2022, a year of breakthroughs for the floating offshore industry
The great potential of floating offshore wind has been recognised for a few years, but a wave of large-scale projects is now about to transform the industry. Some challenges remain before hundreds of turbines and floaters are deployed at sea to generate green electricity, including the need for billions of equity and debt to be invested. Natixis is committed to actively support the growth of the sector.
Now is the time to accelerate the energetic transition: massive and rapid steps are needed in the decarbonisation of energy if we want to maintain any chance of limiting climate change to 1.5C. Floating offshore wind has a major role to play as it enables to access the best wind resources in sea areas that would not otherwise be accessible because of the water deepness. While the first pilot farms have been in operation for over 5 years, it took some time for the industry to really pick up and in this context 2022 represents a turning point.
First, the recent award by the Crown Estate Scotland of 8,600 km2 of sea space that could host 25 GW of offshore wind is great news. 15 GW will be dedicated to floating offshore wind and should be operational by the mid-2030s, transforming the scale of the industry. In addition, this year will see the results of the world first auction for a large scale floating offshore farm of 250MW in Brittany, France.
2022 will also see the commissioning of the fourth operating floating offshore wind farm with the 88 MW Hywind Tampen project in Norway. The cumulated floating offshore capacity will reach 193 MW. The first projects have permitted to demonstrate the reliability and relevance of the concept as very high capacity factors have been reached. The LCOE of the first projects remains high (above EUR150/ MWh, more or less the level of the first fixed offshore projects) due in particular to the small size of the projects (from 25MW for Windfloat Portugal to 50MW for Kincardine) and the lack of established supply chain. Deploying projects at scale should help solve both issues and ultimately the LCOE of floating offshore should reach parity with fixed offshore.
A few challenges remain however on the road towards full scale deployment, that will require commitment from governments, corporates and the financial world.
Governments need to organise technology specific auctions until the LCOE of floating offshore reaches parity with fixed offshore. Progress are being made towards dedicated auctions in Greece, Italy, Spain. They also need to support research on the “missing bricks” so that mature solutions are developed for floating grid connections (floating substations, dynamic cables or offshore electrolysis and hydrogen transportation in particular). Finally, they need to back investment in the supporting infrastructure such as ports and facilitate the establishment of the supply chain.
The Scot wind results and the pre-selection for the French auction demonstrate the willingness of corporates and of some infrastructure funds to invest and develop projects in the sector. Oil & gas majors are very present given their existing skills in offshore engineering and their need to progressively green the billion they invest every year in the energy sector. They typically invest in consortium. Natixis is entertaining a dialogue with all the main players in this sector, i.e. developers, infrafunds, large corporates and can advise on equity investment and divestment.
Lenders will also need to play their part as access to debt will be essential to meet the massive funding needs of the industry and bring down capital costs. In this respect, it will be important that equity investors find some reliable partners – institutions that are capable not only of funding but also supporting the emergence of financing structures adapted to the specificities of the sector.
Natixis CIB has played a key role in this respect, having structured the first non-recourse financing for a floating offshore wind farm as Mandated Lead Arranger and Documentation Bank. Based on our experience and funding capacities enhanced by our debt platform, we are deeply committed to supporting the new projects coming ahead, in line with our strategy to support the floating offshore wind sector and the green transition.
Industry Banker Power & Renewables Infrastructure
Infrastructure & Energy Finance EMEA