Offshore wind industry faces economic difficulties – Economic issues

In the past decade, the solar and wind industries (especially offshore wind) have flourished and dominated the sustainable energy sector in the first phase of the energy transition. But recently, there has been increasing criticism of the role that these two sectors can play.
Given that the demand for energy increases year on year, not to mention the difficulty in these two industries to generate electricity continuously without reduction or interruption, has led to the reliance on oil or gas as a supplementary fuel to support the continuity of these two industries.
The offshore wind industry has also seen recent economic challenges that have begun to hamper the industry’s rapid growth, expansion, and potential, especially since it became a major source of electricity generation, particularly in large coastal regions of India, the United States, and European countries.
Economic difficulties are beginning to hinder or slow the expansion of the wind energy industry. In order to build this modern industry, construction costs have increased. The budgets of some projects in 2023 have increased by about 40% to 60% compared to the expected budgets in 2021, which has led to the cancellation of some projects in order to maintain the profits of the companies involved.
A recent study by consulting firm McKinsey shows that the rapid, high development and expansion of the industry that began around 2010 has begun to decline and slow down. The optimistic policies that have accompanied the industry since 2010 have also begun to gradually weaken and disappear due to rising costs and high price differences between the construction of this industry and other sustainable energy industries.
When the industry emerged more than two decades ago, governments took it very seriously due to its low emissions and optimism about its potential and future. This interest continued over the past decade and into the early 2000s.
The McKinsey study, “Offshore wind: Strategies for troubled times,” published July 12, shows that the wind industry is in a different situation today than it was at the start of the last decade.
The success is due to the offshore wind industry’s ability to generate electricity at competitive prices and with low emissions, which is helping countries using this wind energy to achieve their goal of zero emissions by mid-century.
However, the McKinsey study added that current economic conditions have begun to put pressure on the industry, which has begun to negatively impact its expansion rate and profits. Recently, shareholder meetings of related companies have witnessed pressure and questioning on the future of the industry and related companies as project costs have increased by about 40% to 60% from initial estimates of projects at the beginning of this century.
In 2023, the global offshore wind industry was awarded contracts to build plants that would generate 400 megawatts of electricity by 2030.
It is noteworthy that the global wind energy potential in operation has increased from 3 MW in 2010 to 66 MW in 2023 (a capacity sufficient to meet the electricity needs of Spain, for example). The industry was initially helped by strong competition among companies, low interest rates and available technology.
The question now, according to McKinsey, is: Can the offshore wind industry recapture the broad and rapid growth it experienced in its first decade? Is it possible to reduce the cost of building new projects to the point where they can compete on price with other renewable energy sources?

Walid Kaduri
Economic expert from Iraq
London Middle East