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Challenges await Scotland’s world-beating floating wind leases

19 January 2022 Cristina Brooks

A large swath of seabed has been reserved for offshore wind farms in Scotland, raising the capacity bar for both fixed and floating wind.

Scotland's land manager this week offered 17 projects the right to reserve specific areas of seabed for a combined £699.2 million ($949.78 million).

Altogether, the projects have a capacity of 24.8 GW, three times the 8 GW capacity offered by the UK in February at the UK Crown Estate seabed leasing round. The capacity exceeds Scotland's 2020 target to build 11 GW of offshore wind in the next decade.

In July, Crown Estate Scotland opened bids on the round, attracting developers from abroad with Scotland's strong wind resources.

The capacity offered is Europe's largest for any single offshore wind tender or lease round. "It's also the largest space awarded for floating offshore wind. So, this is a breakthrough for floating offshore wind," said IHS Markit Senior Research Analyst Diego Ortiz Garcia.

But challenges lie ahead for the floating wind projects due to the high cost and limited supply chain to build the emerging technology involved. This is especially true as subsidies have not been confirmed, according to Garcia.

"The result of this tender is quite impressive in terms of volume and the number of floating projects, but there are no [subsidy] contracts or operation dates," said Garcia.

"Now developers have to actually develop the projects. They still must go through some permitting and find the financing to make a final investment decision," he added.

High floating wind project construction costs contrast with currently plunging costs to build fixed-bottom offshore wind projects. "The floating wind projects will definitely need some kind of support, but the fixed projects are today quite competitive in terms of Levelized Cost of Energy, and can potentially go without a subsidy," Garcia said.

IHS Markit forecasts that costs for floating wind projects, which currently cost 82% more than their fixed counterparts, will decrease to 50% of those costs by 2030.

Developers

The outcome of the round sees Danish offshore wind giant Ørsted embark on its first floating wind farm in a joint venture with Italy's Falck Renewables and Spanish developer BlueFloat Energy.

Meanwhile, joint ventures of Spanish utility Iberdrola plan to build a considerable amount, totalling 7 GW of floating and fixed capacity.

One Iberdrola project, set to be built by Shell and Iberdrola's Scotland-based subsidiary ScottishPower Renewables, is the largest floating wind farm (the 3-GW MarramWind) of the group. Shell New Energies also plans a separate 2-GW floating wind farm.

In addition, the Spanish utility is set to build a 2-GW fixed wind farm and a second 2-GW floating wind farm, giving its joint ventures rights to build a total of 7 GW of capacity.

Iberdrola said the deal triples ScottishPower's existing offshore wind pipeline from 3.1 GW to 10.1 GW, significantly boosting the company's position in the UK's offshore wind market. Iberdrola has over 35 GW of operational offshore wind capacity worldwide.

The floating wind joint ventures come on the back of its February announcement of plans to seek EU funding to build a floating offshore wind farm and offshore hub in Spain.

Another notable project, planned by the Offshore Wind Power consortium that includes French major TotalEnergies, is slated to produce green hydrogen.

Other developers, including German utility Vattenfall, Belgian offshore developer DEME, German group BayWa, Canadian developer Northland Power, and Norwegian developer Magnora also won rights to build floating wind farms with capacities ranging from 495 MW (of floating mixed with fixed) to 2.9 GW.

The applicants paying the highest fees to reserve seabed were BP Alternative Energy Investments, Shell New Energies, and a venture of the utility Scottish and Southern Energy. They will each will pay about £86 million ($116.68 million).

Floating wind on the rise

All the proposed floating wind projects have a larger capacity than any floating wind projects that exist today.

The largest operational floating project is the 50-MW facility Kincardine off Aberdeenshire in Scotland, which launched operations in October, while the world's first floating offshore wind farm, Equinor's 30-MW Hywind Scotland, did in 2017.

Commenting on the lease round, trade body WindEurope predicted that a third of Europe's offshore wind could be floating by 2050, particularly in the deeper waters of the Atlantic, the Mediterranean, the Celtic Sea, the Black Sea, and the Norwegian Sea, where fixed offshore wind is not "economically attractive."

In September, France tendered for a smaller floating offshore wind project, the first of its three planned tenders. Neighboring Spain published a roadmap to get on the path towards issuing its first offshore wind permits, and will likewise focus on floating wind.

Meanwhile, Greece, Italy, and Spain are paving the way for large-scale floating offshore wind auctions. Greece plans an auction early this year, and Italy's Ministry of Ecological Transition accepted expressions of interest in November.

Net-zero plans

Scotland's First Minister Nicola Sturgeon said the round put Scotland "at the forefront of the global development of offshore wind" while speeding the country's transition to net-zero emissions by 2045.

Scotland is not currently in the lead. China surpassed the wider UK's installed offshore wind power capacity in the summer. Last year China led the world in new installations for the third year in a row, according to the Global Offshore Wind Report 2021.

Sturgeon noted the lease round would bring a investment to the economy, estimated to be at least £1 billion for every gigawatt of offshore wind power.

The round will also provide strategic energy transition opportunities for people currently working in Scotland's oil and gas sector, she said.

Likewise, majors such as TotalEnergies and Shell have made strategic moves. Shell's bids relied on its deepwater UK oil and gas permitting experience, which its executives said would be useful for deepwater floating wind projects.

Shell is pursuing a net-zero plan, targeting, for example, more retail electricity and hydrogen sales. "Renewable electricity will play an increasingly important role in our customer-focused strategy, as we provide more low-carbon products and services customers need for their own journey to net zero," said Shell Integrated Gas and Renewables and Energy Solutions Director Wael Sawan.

Posted 19 January 2022 by Cristina Brooks, Senior Journalist, Climate and Sustainability

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