According to a recent survey and analysis conducted by Westwood Global Energy Group, the offshore wind industry could potentially face a significant increase in capital expenditure amounting to approximately $280 billion over the next ten years due to cost inflation.
The survey, which focused on industry players, revealed that nearly 75% of respondents have already started reevaluating the feasibility of their projects in light of recent cost escalations. Moreover, over 90% of participants stated that decision-making processes had been impeded as a result of these rising costs.
Westwood, a specialized energy market research and consultancy firm, explored the impact of inflation on global offshore wind development through their survey and subsequent market analysis. Peter Lloyd-Williams, Senior Commercial Wind Analyst at Westwood, acknowledged that inflation has posed significant challenges to the global economy and the offshore wind sector has not been immune to its effects. Both original equipment manufacturers (OEMs) and developers have encountered substantial losses, leading to project delays as profit margins shrink.
Lloyd-Williams further emphasized, “However, precise details on the extent of rising prices and their proximate causes have – until now – remained elusive.”
To bridge this information gap, Westwood's market study in the first half of 2023 focused on three key themes: the magnitude of cost inflation, the factors driving this inflation, and its potential consequences.
Out of the survey respondents, 32% reported experiencing a cost inflation range of 11-20% since 2021, while a smaller percentage noted increases surpassing 30%. Additionally, some participants highlighted that financing and commodity prices specifically had surged by over 40%.
Based on their internal analysis, Westwood estimates that the recent cost inflation could result in an additional capital expenditure of around $280 billion for the offshore wind industry, excluding China, in the coming decade.
Addressing the funding gap generated by this expenditure increase may involve higher offtake prices directly borne by consumers or indirectly supported through additional fiscal measures and tax incentives.
The offshore wind sector, which plays a vital role in the transition to renewable energy, now faces the challenge of navigating these inflated costs to ensure the continued growth and development of this important industry.
