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As offshore wind farms expand, potential turbine installer shortage comes under spotlight

17 February 2022 Max Tingyao Lin

While the offshore wind power sector is set to attract heavy investment amid decarbonization efforts across the globe, one crucial support sector is showing strain: wind turbine installation vessels (WTIV).

With wind turbines getting bigger and moving away from the shorelines, many industry experts have warned of a potential vessel shortage because the existing fleet cannot meet all requirements.

In its latest sector outlook published in December, IHS Markit's Costs and Energy team estimated that at least 21 new WTIVs will be delivered between this year and 2025.

But the fleet available to do the required work will only grow from 38 units to 44 units in the same period, as some vessels are too small to handle forecast turbine hub heights and will be redeployed to other support sectors like geotechnical work.

Looking at the fleet's hook heights, Sophie Dear, a senior research assistant at IHS Markit, said only a handful of newbuilds and converted ships due for delivery between 2022 and 2026 appear capable of handling larger turbines.

"[And] vessels will require larger free-deck areas to transport turbine and foundations components," Dear added. "The water depths of wind farms that are in deeper waters could also become a challenge."

Major expansion

The Global Wind Energy Council expects 235 GW of new offshore wind capacity will be added between 2021 and 2030. This will bring the total capacity to 270 GW before this decade ends.

According to the Brussels-based industry group's forecast, new annual installations are to increase from 6.1 GW in 2020 to 23.1 GW in 2025 and, potentially, 40 GW in 2030.

To gain economies of scale and operational efficiency, wind project developers have been shifting to larger turbines in deeper waters.

Consultancy Rystad Energy said the average offshore turbine size globally has risen to the current level of 6.5 MW from 3 MW in 2010 (when China is excluded). Turbines larger than 8 MW are expected to account for 53% of total annual installations by 2030, compared with 3% in 2010-2021, according to Rystad.

In the Chinese market, where developers focused on shallow-water installations and faced less cost pressure earlier, most turbines are expected to measure between 6 MW and 8 MW this decade.

Excluding China, Rystad expects global WTIV demand to reach 79 vessels on an annual basis by 2030. Of them, 62 will need to be capable of installing turbines larger than 9 MW. This assessment does not consider non-operational days.

"From the middle of this decade, we will see a significant growth in the turbine size," said Mikkel Gleerup, CEO of Oslo-listed WTIV owner Cadeler.

"A big part of the existing fleet will have to withdraw from the market [as they cannot meet operational requirements]," he told Net-Zero Business Daily.

Jens Egenberg, an offshore renewables analyst at London-based shipbroker Clarksons, said the existing fleet will become less and less relevant when 15-MW turbines start to be installed en-masse.

IHS Markit estimates WTIVs installed with cranes with a minimum lifting capacity of 1,500 tonnes are needed for 14-MW turbines or larger. Most WTIVs in operation have a lift capacity of 1,000-1,500 tonnes.

Pros and cons

To meet future requirements, WTIV owners can either order new ships or retrofit their existing vessels, or both. Each route has its own advantages and disadvantages.

Industry estimates suggest a crane upgrade would cost $50 million to $60 million and last for some months. "This is lower investment compared to placing a newbuilding order," Dear said.

But few owners are expected to have this option. "[Only] five to six of the existing units will be upgraded in order to extend lifetime," Egenberg said. "In most cases, it's not possible to due to vessel size and general dimensioning like length, crane overturning moment, hook height, and variable deck load."

On the other hand, building a high-specification WTIV costs $300 million to $500 million, and the construction period last for three to four years.

James Doyle, senior financial analyst at New York-listed WTIV owner Eneti, said shipowners can build vessels with greater crane capacity and larger deck area, which can take more turbines per trip. This would significantly improve operating efficiency and reduce overall project costs, he added.

Gleerup said: "The benefit of ordering new assets is that you can basically tailor and make them to what you want them to perform… That will give you an asset that is the best fit possible to the industry."

However, there are only a limited number of shipbuilders in Asia that can offer cost-competitive newbuilding contracts, and construction delays are not uncommon.

"Not a lot of yards can do this [build WTIVs]. The yard selection process is really important," Gleerup said.

For the highly fragmented shipping industry that is full of small- and mid-sized companies, building new WTIVs might not be financially feasible at all times.

"WTIVs are expensive assets and require significant equity and debt financing, both of which can be difficult to source," said Doyle, whose company has two units under construction at South Korea's Daewoo Shipbuilding & Marine Engineering.

That said, experts believe vessel owners, investors, and shipbuilders will continue to expand in the WTIV sector, with healthy market prospects for much of this decade and likely beyond.

"We expect both financing and yard capacity to be sufficient in the long run," said Egenberg, though saying there might be temporary vessel shortages in 2024-2026 amid strong supply-demand fundamentals.

According to IHS Markit's Costs and Energy team, the WTIV's utilization rate—an indicator of market strength—will pick up after 2024 following a dip in 2022-2024, which results from lower contracting activity in 2020 and large newbuilding deliveries.

Complex regulatory landscape

Analysts caution that a global supply-demand forecast may not reflect the full picture of WTIV market, where some emerging markets have local content requirements for promoting local industry development.

These affect the supply and availability of vessels to some regions, according to Dear. For example, WTIVs operating in Japan need to be majority-owned by a Japanese company and sail under the Japanese flag.

Taiwan, which has been open to foreign WTIVs in general, is seeking to have more Taiwan-flagged, Taiwanese-built, or Taiwanese-owned vessels in its offshore projects from 2026.

While local content requirements could potentially push up operating expenses, Gleerup believes in their value to the industry as a whole

"We need to show that we are bringing something to the table… The [offshore wind] projects are also very much a function of going hand in hand with local partners and should add value to the local supply chains," Gleerup said.

But some experts, including Dear and Egenberg, have expressed worries over whether local requirements will lead to slow expansion of offshore wind farms in the US.

In March 2021, President Joe Biden announced plans to expand offshore wind capacity by 1,000 fold to 30 GW by 2030.

But the Jones Act, which requires goods shipped between US ports to be transported on ships that are built, owned, and operated by US citizens or permanent residents, applies to offshore wind facilities including WTIVs. No such WTIVs exist.

Dominion Energy placed the order for the first Jones Act-compliant WTIV, Charybdis, at Keppel AmFELS's shipyard in Texas. The vessel, whose total cost is estimated to be around $500 million, is scheduled to enter the US market by October 2023.

In May 2021, Eneti said it was in talks with several American yards to build a WTIV. But the plan was dropped earlier this month. The company's CEO Emanuele Lauro said Eneti will focus on its existing fleet for now.

When constructing the 30-MW wind farm off Block Island in the northeast US, Deepwater Wind (acquired by Ørsted in 2018) had to use Jones Act-compliant feeder vessels to carry components to the site, where a foreign WTIV finished installations. Vineyard Wind, which broke ground on an 800-MW project off Massachusetts last year, plans to do the same.

But it remains unknown whether this can be the US offshore industry's long-term solution. If more project developers follow what Deepwater Wind and Vineyard Wind do, WTIVs could be drawn to the US from other markets, according to Doyle.

"It will actually create additional demand for international flagged vessels," he said.

Posted 17 February 2022 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability

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