Research Summary
The report discusses the challenges facing the offshore wind industry, particularly the reliance on subsidies and the impact of rising costs. It highlights the recent offshore wind auction in Norway and the lack of interest from major companies, despite increased subsidies. The report also touches on the broader implications of these issues, including the potential impact on the global supply chain and inflation.
Key Takeaways
Offshore Wind Industry’s Dependence on Subsidies
- Reliance on Subsidies: The report emphasizes that the offshore wind industry heavily depends on subsidies to remain profitable. It suggests that without these subsidies, many businesses in the sector would struggle to maintain a viable business model.
- Increased Subsidies in Norway: The report highlights a recent offshore wind auction in Norway where subsidies were increased by 53% to attract bids. Despite this, only one company, Equinor, submitted a pre-qualification proposal, indicating a lack of interest from major companies.
Impact of Rising Costs and Inflation
- Cost Structure and Inflation: The report suggests that the current cost structure of offshore wind is unsustainable, particularly in the face of rising global supply chain costs and inflation. It raises questions about the extent to which subsidies can cushion these impacts.
- Statements from Industry Executives: The report cites Seagust CEO Simen Elvestad, who stated that even with a 53% increase in subsidies, the return on investment would be too low to meet their requirements, further highlighting the industry’s challenges.
Broader Implications for the Energy Transition
- Consequences of Globalization: The report discusses the impact of globalization on the energy transition, particularly the outsourcing of mining, refining, and processing to low-cost producers. This has resulted in a lack of investment in these areas in countries like the US, leading to potential supply chain vulnerabilities.
- Future Challenges: The report warns of increasing costs and the need for investment in domestic mining, refining, and processing production. It suggests that without such investment, the energy transition could face significant challenges, including higher commodity prices.
Actionable Insights
- Re-evaluate Business Models: Companies in the offshore wind industry may need to reassess their business models to reduce their dependence on subsidies and improve their resilience to rising costs and inflation.
- Invest in Domestic Production: Countries like the US could consider investing in domestic mining, refining, and processing production to reduce their reliance on foreign suppliers and strengthen their supply chains.
- Prepare for Higher Costs: Stakeholders in the energy transition should prepare for potentially higher commodity prices and the impact this could have on the cost of green energy projects.
