Offshore Electricity Infrastructure in Europe - European Wind Energy ...

Towards an Offshore Grid – Further considerations
5.1.3 Market challenges and
financing
Economic barriers, due to market frictions or failures
and unfavourable financing conditions, hinder the installation
of an offshore grid in many ways.
Financing the large investments
As can be seen from the results of this report, the
establishment of an offshore grid is going to be expensive.
This is largely due to the large amounts of
equipment required, but also to the high cost of both
the equipment costs and the installation costs of this
equipment in an offshore environment.
The overall (calculated) benefits of an international offshore
grid from the system perspective cannot directly
be returned to an investor. Still these huge investments
are needed. Therefore an indication of long-term commitment
and reliability in national offshore policies is
needed to attract investors. Otherwise, investments
in onshore and offshore grid infrastructure will not be
made in sufficient magnitude. In addition, it may be the
case that publicly funded securities are needed to give
a break-through for pioneering offshore investments.
At the aggregate level, raising enough funds for an
offshore grid is assessed by the OffshoreGrid consortium
as a large challenge. The commission started to
tackle the problem in the energy infrastructure package
[23].
Capital attraction
The offshore industry faces ongoing up-front financing
problems for offshore wind energy and grid projects
due to the high risks that come along with it. Currently,
the finance industry spreads its risk conservatively
due to instability of credit markets and asks for high
risk premiums.
Fundraising for offshore projects is additionally hindered
by the long-term uncertainty over offshore wind
farm development and the available locations for these
projects. The risks of stranded investments remain
comparatively high. Therefore, the barrier of capital
attraction is assessed as large by the OffshoreGrid
consortium.
5.1.4 Supply chain
There are relatively few manufacturers of some of
the key elements that will be required to create an
offshore grid, with correspondingly few manufacturing
facilities and hence elevated demand for few manufacturing
slots. An expected increase in demand for
these technologies both in Northern Europe and globally
means that prices will remain high and delivery
times to projects constrained, unless the manufacturers
have sufficient confidence in the market to justify
investment to expand their manufacturing base. This
conundrum remains one of the key barriers to not only
reducing the cost of individual components, but also
to achieving an offshore grid in the North and Baltic
Seas.
Supply bottlenecks
Offshore wind energy is considered a cornerstone of
European energy policy, however it still needs development
and experience is needed in order to reduce risk
estimations for investments. The envisaged 150 GW
of installed wind capacity and the necessary transmission
capacity needed to realise the proposed offshore
grid design in 2030 is enormous, and the demand for
equipment and trained personnel along the supply
chain will be huge.
Currently it is noticed that there are supply chain bottlenecks
for the main components of HVDC technology
which can slow down the development of offshore
wind farm connections. For singular cases it might be
necessary to fall back upon AC connection concepts
until the supply chain is fully able to deliver the requested
equipment on time.
Due to today’s uncertainties, some supply chain
manufacturers are hesitant to carry out the needed investments
to meet future demand. Therefore there is
a risk that supply chain bottlenecks endanger continuous
and steady development towards the envisaged
efficient scenarios in 2030.
86 OffshoreGrid – Final Report