This insight is excerpted from the executive summary of the second in a series of thematic reports produced by Westwood and available to WindLogix subscribers as part of our enhanced coverage of commercial and investment themes in the offshore wind sector.

Lease and learn

Offshore wind as an industry has existed for some 30 years in various shapes and forms, and leasing and other decision-making processes have evolved considerably over that time. In general, decision-making processes have grown more sophisticated in response to two factors: 1) an increase in commercial interest in developing offshore wind farms; and 2) an increase in the general economic and ecological footprint of offshore wind, bringing with it increased political scrutiny.

These pressures have led governments across the world to design a variety of different structures and considerations for offshore wind decision-making. One of the more recent developments is the increased emphasis on ‘wider benefit’ criteria. In Europe, these developments have taken place somewhat gradually over the past 15-20 years, while in more youthful markets, regulators are grappling with the challenges of establishing leasing systems that are effective, sophisticated, and serve a variety of stakeholders in a much shorter time span. This can pose challenges for market participants.

MATURITY OF OFFSHORE WIND MARKET VS EMPHASIS ON ‘WIDER BENEFIT’
SOURCE: WESTWOOD WINDLOGIX

The great and the good

Westwood has divided the ‘wider benefit’ element of offshore wind decision-making into several segments that address local investment, technological development and environmental considerations. Such requirements are primarily observed in offshore wind leasing assessment criteria (as this is where governments most often bring their rule making power to bear) but can also be incorporated into subsidy application systems and elsewhere.

The four aspects of ‘wider benefit’ identified are:

• Environmental / Ecological Benefits – Above and beyond usual industry commitments to best practice in construction, operation and decommissioning.
• Technological Benefits – Inclusion of a promising technology that is not yet economic by itself but whose development would benefit from inclusion in a commercial project, including technologies that enhance grid flexibility and integration.
• Supply Chain Benefits – Primarily focused on developing and supporting local industry, particularly with regard to skilled and manufacturing roles.
• Other Benefits – Touch on a range of potential societal initiatives, such as the establishment of facilities for use by the local community.

All for one and one for all

The inclusion of ‘wider benefit’ criteria in offshore wind decision-making presents both opportunities and challenges for industry stakeholders. Supply chain stakeholders have often been amongst the most prominent advocates of these policies, in the belief that they will provide them with some competitive advantage in the market (especially European turbine OEMs, which have struggled in recent years).

Developers in particular face a double-edged sword from ‘wider benefit’ criteria. The increasing complexity of decision-making procedures increases the burden on bidding teams, more so as these requirements proliferate into multiple jurisdictions. On the other hand, the more diversified the scoring criteria in a bidding process, the greater the number of opportunities for a developer to differentiate itself, particularly if these criteria play a decisive role in bid scoring.

Opportunities and challenges are also apparent for supply chain stakeholders. Major European OEMs may, for instance, see the rise of local supply chain development provisions in European tenders as supportive of their market position as they face competition from Asian OEMs looking to expand into Europe. At the same time, the proliferation of local content criteria across the world may limit opportunities for suppliers looking to expand abroad.

So, the rise of ‘wider benefit’ criteria in government decision-making raises a number of questions for the offshore wind industry. Will developers adapt investment strategies to focus on specific regions or technologies where they can maximise their ‘wider benefit’? How will already challenged supply chains cope with the introduction of new requirements? Will investment in onshore facilities be affected, particularly in the Asia Pacific region, where many countries have pitched themselves as potential regional supply hubs?

Peter Lloyd-Williams, Senior Commercial Analyst – Offshore Wind
plloydwilliams@westwoodenergy.com