OWA Industry report | Menon Economics: What needs to be done to develop floating wind power?

The report, produced this year by Menon Economics, delves into the key role of floating wind power in Europe's energy transition and proposes several core tasks needed to accelerate the sector's development, as well as analyzing current challenges and potential s

olutions.

Menon Economics is one of Europe's leading economic analysis institutions, known for its research on industrial organization, competitive economics, strategic planning and financial analysis. Written by the company's senior team of experts, the report is based on a deep research foundation and is credible and authoritative. Here's a closer look at the report.

Headline of Menon Economics report

The report points out that due to the limitations of traditional bottom-fixed wind power in water depth and geological conditions, floating wind power will become an indispensable alternative to meeting the development goals of offshore wind power in European countries. In 2020, the European Commission published its Offshore Renewable Energy Strategy, which emphasises that the offshore energy value chain must be significantly strengthened if the EU's wind energy targets are to be met. By 2030, the EU plans to install around 111 gigawatts of offshore renewable capacity across five sea basins, a significant increase from the previous target of 60 gigawatts.

Figure 1 shows the distribution of the market potential for floating wind power in Europe by 2035. The darker the area, the greater the potential for floating wind power. It can be seen that the Northern Europe region (especially the North Sea, Baltic Sea and Atlantic coast) is considered to be the core development area of floating wind power in the future.

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1. Accelerate the development of floating wind power:

The report provides a detailed analysis of the differences in development paths between floating wind power and bottom-fixed wind power. Although floating wind power is mainly in the experimental stage, floating wind farms have been built in various European countries on a small scale, such as Scotland's Hywind project, which has only 30 megawatts of installed capacity. However, the next few years will be a critical period for the transition of floating wind power from the experimental stage to large-scale commercialization. The report highlights that Europe's climate targets will face serious challenges if floating wind does not grow faster than the historical trajectory of bottom-fixed wind.

Figure 2 shows the development path of floating wind power in Europe under different scenarios. It can be seen that under the accelerated development scenario, floating wind power will usher in significant growth after 2035.

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2. Building a specialized supply chain:

Current floating wind projects still rely on supply chains from the oil and gas industry that are not optimized for floating wind. The cost structure of floating wind shows that floating foundations account for 39% of total project capex, much higher than bottom-fixed technologies. Therefore, in order to achieve cost reduction at scale, floating wind power needs to develop a specialized supply chain based on industrial production processes.

Figure 3 compares the capital expenditure (CAPEX) difference between floating and bottom stationary wind power. As you can see, floating wind power costs much more in terms of infrastructure and installation than bottom-fixed technologies, which highlights the importance of specialized supply chains.

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3. Achieve sufficient project scale early：

The scale of floating wind projects not only helps to reduce costs, but also enables rapid development of technology and infrastructure. The report analyzes the impact of scale on investment decisions and supply chain development, suggesting that under current market conditions, sufficient capital investment and technological innovation can only be ensured by scaling up projects.

The report delves into three key challenges in the expansion of floating wind power:

Cost inflation: Floating wind power projects have high financial risks due to immature technology, which leads to high early financing costs, which in turn increases the overall cost of the project.

Reduced competition: Projects with higher financial risk may have difficulty obtaining debt financing, which limits the competitiveness of participants, especially for those developers with less financial flexibility.

Lack of innovation: High financial risk may encourage investors to choose safer, less innovative technologies, resulting in the suppression of potential technological innovation opportunities, thereby affecting long-term cost reduction and market development.

Figure 4 shows how the financial risk of project development changes as the supply chain matures. As can be seen from the figure, when the supply chain is immature, the financial risk of the project in the early stage is significantly higher than the risk level when the supply chain is mature.

To address these challenges, the report details the Norwegian government's two-stage auction scheme for floating wind projects. Unlike competitive auctions, which are common in other European countries, Norway's scheme allocates development areas through an upfront qualitative assessment, giving developers ample time to develop the technology and supply chain. The core of the scheme is that even if developers fail to secure state support in the second phase of the auction, they still retain the rights to continue developing the area, which provides them with more security of project value and reduces the financial risk of the early development stage.

The report concludes that the development of floating wind technology is critical to meeting Europe's climate goals, but the sector currently faces multiple challenges such as technological immaturity, inadequate supply chains and high financial risks. Therefore, adaptive policy support mechanisms, such as Norway's two-stage auction scheme, must be adopted to accelerate the technology maturity and market application of floating wind power. It is only through the effective implementation of these mechanisms that floating wind can play a key role in Europe's energy transition.