45% year over year in the first quarter of 2023.
Similarly, it’s worth noting that unlike other forms of energy generation, offshore wind doesn’t take up valuable land – something that’s particularly useful for nations like the UK that control vast swathes of ocean. By 2030, the UK intends to increase its offshore wind energy capacity to 50GW, up from the 14GW it’s supplying into the grid in 2023 – an ambitious goal, to say the least, and one that will require a lot of turbines and a lot of workers. If the UK is to hit this target, more than 106,000 people will be employed in the country’s offshore wind industry, according to the Offshore Wind Industry Council, presenting clear economic benefits for the region. And while the UK has a long way to go over the next seven years, we’re already seeing major projects in development, Holsten says. These include the Hornsea Wind Farm, of which the first two subzones are already completed and operational, with Projects 3 and 4 set to be up and running in 2025 and 2027, respectively, with a total capacity of about 6GW.
ABB is heavily involved in the work at Hornsea 3, Holsten notes, and in the upcoming Dogger Bank, which is set to become the world’s largest wind farm upon its completion. The project will be built in three 1.2GW phases – Dogger Bank A, B and C – and will be fully operational by 2026 – a key step in the UK reaching its 2030 targets.
The amount that the UK government had to provide in support to households and businesses following the spike in energy prices upon the Russian invasion of Ukraine.
“If the UK reaches its goal of 50GW by 2030, it will jump from 18% offshore wind power being supplied into the UK grid to over 60%,” Holsten notes, “delivering renewable energy to all 30 million UK households with a surplus to still export and power a further 37 million homes in neighbouring countries.”
Permitting and storage challenges
That’s not, of course, to suggest that offshore wind doesn’t come with its own challenges – with issues around permitting posing one of the biggest obstacles at play. “Governments have different speeds of implementing and giving permits to developers,” Holsten explains. Indeed, some 21GW of offshore wind power capacity was stuck in permitting procedures across Europe as of April, according to WindEurope – and some European countries can take up to nine years to hand out a permit for a project.
“In the US, you have the Inflation Reduction Act (IRA), which actually promotes and speeds up the permitting process – and also to a certain extent provides tax incentives and [other] incentives for developers to move faster,” he notes. “In Europe, we are not that far along with our [IRA-equivalent] policies, yet.”
“Offshore wind is cost-effective, but pricing is highly dependent on capacity. The more green energy sources that enter production, the greater the local supply, the bigger the impact on costs.”
Indeed, Europe has struggled in its wind energy development over the past few years, installing only 16GW of new wind in 2022 when it needs an average of 31GW per year to meet its 2030 targets. Holsten believes that many European nations can learn from the UK in terms of the goals it has set for itself for offshore wind capacity. However, he notes that the UK also has room for improvement, particularly when it comes to its government and other relevant authorities speeding up the various processes and permitting at play.
Similarly, it’s also worth noting that wind power – whether offshore or onshore – is not a constant source of energy, and fluctuations in generation depending on wind levels are an inherent aspect of this energy source. This can present problems for the grid – not only when wind levels are too low, but also when they’re too high. Between October 2022 and January 2023, for example, the UK was unable to store more than 1.35TWh of wind energy during peak conditions – enough to power some 1.2 million homes – according to Ofgem estimates.
To solve this issue, the UK and Europe more broadly will need to invest in long-term energy storage solutions, which can come in several different forms. “Battery storage and battery technology is developing very quickly as we speak – that’s going to be one part of solving the storage issue,” notes Holsten. “Hydrogen is another.”
As he notes, Europe will have to take significant steps towards developing energy storage in parallel with its offshore wind capacity to meet its energy targets. “We first have to make sure that we have a sufficient amount of energy for our housing and our industries and so on – and at a reasonable cost,” he adds. “But when you start to see excess capacity coming from offshore wind that you can use for other purposes, storage will become a very important problem to solve.”
“I think we’ll see a mix – a hybrid generation. But if I look at offshore wind as one of the technologies that we will be using to provide secure and cheap power, that is in my opinion the fastest way to solve the problem.”
Revolution or evolution?
While Holsten is swift to note the challenges that households have faced since the start of the war in Ukraine in terms of electricity and heating bills – particularly in the first few weeks of the conflict, which saw energy prices peak as the Russian gas supply was cut off from the rest of Europe – he’s more optimistic about the current state of play.
The UK’s target for offshore wind energy capacity by 2030, up from 14GW in 2023.
UK Department of Energy & Climate Change
“I think now we are much closer to being back to normal. We have been able to tackle that problem very quickly, although the prices that households had to pay for electricity and heating bills a year ago no doubt felt like a very heavy burden,” he says. “But I think we’re already starting to see the impact of offshore wind capacity that [have] been installed, and there will be more installed up to 2026.”
Looking at the future impact of offshore wind power, Holsten is particularly struck by what he calls the “new constellations of collaborations between different market players”. Citing the Dogger Bank wind farm as an example, he notes that Equinor, SSE Renewables and Vårgrønn share a partnership on the project at a 40-40-20 respective split.
“We see these constellations coming,” Holsten adds, before noting that the success of such offshore wind partnerships depends on the ability to find investment to develop further projects, either from governments and authorities or from the private sector. To encourage such investment, governments and policymakers could streamline permitting processes and ensure subsidies and loans are more readily available for the sector. “We are in a new industrial revolution, almost, with the energy transition. Or rather, let’s call it an evolution – we must help that evolution develop as quickly as possible.”
Of course, only time will tell how quickly this revolution or evolution will take place. For the foreseeable future, however, offshore wind and other green energy sources will have to complement fossil fuels as we wean ourselves off them. The ongoing energy security problem that Europe has had to address in the wake of the Russian invasion of Ukraine will certainly incentivise greater investment in offshore wind and other green energy sources, but there still remains work to be done.
“I think we’ll see a mix – a hybrid generation,” says Holsten, regarding potential solutions to Europe’s energy security. “But if I look at offshore wind as one of the technologies that we will be using to provide secure and cheap power, that is in my opinion the fastest way to solve the problem. […] From a speed perspective, it’s the best option we have at the moment to help develop green power, improve energy security, provide a cheaper energy cost to our society and also help with the decarbonisation problem.”